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Paris Club plan takes shape
La Nacion
July 04, 2008

By Martin Kanenguiser

The government wants to present it to creditors before the end of the year; U.S. delegation to arrive next week.

The government promised it in 2006 and 2007, but didn't come through. Will the third be the charm in 2008? Official sources indicated yesterday that they are working on presenting a payment proposal to creditor members of the Paris Club before the end of the year. While a better part of official energy is being put into resolving the farm sector conflict, during which time our country-risk has reached a level above the rest of Latin America, at the Economy Ministry they are looking to amass a plan for refinancing some US$6.4 billion that is in default with that multilateral entity.

The only firm track there is on this initiative is that the country would pay the US$337 million that comes due in 2009 to the Paris Club countries. The rest is up in the air, because the government rejected the proposal put forward by ex-Minister Martin Lousteau at the last moment of his service, which proposed a three year grace period and a schedule of payments over the following five years.


For now, it is said, there is "an informal exchange among the Finance secretariat and the treasuries of the main creditor countries."

Germany is at the front of the line waiting for payment on this debt since 2001, and diplomatic sources say that for months they have heard nothing on this issue, that, if there's an arrangement, it will allow for the opening up of guarantees for export credits that Argentina could use abroad.

The United States has also not heard much that is very new. It's been a couple of weeks since Economy Minister Carlos Fernandez told Treasury undersecretary Brian O Neill, at a meeting in Canc n, that the government is "analyzing" the issue, without going into more detail. It is expected that the official will be part of the U.S. government delegation that will arrive new week in Buenos Aires after visiting Colombia, led by undersecretary of State for Hemispheric Affairs Tom Shannon.

Shannon is part of the axis of U.S. officials that appears ready to continue thinking of ways to help Argentina, despite the strong unease that exists in Washington with the course of economic policy under the Kirchners.

Zero growth

The last reports that have arrived in the hands of the departments of State, run by Condoleezza Rice, and Treasury, led by Henry Paulson, contain a clearly negative view, which already predicts that in 2009 there will be zero growth rates combined with inflation above 20% per year.


However, that official view doesn't jibe with the extremist diagnosis of the Wall Street banks, which are already mentioning a possible default, because it is believed that the government has important fiscal resources from the high prices of raw materials and a respectable level of reserves.

These official still have the hope that at some moment the government will put its obstinacy aside and begin to resolve an issue for the moment untouchable for the Kirchner couple: the debt of US$28 billion with the bondholders that didn't accept the swap to exit the default in 2005. According to this view, the offer could be made with fewer resources and complications that the agreement to be woven together with the Paris Club, permitting the country to go out again to the international voluntary markets, which right now are completely closed.

However, at Economy they believe that once they get past the farm problem there would be space to return to placing debt and, in particular, to clear the maturities of the next three years, swapping the national guaranteed loans that are in the hands of banks.

In 2009, the government will have to come up with some US$9 billion above current revenues, and US$6 billion this year. This important spike will oblige the country to make itself up better to get closer to the markets, which supposes, according to official sources, more forceful gestures in areas like the fight against inflation and re-approaching the International Monetary Fund (IMF) to allow this year a mission from that organization for the postponed review of the local economy.