Argentina begins debt swap as social protests bubble anew
Bill Cormier, Associated Press, Buenos Aires, Argentina
Argentina's cash-strapped government embarked on the first phase of a planned swap of billions of dollar of debt on Monday, asking local creditors to accept losses in an effort to keep South America's second-largest economy solvent.
Moving to avoid default on US$132 billion in debt, Economy Minister Domingo Cavallo's plan initially calls for restructuring up to $60 billion of debt held by local creditors.
The start of the debt exchange came as social protests bubbled anew in Argentina.
Hundreds of jobless workers smarting from three years of recession threw up road blockades on key highways nationwide as unionists planned to march on the capital Tuesday to protest punishing austerity measures.
Ahead of the protest march, Cavallo said in televised comments that his budget-cutting plans would demand "great sacrifice" from Argentines in coming months.
He also said his debt swap was in the best interest of creditors at home and abroad.
Cavallo is asking lenders to exchange bonds bearing double- digit interest for new securities yielding 7 percent or less, hoping to chop away as much as $4 billion a year in debt servicing costs.
In return for accepting lower interest rates, lenders are expected to receive full repayment within three years.
Some credit rating agencies have warned such a plan is dangerously close to a default. But Cavallo insists the government will continue to honor its payments.
Outlining details of the swap to local business leaders, Cavallo acknowledged investors concerns about Argentina's ability to successfully pull off the swap without any repayment guarantees from international lending organizations.
"We are going to dispel those doubts," he vowed, speaking at the state-owned Banco de la Nacion in Buenos Aires. "The alternatives are far worse, not only for Argentines but also for our lenders."
Cavallo said the savings from a swap would be a big help toward deficit reduction. But he acknowledged Monday that Argentina would still fall $1.3 billion short of narrowing its budget gap for 2001.
Argentina had set a target deficit of $6.5 billion for the year, but Cavallo said $7.8 billion was more likely.
The target was a key commitment made by Argentina's government in order to free up billions of dollars in bailout loans from the International Monetary Fund.
President Fernando De la Rua said an IMF mission was to arrive next Monday to review the country's financial books. Some $9 billion remains available to Argentina as part of a previous IMF aid package. A $1.3 billion disbursement is still pending for December.
The IMF has backed Argentine efforts to restructure the debt after Cavallo lobbied IMF officials at a weekend meeting in Ottawa, Canada.
Claudio Loser, the IMF's director of Western Hemisphere affairs, said Argentina made no request for additional financial assistance, but did win moral support.
"It's a very difficult situation, we all know that," Loser said.