Argentina wants to come back into the orchestra

On Thursday (15th of April), the news concerning a possible restructuration of a €20 billion debt seemed to be a great march for the country and for the holders of bonds still unpaid since 2001.

Argentina reimbursed on the 5th of April 2010 $203.6 million with the reserves of the Central Bank. It was the first time that the justice authorizes the country to take money from these funds in order to pay back debts to private creditors since 2001. Indeed, at the beginning of the 90s the country wanted to attract foreign investors, the "Hoodouts" and reduce inflation. It had been set up with the "currency Board" system with the creation of the local currency with foreign currency coming from the investors.

This system worked during years; companies like Ford or Carrefour invested a lot, for example. But it started to crack in 1998 when the dollar started to raise, dragging the Peso with it. Argentina had been excluded from international markets after the defection of the IMF in 2001, when the government decided to interrupt the repayment of its external debt which had reached $90 billion. After this defection the government had closed all the banks in order to avoid liquid assets crisis.

The restructuration would consist in exchanging old unpaid bonds with new ones which would represent more than the half of their value. The country needs the approval of Europe and Japan, before launching his takeover bid. A restructuration had already been rejected in 2005, but the three-thirds of creditors had approved of it. How has been perceived the news? Is it more optimistic than the first time?

Newspapers analysis:

The Financial Times seems wanting to reassure the investors. Indeed in its article entitled "Argentina plans sweetener in bonds offer" the author quotes Amado Boudou, the economy minister saying that "It would be more advantageous than the last one, which was very good', the 'last one' being the first bid in 2005. Although the newspaper reminds that Argentina in prevented by law from offering improved terms this time, it explains that better market conditions have raised expectations that the new deal could be worth 55 cents or more if acumulated interest is paid and if the country also includes a payment related to a coupon related to GDP growth issued in the 2005 to sweeten that offer. The author finishes its article with another quotation coming from the former economy minister who mastermind the 2005 bid: "I still think it's worth it for the creditors, around 40-45 cents would be a level that would still leave them with a profit".

Reuters on the 15th focuses on the fact that Argentina needs approval from Europe and Japan, but it is quite neutral, explaining the fact. Indeed according to the author the bid is being examined by the creditors who had rejected the previous offer, precising that this rejection had concerned more than $100 billion. he also explains that the country first wants to stop judicial proceedings coming from investors who want their money back. According to Reuters this offer should be accepted, which could have the effect of turning down the loan cost of the country.

The Economist is quite severe towards Argentina. The author starts its article explaining to the readers that the restructuration of $80 billion defaulted in 2005, adding that recession pushed the public finances into red and that the country is now feeling the price it had paid for excluding itself from the world financial system. Then it goes on, explaining that investors were panicking, and that the government has tried to find "unorthodox sources of revenue", with the nationalization of private pension funds. The author then explains that if the government wants to succeed it has to change its policy, which would mean to clean up the government's dodgy economic statistics and stop harassing private business. He finishes saying that there is no sign of it, and that "Argentina's debt is likely to continue to be bracketed with that of Ecuador and Venezuela as the riskiest in Latin America until the president term ends in 2011".

My opinion:

I think that it is too soon today to really see the reaction of the different newpapers concerning this news. Indeed the official plan should only be revealed at the beginning of the week, of the other countries in Europe and Japan agree. maybe the "suite" of this story in another article? To my mind it would be a good thing for Argentina to succeed in this operation. Its exclusion by the IMF did not help the country, and it has prevent Argentina from developing its international economy, and its relation with the other countries and foreign companies. Some companies still does not want to invest in Argentina anymore, and the trust is still not back. That is why the bid has to be accepted by Europe and Japan, in order to help the country to forge ahead, make the trust back and develop its international economy again.

Music of the week: a Menuet, the dance in order to seduce the countries and investors, form Bach for example...

Sources:

"Argentina plans sweetener in bonds offer", the Financial Times, 13th of April 2010

"The government tries to make peace with international capital markets", The Economist, 31st of March 2010

"Argentina could announce the details of an exchange", Reuters, 15th of April

"Argentina waiting for approval for his debt's exchange", Les Echos, 14th of April 2010