Thursday, December 18th-0.1°C

Argentina plans debt swap with some creditors, seeking to sidestep US order on defaulted bonds

BUENOS AIRES, Argentina - The Argentine government plans to sidestep a U.S. court order that it repay defaulted bonds in full, saying creditors who accepted debt restructurings will be offered new bonds to be paid in Argentina rather than the United States.

Economy Minister Axel Kicillof said Tuesday that the government is "starting to take steps to begin a debt swap" to service the country's restructured debt in "Argentina and under Argentine law."

The announcement came a day after the U.S. Supreme Court refused to intervene in a U.S. judge's order that would deny use of the U.S. financial system to Argentina unless it first pays off holders of defaulted bonds who didn't accept the earlier debt swaps. Argentina has objected to paying the "holdout" creditors.

The high court also ruled that the holdout bondholders who won the legal case could use U.S. courts to force Argentina to reveal where it owns property around the world.

The arrangement outlined by Kicillof would involve investors who previously agreed to swap government bonds that were defaulted on in Argentina's 2001 economic collapse for new, less valuable bonds that the government has being paying on since 2005. Those new bonds are governed by U.S. law.

If Argentina were forced to pay off in full what the government calls "vulture funds," the country could become an easy prey and would ultimately be "pushed into a default," Kicillof said.

"Some say we should negotiate with vultures, but the vultures are vultures because they don't negotiate," he said. "If they were in conditions to negotiate, they would have done it like the rest of the bondholders."

President Cristina Fernandez criticized the U.S. judge's ruling requiring a $1.5 billion payment, of full value plus interest, to investors who didn't accept the previous debt restructurings.

In a national address Monday night, she defiantly vowed not to submit to "extortion" by NML Capital and other investors that refused to trade in defaulted bonds. But she said her government "will not default on those who believed in Argentina" by accepting the debt swaps.

While conceding the Supreme Court's decision was unfavourable, Kicillof kept the possibility of negotiation open, but said Argentina was not willing to "do anything, under any condition, to accept exorbitant conditions" to resolve the debt fight.

The court's decision was a blow to Argentina's aspirations to return to global credit markets after being shut out since its 2001-02 economic crisis and default.

Fernandez and her late husband and predecessor as president, Nestor Kirchner, negotiated or paid off most of the country's defaulted debt. Argentina has paid its debt with the International Monetary Fund, and in May it agreed with the Paris Club of creditor nations on a plan to resolve $9.7 billion in debts that have gone unpaid since the economic collapse.

Bowing to the U.S. ruling would force Fernandez to betray a core value that she and her late husband promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.

The president's hard line on the U.S. ruling seemed to be a last effort to gain leverage ahead of a negotiated solution that both sides say they want.

With only days before a huge debt payment ordered by the court is due, many analysts and politicians say negotiations with the holdout investors are needed to avoid a new default and a blow to the country's reputation.

"Another default can be quite costly economically and financially," Alberto Ramos, Latin America economist for Goldman Sachs, said. "And the uncertainty and volatility that would generate would put added pressure on an already struggling economy, on the exchange rate, and therefore also on reserves."

Standard & Poor's Ratings Services on Tuesday lowered its long-term foreign currency rating on Argentina to "CCC-" from "CCC+." The ratings agency cited a higher risk of default on Argentina's foreign currency debt.

But Argentina's Merval stock index, which had plunged 10 per cent after Monday's court decision, rebounded Tuesday and closed up 3.75 per cent on hopes the government would announce a solution.

Daniel Kerner, an analyst at Eurasia Group, said the debt swap announced by Kicillof was probably meant to strengthen Argentina's position in negotiations. But Kerner said a new debt swap would have to be agreed on quickly, or Argentina would risk missing a June 30 deadline for making payments on the existing bonds and falling in to default.

Still, he cautioned in an email statement that while Argentina wants to negotiate, it should be recognized that "the government is willing to default and has limits as to how much they can concede."


Associated Press writers Almudena Calatrava in Buenos Aires and Luis Andres Henao in Santiago, Chile, contributed to this report.

The Canadian Press

Read more Business News

Recent Trending

Today's Market
S&P TSX14213.88+352.36
S&P CDNX659.00+16.65
S&P 5002012.89+40.15
CDN Dollar0.8602+0.0015
Natural Gas3.693-0.009

Okanagan Companies
Pacific Safety0.125+0.005
QHR Technologies Inc1.27+0.04
Anavex Life Sciences0.1659-0.0241
Metalex Ventures0.05-0.005
Russel Metals27.18+1.03
Copper Mountain Mining1.54+0.11
Colorado Resources0.105-0.005
ReliaBrand Inc0.0199+0.0065
Sunrise Resources Ltd0.055+0.005
Mission Ready Services0.22+0.02



2141865#54 4075 McClain Road
2 bedrooms 2 baths
more details
Click here to feature your property
Please wait... loading

Managing your sales team

Managing a sales team can be quite a challenge. Harnessing individual personality preferences and getting everyone focused on the same goals, moving at the same pace, and working in collaboration to d...

Working under the table

They say there are only two things that are certain in life: death and taxes. Not exactly an uplifting thought, but true nonetheless. Some people try to avoid paying tax by “working under the ta...

Housing prices to skyrocket?

As most of you know, this column was started with a focus on Okanagan real estate. Over time, more and more columnists started covering the real estate sphere and so it morphed in to a personal colum...



Member of BC Press Council