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Boudou didn't meet his goals in the debt swap
Clarin
June 25, 2010

While it was progress, the financial operation can't resolve the definitive exit from the default, nor reinsert the country into the credit market, with interest rates of one digit.

by Marcelo Bonelli

The heads of five business entities of the establishment took a political decision: to create a joint action force and constitute a united front to be the interlocutor between the government and the political opposition.

This was decided at the meeting that brought together the heads of the Industrial Union, the Chambers of Commerce and Construction, as well as the Trade Bourse and the ADEBA bankers. This was agreed to on Wednesday, in a meeting in which the reactivation of the economy was pondered. But also they spoke of the fears that labor pressure is generating as well as the incipient inflationary process, the delay that is weighing on the dollar and the doubts generated by the current political uncertainty. For that and facing these concerns, the group decided to work together. There will be periodic meetings and they will try to open a dialogue with the Casa Rosada.

Jorge Brito pushed the proposal, which had the nod from Kirchnerism. There are fluid conversations with Julio De Vido, pushed along by a political proposal from the Olivos compound: trying to dull the positions of the Argentine Business Association, the farm sector leadership and the joint actions started by the Christian Business Association. Mario Llamb as rejected an invitation to the meeting and Hugo Biolcati went back to protocolistic regrets. Afterwards, the head of the Rural told H ctor M ndez: "I'm not going because I don't want to break with the farming front." The group is led by the M ndez-Brito duo and also participating are Enrique Wagner, Adelmo Gabbi and the host, Carlos de la Vega. They spoke about current economic growth and the fears around inflationary expectations.

The head of the stock market admitted that the results of the swap were not initially promising, but was satisfied with the transaction. Gabbi said: "What is important is to have it done and the will to overcome the default." That is the opinion most put out by the leaders of the financial world.

It was positive for Argentina to move ahead with normalizing its international situation and try to leave behind the multi-billion dollar default of 2001. But they also all agree on another issue: that the resolution of the swap was far from the initial promises that Amado Boudou made inside the government. Nor did they reach the goals that were promoted by the advisory banks with Barclays in front in international meetings.

In November when they announced the reopening of the swap, the economic team put out three key goals, but not one could they comply with: that the adhesion would be placed around 75% and 80%, which would definitively resolve the Argentine default. It came to 66% and some US$10 billion fell outside the operation. For that, without success, Boudou tried this week to impose the idea that the default had been lifted.

That the advisory banks had guaranteed the participation of investment funds including vultures for US$12 billion. That also didn't occur, as was seen in the first close of the swap.

That Argentina would return to the voluntary credit market and place a bond for US$1 billion at a one-digit interest rate. Not a single bondholder accepted the proposal and only were ready to lend at an expensive rate, 11.8%.

This is the main failure of the swap operation.

Boudou had guaranteed to Nestor Kirchner the inflow of fresh cash and it was this alone that brought the ex-president to endorse the financial transaction. But now the cash balance for the Treasury on the books is a net negative.

Not a single dollar entered and Argentina committed to pay US$1.35 billion for the new bonds coming due before the end of Cristina Kirchner's term in office.

The disparity between the promises and the realities generated mutual reproaches between Boudou and the advising banks. The minister blamed the banks for the thin results of the first close of the swap and the bankers argued that Boudou only wanted to hide his own inexperience from the economic team.

The financial crisis in Europe threw a bad pass to Argentina. It's an argument that Boudou made stick internally in the government, to hide many of his own mistakes. But it's precisely the unfortunate coincidence of the swap and the turbulence of the European markets reflecting the inexperience and bad timing at the Palacio de Hacienda. Boudou first announced that the swap would happen on December 15th, in the midst of international financial euphoria. There were delays and it could have been held in mid-January. But the minister in January concentrated on the operation designed to fire Martin Redrado from the Central Bank. The inadequate handling by Boudou on this issue he wrote a decree that had to be changed in March by the President opened up a political crisis that forced him to postpone the swap until May, making it coincide with the European financial crisis.

Boudou had a key success when things turned very bad: he postponed the close of the financial operation set for June 7th by two weeks. That day there were only 54% of adhesions to the swap, which would have cost him his job. That deadline served to correct the errors and redesign the strategy with the intention of capturing the small bondholders that had been initially minimized. This helped obtain a final adhesion that made the swap presentable and allowed Boudou to save his shirt.

Now it's time for the Paris Club. But there still doesn't exist a payment proposal, because first Argentina will have to allow an IMF audit.

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