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Dispute raises questions about the debt swap
La Nacion
January 07, 2010

Analysts believe that it is not an intractable obstacle but will make the process more difficult

Francisco Jueguen
LA NACION

Until yesterday, the global financial context was ideal to close the debt swap. Today, the institutional gunfight over the Bicentennial Fund and the uncertainty created by the refusal of Central Bank President Martin Redrado to resign by order of the President are generating dark clouds at the moment of launching the process to exit the default.

World economic conditions are helping, but politics are getting in the way. Specifically, Redrado's "no" to the political decision to back the use of freely-available reserves to shield debt payments adding to the political noise that created the situation for his staying in charge of the monetary entity could affect the good financial moment that the local market is enjoying.

The year had begun with strong prospects for economic recovery at the global level, added to which is enormous liquidity and the voraciousness of investors for Argentine bonds. This had positively impacted prices on those papers, rebounding the interest rates and carrying country-risk ratings to their lowest point in two and a half years.

It was a highly attractive combination for officials at the Economy Ministry at the moment of preparing an emission on the voluntary market, blacked for them for two years.

"The political storm will cost the government," said Miguel Kiguel, executive director of Econviews. "Bonds fell, there was a rise in country-risk, which lowered the value of the offer for the bondholders. This makes a new bond a bit more expensive," he said.

However, analysts consulted are sure that the situation at the BCRA will not endanger the new debt swap that the government is pushing for at the end of the month.

"It's not clear that this would obstruct it, but it's important to have the swap at a time when there are no particular debates over institutional integrity," said the ex-Finance Secretary during the Alliance government, Daniel Marx.

Marx, director of AGM, also said that this situation will have to be explained to the bondholders because it's a relevant fact that investors will have to know about. "The persisting of this problem will raise uncertainty and that will make the process more difficult."

In terms of the conditions of acceptability, the economist agreed that the subjugation of the BCRA will make the emission of a new bond on the voluntary market less receptive and even perhaps more onerous.

Issue of terms

"The swap is a little less attractive, but it should not be an obstacle," said Eduardo Blasco, director of Maxinver. However, he said that it is necessary to move ahead on closing the swap because the international situation is optimal but could change. "If this lasts only 48 hours, there will be no problems, there will still be a good context. If it carries on for 15 days, that's another thing," he warned.

In New York, the news about the crisis at the entity led by Martin Redrado was a bombshell.

"This is generating a lot of calls and concerns. It's clearly not good. Common sense has been lost. It's another spot on the leopard," they said at one important investment bank in the financial capital.

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