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Swap: new roadblocks over the measures at INDEK
Ambito Financiero
March 08, 2010

The SEC blocks authorization of the offer over the price indices

by Pablo Wende

The Economy Ministry has even more new obstacles to its bringing forward the debt swap, which is already 90 days late given the original schedule put out by Amado Boudou. In addition to weakening bond prices, the questions from the SEC, the U.S. stock regulatory body, continues to through the main stumbling blocks at the operation.

The SEC has already sent a series of questions related to the prospectus presented by the government to restart the debt swap. One of the main questions was over the measuring of inflation, but then there were additional questions about the changes at the Central Bank and the situation of the reserves, in relation to the DNU signed by Cristina de Kirchner which created the Bicentennial Fund. But the responses from Finance Secretary Hernan Lorenzino fell short of satisfying the doubts of the SEC. According to what this newspaper could uncover, there are already talks going on between the technical staff of the organization, officials in the economic team and the banks that are advising on the transaction. The U.S. authorities came back to expressing their worry about way in which the INDEC measures inflation and the little additional information given out by the economic team.

The monthly index on inflation something that goes far beyond statistical transparency or the effect it could have on consumer expectations. In reality, the CPI (Consumer Price Index) is what is used to calculate the CER (inflation rate), which in turn is used to index the bonds that are listed in pesos. The offer that the government is planning is similar to the one in 2005. As such, it includes the emission of Par and Discount bonds in dollars, euros and also in pesos adjusted to inflation. It's been four years since there'd been "star" bonds and were the most desired by investors.

Manipulation

Nevertheless, now the situation changed totally, due to the manipulation of the price index by the INDEC. For the markets, this underestimation of inflation means a million-dollar haircut for bondholders that have those bonds in pesos. The government, obviously, obtains a significant savings each year due to the CER rate increasing far less than inflation. This situation would worsen still in 2010, when the rise in prices has already accelerated.

Since the inauguration of Barack Obama to the presidency of the United States, the SEC has waved a "heavy hand", brought ahead by the new chief of the entity, Mary Schapiro, who took over at the same time as the U.S. president. The goal of her mandate is to accentuate the controls over the emitters in the capital markets to protect the investor and, above all, to ensure the total transparency of the papers that quote on the U.S. market.

This increase in oversight is connected with the heavy financial crisis that smacked Wall Street beginning in October 2008. One of the criticisms was the lack of attention that the SEC paid to highly non-transparent emissions, many difficult for small investors to understand. "In the previous swap, something similar happened," they explain at the Economy Ministry. And all indications are that this prediction will fall in line, with the operation still being far from being able to launch, at least from the normative point of view and without considering the strictly market aspects (like the drop in Argentine bond prices) that also through obstacles before the transaction.

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