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Lorenzino, the key piece for the swap?
Ambito Financiero
February 24, 2010

The debt swap will come together despite the deficiencies in the government's policies, with or without Amado Boudou and with or without the infamous Bicentennial Fund." So indicated a report released yesterday by the financial services company Bulltick Capital Markets, in reference to the fears around the possible resignation of the Economy Minister causing a new obstacle to the process of negotiation with the holdouts, already delayed after the crisis in the Central Bank over the use of international reserves.

The government needs to recover access to the markets if it wants to have a small chance of holding the Casa Rosada in 2011. For that it's unlikely that it will abandon its ambitious to bring the debt swap forward. It's the only clean and available tool for the government to recover, before the 2011 elections, a certain maneuvering room in fiscal terms," said the firm led by Alberto Bernal.

Continuing, the main aspects of the report:

Rumors are growing around an imminent resignation by Amadou Boudou as Economy Minister. If confirmed, it would mean another heavy blow to the fate of the Argentine debt swap. The agreement with the holdouts seemed to move ahead quickly, but the government's decision to get behind a decree to create the Bicentennial Fund held up the negotiations.

As it is known, the decision to create that fund through a decree of necessity and urgency had generated a big crisis with the ex-president of the Central Bank, Martin Redrado; at the root of this conflict, the SEC (the regulatory organization of the United States) asked the government for additional documents to back the prospectus for the debt swap. Among other things, it required documentation about the separation of powers and the independence of the Central Bank in Argentina. Those requests will mean new delays in the launch of the offer to the holders of bonds in default.

In any case, despite all the obstacles and problems that are now swirling around Argentina, what is most relevant from the point of view of the future of the debt swap is Finance Secretary Hernan Lorenzino, and his working team, keeping their jobs. At the moment, there is no information about this key issue, but it is logical to expect that Lorenzino stays at his post, taking into account that it wasn't Boudou who put him in his post.

If the Finance team stays, then probably it would be irrelevant who runs the ministry, because it's Lorenzino that has pushed the new swap for a long time. According to our local sources, the Finance Secretary was the "hidden voice" behind backing the reopening of the swap during the terms of other ministers, like Carlos Fern ndez and Mart n Lousteau.

As we have already argued, Nestor Kirchner needs to recover access, at least, to some markets if he wants to have a small chance at returning to the Casa Rosada in 2011. As such, its unlikely that the government will abandon its ambitions to bring the debt swap forward. This is the only "clean" tool available for the government to recover a certain maneuvering room in fiscal terms before the 2011 elections.

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