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The government resigns itself to not emitting debt in the markets
La Nacion
June 26, 2008

By Martin Kanenguiser

This year it will finance itself with its own resources; caution among analysts

Each day more isolated in financial terms, the government decided to let go of the voluntary debt market for this year and will focus all its cannons on obtaining resources for making payments from the national public sector.

Official sources told LA NACION that "with some of the resources from the Treasury and another note placement inside the State," they will meet the August payment for some US$2.5 bilion, concentrated mostly on the payment of BODEN coupons. For the last quarter of the year they will also go for public intrasector notes, above all with the goal of paying some US$3 billion in December (whose main ingredients are the coupons linked to GDP growth include the 2005 swap bonds).

The sources admit that throughout the farm sector conflict it has been very difficult to place bonds on the local market (ruling out foreign placement due to lawsuits against the country), since April it's become impossible and there has not even been formal dialogue with the main institutional players.

As part of the official paralysis generated by the farm crisis, Finance Secretary Hern n Lorenzino still hasn't finalized a meeting he has had pending since he took office two months ago with the presidents of the Administration of Funds for Retirees and Pensions (AFJP) to discuss this and other questions. Before the end of the year, the AFJP has to bring back some US$4.5 billion from Brazil for use by the government.

The fall in Argentine stocks, which began in 2007 after the manipulation of official inflation statistics, generated a rise in country-risk sufficient to close the markets for the government.

In the midst of the financial crisis in the United States, Argentina was the most harmed along with Venezuela among emerging markets. The government of Hugo Ch vez collected an interest rate of 13% from the country for a bond placement of US$1 billion held at the end of last month.

In this framework, for now the idea of swapping a larger part of the bonds for next year has been filed away in some office, as next year financial needs will jump from US$9 billion to US$12 billion, about all for the payment on the national loan guarantees (PGN) that are in the hands of the banks.

Former finance secretary Miguel Kiguel believes that because some investment banks on Wall Street mentioned the possibility of another cessation of payments, "the fears are exaggerated."

"This year they need US$2 billion and next year they need US$10 billion, and with effort those resources can be found in the local market, while at a cost of drying up all the liquidity that the market has," said Kiguel, who runds the Econviews consultancy. According to his predictions, the Treasury next year could divide it by US$5 billion from the AFJP, US$1 billion from local banks and US$2.5 billion contributed by the Central Bank in terms of advances.

If one looked at the improbable likelihood of a profound correction in the methodology of the INDEC, this scenario could improve, since according to Kiguel, "there is more of a perception problem over the will to pay" starting with what happened with the bonds adjusted to inflation than "a real difficulty in paying."

Mariano Tavelli of the Tavelli stock association argues that "at the end of the year the Central Bank must recover some US$3 billion in reserves because surely credit across the whole country will continue to be restricted and it could be that it will have to use these resources in order to not enter a default."

According to the analysts, the main lean areas of the country are seeing the official impossibility for returning to the international market (due to the INDEC, the rebel bondholders and the lack of an agreement with the Paris Club) and the growing dependence on the international prices on raw materials, which could drop some 20% in the coming months, to sustain the fiscal surplus by 3% projected for this year.