DUBAI, 23 September 2003 — Argentina yesterday asked its private creditors to write off 75 percent of the $94.3 billion of debt owed to them by Buenos Aires, Economy Minister Roberto Lavagna said here.
But the proposals were immediately condemned by several investors as disappointing, indicating that tough negotiations lie ahead before any agreement is reached. The sum represents about 53 percent of the country’s total debt burden, Lavagna added.
“All the creditors will be treated in an equal manner. The Argentinian government guarantees this,” he told a news conference on the sidelines of the International Monetary Fund and World Bank meetings in Dubai.
Guillermo Nielsen, Argentine finance director and chief debt negotiator, said, “A menu of options will be designed with 75 percent in nominal stock reduction overall.”
Nielsen added that Argentina will not be compensating investors for any interest revenue lost from the time of default until a deal is reached on the restructured bonds. “Zero,” he said amid the audible discomfort of major investors in the conference room.
Alexander Vergus, asset manager at the Japanese bank Nomura, said as he left the presentation: “It makes no sense, we need to clarify all that. “What’s important, is this 75 percent reduction ... For all the Japanese creditors I represent, that’s really very bad.”
Under Lavagna’s plan to creditors, Buenos Aires has also promised to lower its public debt to below 50 percent of gross domestic product (GDP) in 2007.
Lavagna said the bonds covered under the rescheduling package would be those issued before Dec. 31, 2001. The proposals envisage the emission of three types of new bonds to replace the old versions.
The new bonds will either have a lower face value (discount bonds) or a longer maturity period with the same face value as before (par bonds). The other bond would be linked to the performance of the country’s GDP.
The new bonds can be denominated in a different currency than the one in which they were issued, and they can also be placed under a different national law, according to the preferences of the creditors. Argentina hopes to cut down the currencies and governing laws to four.
Lavagna’s plan has already been presented to representatives from the tens of thousands of private creditors who are owed money by Buenos Aires, which declared a moratorium on debt payments to its private lenders in December 2001. The meetings and negotiations between the two sides to thrash out a final agreement should start in October.
Vincenzo Farulla, an official with Credito Cooperativa in Rome and part of the Italian committee that will be negotiating with the Argentines described the proposals as “disappointing”. “We are going to have a lot of problems,” he said. But a chief economist for one of Latin America’s largest banks, who spoke on condition of anonymity, expressed relative optimism:
“A huge number of retail investors makes the process very difficult ... I am not happy, but encouraged. Not happy because they are cutting the stock of debt by 75 percent, but this represents the realistic payment capacity of the country,” he said.
Lavagna’s proposals come after the IMF’s executive board Saturday formally approved a three-year $12.5 billion standby credit package for Argentina, which paved the way for a rescheduling of the private debt.