The Militant - November 23, 2004 -- Creditors balk at new Argentine proposal to write off debt

Vol. 68/No. 43 November 23, 2004

Creditors balk at new Argentine proposal to write off debt
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BY MICHAEL ITALIE
In early November, the government of Argentina made a slightly higher offer than earlier to creditors who hold $103 billion in debt on which Buenos Aires defaulted three years ago. Wealthy bondholders largely in the European Union—especially in Germany and Italy, who hold the majority of the debt—are resisting Argentina’s latest demand to write off some 70 percent of its foreign debt, an offer about 5 percent lower than Argentina’s previous proposal. The U.S. Security and Exchange Commission, and its counterparts in other imperialist centers, must first approve the deal, in what could be the largest debt restructuring in history.

Argentine economy minister Roberto Lavagna announced November 1 that the his government offered its creditors three new bonds in a debt swap he valued at $41.8 billion. He said the plan did not include $20 billion in interest that has built up since Buenos Aires defaulted on the debt. As a sweetener to the deal, the government of President Néstor Kirchner will place the issue date for the new bonds at December 2003, providing for $475 million in immediate interest payments. The government also promised “interest bonuses” if growth in the country’s Gross Domestic Product (GDP) exceeds 3 percent.

After a financial meltdown that reached its low point in 2002, Argentina’s GDP rose 8.4 percent last year and exports increased sharply. Inflation, which had reached double digits, has decreased substantially. The official unemployment rate is now at 14.4 percent, down from more than 20 percent in 2002.

In December 2001, the Radical Party government of President Fernando de la Rúa resigned after Buenos Aires defaulted on its debt in face of an economic crash, setting off a financial collapse and an eruption of working-class and middle-class protests. De la Rúa was replaced by Eduardo Duhalde of the Peronist party, a capitalist party that has the backing of the labor officialdom.

Duhalde’s government broke the decade-long linkage of the Argentine peso to the U.S. dollar, precipitating a 70 percent devaluation of the national currency. At the end of October, the country’s supreme court upheld the government’s decision in February of 2002 to convert dollar-denominated deposits into devalued pesos. The move had a devastating effect on the accounts of many in the middle classes and layers of workers with savings in dollars.

Buenos Aires did not make an estimate of the net present value of its offer. A proposal bondholders rejected last June had been valued at 25 cents to the dollar on the defaulted debt. Spokespeople for imperialist creditors estimate the Argentine government’s latest proposal is worth a maximum of 31 cents on the dollar. “I think in general there is a sense of disappointment that there is no real improvement at all,” said Hans Humes, for the Global Committee of Argentine Bondholders, which holds $38 billion of the debt. “Bondholders are very frustrated and, after this announcement, I think they will be even more frustrated.”

Some imperialist investors have hopes of squeezing more out of Argentine working people through pressure from the International Monetary Fund (IMF). “Argentina probably will improve its offer further to increase participation and avoid forgoing its relationship with the IMF, which withheld financing in its second-quarter review,” said a November 3 article by the Bloomberg News service. Daniel Tillotson of Wachovia Securities in New York told the news agency that Buenos Aires needed 90 percent of its creditors to approve the deal in order for the IMF to loosen its purse strings. “If Argentina doesn’t understand that, they have a problem,” Tillotson said.

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