- The Washington Times - Wednesday, November 7, 2001

BUENOS AIRES (AP) President Fernando De la Rua moved ahead with a proposed plan to reorganize Argentina's crushing debt load yesterday, a move two credit-rating agencies dubbed the equivalent to a default.
The planned debt swap, seen as a last-ditch effort to keep the country solvent, would be the largest restructuring of its kind, calling on investors to accept lower interest payments and postponing full payment by three years.
Standard & Poor's lowered Argentina's credit rating yesterday from "double-C" to "SD," indicating a selective default, after the government offered local investors some $60 billion in new bonds.
"Standard & Poor's views the Republic of Argentina as effectively being in default," a statement from the credit agency said.
The agency said it would further downgrade the country's rating once the government revealed all of the securities it intended to swap.
Earlier yesterday, Mr. De la Rua met with local bankers to discuss the initial exchange even as the Fitch international credit-rating agency said the debt swap would force investors to incur losses.
Even a partial default would close Argentina off from badly needed capital and push up already lofty interest rates, complicating efforts to help return South America's second-largest economy to growth after 41 months of recession.
In addition, investors worry a default in Argentina could threaten other emerging markets at a time when the global economy is slowing after the September 11 terrorist attacks in the United States.
Argentina has described the exchange of high-yielding bonds for lower ones as one that will be "orderly," but Fitch, in a statement from London, said its investors were "under duress" to take part in the restructuring.
"Although the proposed debt exchange has been described as voluntary, public statements by Argentine officials imply that in the absence of such an exchange, public debt held by domestic investors is unlikely to be serviced," the company said.
The government hopes to save $4 billion in interest payments next year by lowering interest payments from 11 percent to 7 percent levels Economy Minister Domingo Cavallo insists are more reasonable for a recession-wracked country.
Argentina's economy has been mired in recession since mid-1998, and shrinking tax receipts have left the country with few resources to service a debt that has swollen to more than half the gross domestic product.
Nearly 20 percent of Argentina's budget goes to paying off the $132 billion debt, built up by years of government overspending.
Wary foreign investors will be closely tracking the swap, the first of two and aimed primarily at Argentine debt held by local investors. A second exchange involving securities owned by international investors is expected to take place in the next two to four months.
Local banks, which hold some $14 billion of Argentina's $132 billion in debt, expressed initial support for the plan.
"We see it as positive," said Manuel Sacerdote, vice president of the Argentine Bank Association, after meeting with Mr. Cavallo. "It's a coherent plan, and we hope it is successful."
Local markets were closed yesterday in Buenos Aires for a bank holiday while Argentine bonds were trading mostly flat.


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