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Argentina mulls delay to $6.7bn debt repayment
Financial Times
October 11, 2008

By Jude Webber in Buenos Aires

Global financial upheaval has "clearly changed" Argentina's plans for a swift repayment of its Paris Club debts using central bank reserves, according to a senior government official.

Cristina Fern ndez, the president, last month made the surprise announcement that Argentina would pay off its $6.7bn ( 4.9bn, 3.9bn) debt to western creditor nations in a lump sum, debt on which it defaulted when it crashed to the world's -biggest sovereign default in 2001.

But with markets collapsing worldwide, analysts question the need to use precious reserves now to pay a debt that could be renegotiated. Argentina has $47bn in reserves but the central bank is husbanding them carefully as ammunition to stop the peso plunging into a painful devaluation.

Argentina had been hoping to wrap up the Paris Club deal this year, but the official said: "I think clearly the circumstances have changed . . . the Club understands that. These are sin-gular, exogenous circumstances that modify the -scenario."

He said: "The point is how rapidly we pay . . . I don't rule anything out."

Nevertheless, he stressed that there was no change either in the government's commitment to repay, or in its plans to make a new offer to holders of defaulted debt who rejected a restructuring in 2005.

Those so-called "holdouts" claim $29bn with interest, and Ms Fern ndez surprised markets again last month with the news that Barclays Capital, Citibank and Deutsche Bank had drafted a plan for a new offer that would restore Argentina to financial respectability.

Argentina has been excluded from international capital markets since the 2001 default and has relied on selling bonds to Venezuela under an agreement with Hugo Ch vez, the president. But that has proved increasingly costly and unreliable: Mr Ch vez bought a bond in August and swiftly offloaded it, causing panic that a fresh Argentine default was brewing.

Under the plan, the holdouts would swap defaulted debt for new bonds and put up fresh capital. That, plus the planned swap of Guaranteed Loans issued in 2001, would ease a $21bn debt servicing "hump" next year.

Preliminary work to prepare the offer would take a few months and then "we'll analyse market conditions", the official said.

Delays would make next year's debt servicing trickier. Argentina relies heavily on revenue from export tariffs on key commodities but plunging prices are proving a disincentive to exporters.

Argentina will have little option but to cut vast energy and transport subsidies, said Fausto Spotorno, an economist. But Ms Fern ndez will face temptation to spend to boost her unpopular government's chances in legislative elections next year.

But the official said there was plenty of time before the heaviest debt servicing became due in 2009. "This crisis won't last forever."

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