Argentina Launches Largest-ever Debt Repayment Plan

The South American country tries to renegotiate $103 billion in default since 2002. Buenos Aires offered to pay 25% of bonds' nominal value held by private creditors, during IMF's annual meeting in Dubai.

After closing a mid-term debt roll over deal with the International Monetary Fund for up to $21.9 billion, Argentina Monday begun negotiations in order to restructure its foreign debt with private holders. In a press conference, at Dubai's IMF Annual Conference, Argentine Secretary of Finance, Guillermo Nielses announced Buenos Aires is prepared to give holders of $95 billion of defaulted bonds new securities that would enable investors to recoup a quarter of their original investment.

Therefore, the government is pledging to repay bondholders less than half what Russia and Ecuador offered on defaulted debt. In fact, Argentina followed the same hard line that gave positive results while negotiating with the IMF: "We are not going to sign any agreement that could endanger our economical recovering", had said President Nestor Kirchner at that time.

In declarations to the press, previous to Dubai's summit, Argentine Minister of Economy, Roberto Lavagna, anticipated "long face in several languages", after Argentina would made the announcements. Lavagna referred to debt private holders, who are mainly Italians, Germans, Americans, French and Japanese.

Actually, the "long faces" advanced by Lavagna turned into opposition to the plan, as came out from holders' representatives comments. "It's an unacceptable proposal," said Mauro Sandri, an Italian lawyer who helped set up an Argentine creditors group in Rome, to Bloomberg. "It's penalizing bondholders".

"This is not a serious offer," said Christian Stracke, head of emerging market research at CreditSights, a New York debt- research company. "There is no way Argentina will avoid going to court with this offer", he told.

The offensive of these groups came earlier. Newsweek last edition said Argentina was a "financial pirate State", as does not meet its obligations. However, it is not the opinion of IMF and World Bank authorities, which said the country was handling the matter "seriously", as said they were "optimistic" about the outcomes of the negotiations.

Argentina's 25% first offer is expected to be modified, as long as talks continue. Local negotiators expect discussion would last for 12 months, as was extra-officially confirmed that the country may reduce cuts offered to 60%.

Lavagna explained that all creditors will be "equally treated" to discourage those holder willing to pay high commissions to financial consultants. The Argentine Minister of Economy, also admitted that the offer "does not fulfil expectations", as expressed that the solution has to be "realistic, possible to fulfil and definitive". 

Private holders also blamed on banks that placed Argentine sovereign bonds for being responsible of the fraud. They also extend anger to the IMF and the World Bank for being co-participants in the default. In fact, international banks as the Citibank, kept on offering Argentine bonds, as later as in September 2001, it means, only three months before Argentina announced payment suspension. By that time, everybody knew in the market that the collapse of country's finances was inevitable.

There's a case of an Argentine investor that had his money in New York, and was tempted in September 2001 by his bank to bring back the money to Buenos Aires and buy local bonds. He did it. The bank took the money out from the country, and 90 days later he had nothing.

About 700,000 investors hold defaulted Argentine bonds denominated in eight currencies. The government said it would decide the maturity, interest rate and face value of the new securities later.