ARGENTINA

How is Argentina going to pay its external debts now it is faced with the global financial crisis?

As Argentina is just grabbing hold of its external debts and is restoring from the big financial crisis the country faced in 2001, a new challenge arises : how to survive the current global financial crisis?

Only last year Argentina was able to pay off its Paris Club debt, servicing of the public sector debts. Analyst warned Argentina last year that paying debts would drain currency from the central bank, which uses its reserves to back the peso and domestically-sold debts. Nevertheless, Argentina still held $14,5 billion in cash. Yet $12 billion in bonds is due in 2009 and twice the amount expired in 2008. More cash is needed if Argentina wishes to solve its debts.

Argentina began buying back an unspecified amount of 2008 and 2009 bonds. When a country is buying back its bonds prematurely before the due date, this means upcoming financial problems!

In a new attempt to get hold of cash, Argentine’s president Cristina Kirchner signed a bill last Month, October 22nd, envisaging the nationalisation of the private pension funds in Argentina. These funds were created in 1994 by the conservative Peronist president Carlos Menem and grouped 10 privately-owned pension funds. Since their creation in 1994, the funds have saved 96,000 million pesos for retirement accounts while pocketing 36,000 million in administration fees.

The governments explanation for this decision was that it wanted to safeguard these funds from depreciation as the profitability of the AFJP (Administradora de Fondos de Pensión y Jubilación) had dropped 20% following the global crisis. Following the opposition in Argentina, this operation is merely a confiscation by the State of $30 billion.

In all circumstances, it boils down to the point that the assets of the pension are either used to pay back the due notes or there will defaulting on these bonds.

Therefore, ratings agency Standard & Poor’s has already downgraded its credit ratings for Argentina from B/B to B-/C, reflecting the heightened concerns about Argentina.

We also fear that problems are on their way as somebody will have to pay the bill, whether it be the bondholders or the pension funds. The latter will mean political suicide for those responsible and, as such, another default on due debt servicing is likely to occur sooner or later.

As such, creditors holding Argentine claims better react now, before everybody does, and can always contact us for further information and a free of charge advice how to collect in the soonest way possible their outstanding dues.

For more information, please contact East-West Debt, Meir 24, 2000 Antwerp, Belgium,
telephone 0032 3 231 4503.

For background Argentina Emerging Market see HERE