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In one year, foreign debt rose 13,6%
iECO
July 01, 2008

By Ismael Bermudez

They are public and private balances. It's one and a half times the growth of the economy and more than US$15 billion.

About the foreign debt it would seem like it's all been said already. That it's foreign. That it is equivalent to death within. That when it seems to stop being a problem it is reborn with greater strength, like the Phoenix. That it's unpayable. Almost all of this, except that it continues to be one of the biggest problems of the Argentine economy.

A bit of all of this is happening. And the official numbers, including the weight of the doubts that could be generated by INDEC, confirm it as so. In one year, the foreign debt public and private rose by US$15.241 billion. It went from US$112.018 to US$127.259 billion, according to data from the INDEC through March 31st, released this week. It represents a rise of 13.6%, a higher percentage by one and a half times above the growth of the economy.

This figure doesn't include the debt with the bondholders that didn't enter the swap, but it does include the debt not yet reprogrammed with the Paris Club.

How much is it

56% of the debt or $71.367 billion is contracted by the State, in bonds and public titles, provisions and loans from international financial organizations. From this total, and after the payment to the IMF, Argentina continued owing to other international financial organizations, like the IDB and the World Bank, US$16.221 billion. The rest are in bonds, commercial loans, and debt with countries of official organizations.

Of this US$71.367 billion, US$20.152 comes due through 2011, supposing that the late interest payments on the Paris Club debt and other bilateral creditors are paid off. That also includes the debt with international organizations of which the better part is refinanced through the disbursement of new credits.

The profile of maturities appears comfortable, but with a large concentration over the next four years. Also, a third of the domestic public debt comes due before 2011, which obliges the government to count on a strong fiscal surplus, higher than 3% of GDP, to pay off interest and amortize part of the principal. Still this way it will have for manage to refinance the better part of those maturities.

The private sector businesses and banks owe US$55.982 billion. It's estimated that 30% corresponds to balances with connected businesses, like affiliates in its matrix locations. This external debt should not be confused with the total public debt which, in addition to the indebtedness by the State with foreign bondholders, funds and organizations, includes the debt with domestic creditors. At the end of March the public debt came to US$144.492 billion dollars: half foreign, the other half domestic.

On the other hand, the assets that Argentines have abroad add up to US$145.141 billion. Of this total, US$26.026 are real estate properties or investments by Argentine businesses abroad. The rest about US$120 billion are funds in fixed terms, bonds, stocks or money deposited in accounts abroad or outside the local financial system, which either can be or are not declared by their holders in the country.

Where is it coming from

A little more than half of the US$15.241 billion in higher foreign debt for the last 12 months was the responsibility of the government and the rest was private companies.
As such, in one year, the foreign public debt rose US$7.701 billion. That is due to the government having to take on new debt, at a higher interest rate, to pay off current debt coming due, it made disbursements from the Bank of Basel higher than amortizations, and new penalties on interest and principals accumulated mainly with those called official creditors (like the Paris Club).

The internal debt also grew over the adjustment of bonds attached to inflation, from the emission of new titles to pay off debt with providers or judicial decisions and the capitalization of interest.

The foreign balance for the private sector rose US$7.540 billion. In large part, that was because there was a rise in imports that were financed by foreign credits and the capitalization of interest and of utilities of foreign affiliates.

Imports grew at a much higher rate due to domestic demand, but also from the "competitive prices" of products made in China and Brazil, backed by credits.

All of this debt had a significant cost. It generated annual interest payments of US$5.75 billion, of which US$3.328 was for official debt and US$2.422 billion was for private businesses.

For their part, the affiliates of foreign businesses in large part indebted from its branch locations generated utilities and dividends of US$6.3 billion and only reinvested US$1.5 billion back into the country. Those affiliates also were responsible for part of the US$1 billion in dollars shifted abroad in terms of royalties.

The bondholders and the YPF case

Of the US$30.334 billion that totaled as of March 31st the debt with the bondholders that didn't enter the swap, US$25.756 billion are in the hands of foreign holders. Of this total, the principal adds up to US$9.832 billion with interest of US$7.244 billion. The rest is debt that hasn't come due.

The purchase of 14.8% of YPF by local capital Petersen Energy would have to be reflected in national accounts. Nevertheless, INDEC said that it didn't do this because it took place among non-resident businesses. Thus, the so-called "partial Argentinization" of YPF is not so much that the business is a "local partner" Petersen Energy is based in Australia.