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AmericasApril 3 2005

Argentina’s record debt swap may not be over yet

ARGENTINA could re-open its debt exchange to the 24% of investors who rejected it, once the country’s Congressional elections in October are over.
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Although the government says it cannot re-open the debt swap because it enacted a law preventing it from doing so, commentators believe it would reverse this law in the right circumstances.

The country surprised many by achieving a 76% acceptance rate for its $100bn debt restructuring in February. The haircut – about 66 cents on the dollar – is one of the highest ever for a sovereign debt swap.

The default in November 2001 has been the biggest barrier to foreign investment in Argentina. The focus is now shifting to the bondholders who did not accept the offer, including hundreds of thousands of retired Italians.

Esteban Fernandez Medrano, a partner of Buenos Aires-based economic consultants Macrovision, said: “We cannot continue with 24% of the debt in default forever. One government, one day, will have to reach an agreement with these bondholders.”

Frederico Thomsen, an economic consultant in Buenos Aires, said: “I think the government would want to get the Congressional elections out of the way before making an offer to the other 24%.

“It would be able to justify re-opening the offer by arguing that the poor Italian bondholders were misled once again by their banks, which advised them to reject the offer the first time round.”

Armen Kouyumdjian, an economic and political analyst, said: “I think Argentina will be under a lot of pressure to do something for the ‘outsiders’.”

The IMF set Argentina the target of 80% acceptance. That this was not achieved will strengthen the IMF’s hand when it negotiates a new debt programme for the country this year but it is not expected to preclude a deal.

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Read more about:  Analysis & opinion , Americas , Argentina