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Gavin: Bond repurchase is smart
AMBITO FINANCIERO
September 04, 2008

The Paris Club is not absolutely important to investors. So said former UBS director, Michael Gavin, minutes before the official announcement of the cancellation of the debt held with that international organization. Also, he added that "if the Argentine government has its own reasons for wanting an accord with the Paris Club it should do it, but it's not going to bring them back to the debt markets."

Gavin, a former economist at the IDB and the Federal Reserve, and ex-consultant for the IMF and World Bank, spoke yesterday at the Jornadas Monetarias y Bancarias organized by the Central Bank. Shortly after his speech, he spoke to this newspaper.

AF: What does the government need to do to get financing?

M.G.: It will have to have a solid fiscal program that provides with clarity the net financing needs for the government. Fiscal solidity is important. The numbers are good for now, but they don't say anything about what will happen when soy prices are not so high.

AF.: Are you referring to the manipulation of the indices at INDEC?

M.G.: Yes, the investors are very worried about this. And some are angry because it was a form of default for those bonds through the adjustment of the bonds indexed to inflation. The question that comes to mind is: "how can we expect that they take reasonable economic measures in difficult times if the government bases its decisions on indices that have nothing to do with reality?" Therefore it's not only the fact that in the numbers are distorted but the link that exists with taking measures. They don't expect that neoliberal measures will be applied nor are they seeking a perfect economic situation, but they need to see more pragmatism in the direction of responses to problems that are appearing.



Other worries


AF.: What other issues worry foreign investors?

M.G.: Energy prices and the effect on supply. Many countries subsidize and it's not necessary to have free market values. However, it seems that the energy industry is being driven to very low levels; it's like an impasse. No country could let its energy sector become weak. The point is to see the effect that these decisions will provoke in the long term. Investors abroad are worried about the same things as Argentines.

AF: But to sincere the inflation numbers and place them around 30%, will investors want to send their capital to Argentina?

M.G.: Yes, because investors already know the real rates of inflation raise prices. And I don't want to say with this that inflation is not a problem, but it's an obstacle that investors already know about. If the INDEC starts to publish real numbers, Argentina would have immediate access to the markets. Obviously this still leaves the problem of the bondholders, but with credible numbers they'd solve a major problem.

AF.: You mentioned the bondholders what is your opinion of the announcement of the cancellation of the Paris Club debt?

M.G.: Argentina must make an arrangement with both groups. But the Paris Club is not absolutely important to investors. If the Argentine government has its own reasons for wanting to arrive at an accord with this group they ought to do it, but it won't bring them back to the debt markets. The problem of the bondholders will continue to be an obstacle for the country and this is evident in the risk rating of Argentine bonds.

AF: What do you think of the government's bond repurchase strategy?

M.G.: It's a smart measure. I think that the Central Bank would have to do it on a bigger scale. However, while the government continues having financial needs in the coming years, they ought to be mindful that to repurchase bonds on the one hand, but six months later place new emissions in Venezuela on the other, is a circle that won't work.

Interview by Mar a Iglesia