Argentina cuts debt

BUENOS AIRES - The government of Argentina has completed the largest sovereign debt swap in history, three years after economic collapse triggered riots in South America’s second-largest country.

The deal, worth $102 billion including past-due interest, was a complicated undertaking covering 150 bond issues and 600,000 investors. The successful restructuring left investors hurting, but raised public optimism and scored political points for President Nestor Kirchner, a popular center-left president who still faces heavy economic problems.

In late 2001, Argentina stopped servicing $81.8 billion in foreign debt to deal with its collapsing economy. Early this month, the government announced that 76 percent of investors holding $62 billion of debt had agreed to accept new bonds — some of which repaid lenders as little as 25 cents on each dollar owed.

New bonds due in April

As a result, Argentina’s total debt has fallen from $190 billion at the end of 2004 to $125 billion. The deadline for investors to take the final offer was Feb. 25. Officials will issue new bonds in April.

Argentine officials and press reports characterized the restructuring, which was accomplished without help from the International Monetary Fund, as a boon to investment and growth. Thanks in part to strong soybean exports in recent years, Argentina’s commodity-driven economy has grown — last year by 8.8 percent.

But decades of corruption and public malfeasance leave many Argentines with doubts.

“There is a general sense of optimism in the country now and a lot of people are pleased, but personally, I’m skeptical,” said Daniel, 49, an accountant who refused to give his family name. “I have my doubts that Argentina will be able to pay this.”

Economists say the country needs to sustain a surplus of at least 4 percent of gross domestic product (GDP) to service its new debt obligations. This will be a tough task, requiring political tenacity to push through structural reforms.

Balancing act continues

Observers say problems could arise, especially if soybean prices fall and deprive the government of future tax revenues.

The debt swap is seen as giving Mr. Kirchner’s government breathing room to tackle other problems, including negotiations on the $13 billion owed to the International Monetary Fund (IMF). Argentina owes an additional $15 billion to other multilateral institutions and faces a battle with utility companies whose rates have been frozen by the government.

Finance Minister Roberto Lavagna, who met with IMF Managing Director Rodrigo de Rato in Washington this month, later told reporters that he plans to take an even harder stance with IMF officials, now that the debt swap has been accomplished.

For his part, Mr. Kirchner recently has called for “self-criticism” by the IMF, which he blames for Argentina’s economic crisis.

Small investors shielded

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