Argentine Economy

Argentine Debt Swap Helps Cover Financing Needs, Fuels Rally.

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By Drew Benson and Lester Pimentel.

Jan. 29 (Bloomberg) -- Argentina may have lined up enough financing to cover its budget needs through 2010 after creditors agreed to extend maturities on 15.1 billion pesos ($4.3 billion) of debt, Credit Suisse Group AG and Barclays Plc said.

Ninety-seven percent of locally based holders of the so- called guaranteed loans accepted the offer to take new five-year bonds, President Cristina Fernandez de Kirchner said yesterday. The exchange will reduce the government's 2009 debt payments by 5.4 billion pesos, Cabinet Chief Sergio Massa said.

Argentine bonds rallied this month, sending benchmark yields to a three-month low, helped by speculation that the debt swap will enable the South American country to avert its second debt default this decade. Argentina issued the guaranteed loans -- so called because they were initially backed by revenue from a financial transactions tax -- in a 2001 exchange that sought unsuccessfully to stave off the $95 billion default that year.

"Argentina has solved its rollover problem for this year and maybe the next," said Igor Arsenin, an emerging-market strategist at Credit Suisse in New York. "They will muddle through. There's still quite a bit of upside."

The price on the government's 8.28 percent dollar bonds due in 2033 rose to 35.8 cents on the dollar yesterday from 32.25 cents on Dec. 31, according to JPMorgan Chase & Co. The yield dropped to 21.14 percent from 32.25 percent. The bonds traded at 22.5 cents, the lowest since they were issued in 2005, on Oct. 27 after Fernandez said she'd nationalize the private pension funds.

'Dent in Confidence'

While the pension seizure hurt investor confidence, it also helped Fernandez cobble together financing by giving her administration access to more funds.

"The main danger was a dent in confidence," Arsenin said. "In a more narrow sense, it's been positive. It has ensured flexibility in their short-term financing."

Arsenin said the 2033 bonds may rally to 40 cents.

The government will extend the guaranteed loans swap offer next month to the 3 percent of locals who rejected it as well as to international holders of the securities, Massa said. In all, about $4 billion of the $12 billion outstanding of guaranteed loans was set to mature this year, according to estimates by Credit Suisse.

"This is the most important voluntary exchange in the history of Argentina," Fernandez said at a ceremony at her residence outside of Buenos Aires.

Argentina's financing needs climbed to $18.4 billion this year from $4.7 billion in 2008 as a six-year economic expansion fueled by commodity exports faltered amid the global credit crisis, according to Royal Bank of Scotland estimates.

The new five-year bonds will pay an interest rate of 15.4 percent in the first year and 2.75 percentage points over the Argentina's Badlar interbank rate after that, Massa said.

The swap "sends the signal that the authorities will look for market-driven transactions rather than moving straight into unfriendly restructurings," Barclays analysts Guillermo Mondino and Donato Guarino said in a report yesterday. They recommend investors buy Argentine dollar bonds due in 2013, known as Bonars.

To contact the reporter on this story: Drew Benson in Buenos Aires at [email]Abenson9@bloomberg. Net[/email]

Last Updated: January 28, 2009 21:00 EST

[QUOTE=Sidney]1. Farmers throw eggs and potatos at K's official. 2. Macri demands scrapping export duties. 3. Moyano may seek ''double severance.'' 4. Bus strike threatened. 5. According to ADE, product prices have increase 28% in a year! 6. Crime increasing--BA Herald.[/QUOTE]I'm in favor of "doubble severance". Doubble severance of Moyano's hands and feet. This guy is a thug and a menace. The problem is Moyano will get his way while the K's are in power.

The peso is quietly crossing the AR$3.50/USD$1 threshhold.

Having watched this for the past few months, I must say that the Argies have done a masterful job of walking the peso down. It was inevitable that it happen but important that it not happen in a chaotic fashion. They've done a good job with a slow but steady devaluation of nearly 20% in the past 8 months or so. I tip my non-existent cap.

There should be more to come for the foreseeable future. I wonder how much the slow but steady devaluation has cost the Central Bank so far?

For anyone interested, there was a decent article in Saturday's Wall Street Journal on Latin America, and the divide between Venezuela, Ecuador and Argentina, on one hand, and Brazil, Chile, Mexico, Columbia, Peru and similar countries on the other. You should be able to access it here: [url]http://online.wsj.com/article/SB123336272714535407.html[/url]

Driving back to my house this afternoon, I was struck by the idea of foreign aid and the effect it has on recipient economies. It is popularly believed that Argentina does not receive much foreign aid; and certainly not from mainstream donors. That it is an important and essential component to many countries is undoubtably true. I wonder how many Argentinos would be aware that their country is the highest recipient per capita of foreign aid in the world. And from mainstream European and North American donors. That the aid is given involuntarily might disguise the fact, but a rose by another name still smells as sweet. And the reason for their standard of living, probably the greatest mystery I know, is simply based on extraordinarily large sums of foreign aid.

In a nutshell, the periodic defaults on repayment of capital and interest that are legend in regard to Argentina, are foreign aid by another name. And if you add the appropriation of their citizen's savings to the mix as well as the money saved by rigging inflation figures, thus stealing capital from inflation linked bonds, it is a tidy sum of money. Using very rough estimations of the default amounts of 2002 less the haircut amount returned to the lenders, plus the $23 odd billion appropriated from the superannuation funds, plus a really rough guess at inflation linked interest, my guess is that the total would not be far short of U$150 billion or even possibly more. Amortised over the 7 years since the default, this is the equivalent of more than U$21 billion dollars a year in involuntary foreign aid. In per capita terms, around U$5530.

So the conjuring trick of the Argentine economy is a simple light and mirror trick. Steal the money, call it a default and then, if you are Nestor Kirchner, claim you are an economic guru. "The Economist Pocket World in Figures." 2009 edition, puts Argentina's GDP per person at U$5480. Top it up with much the same in involuntary foreign aid, only an economic dunderhead such as Kirchner could put Argentina at the point of insolvency. But the next involuntary donation is in the oven as we speak. It is already over U$130 billion, with this year's payments of U$40 billion included. And apart from some reluctant bondholders who are to roll-over some U$4 billion of term bonds, totally unfunded. It will be in the oven for a while yet, but when it comes out and Argentina defaults, just remember that it is really only foreign aid.

Argento

I think it's not a question of "need" because, as was pointed out earlier, Argentina does get a lot of help from foreign countries. The issue is that it doesn't go to the right hands. So you find this strange phenomenon of rew riches living in Palermo or Recoleta, earning huge salaries and then lots and lots of professionals forced to make a living out of $3000 a month.

It's also true -sadly- that part of Argentine culture has to do with "feeling very witty about getting something that's not yours", which explains all the proud "ñoquis" and even the guys who prefer to walk around eating shit in their carritos than "actually working".

[QUOTE=Chanel]It's also true -sadly- that part of Argentine culture has to do with "feeling very witty about getting something that's not yours", which explains all the proud "ñoquis" and even the guys who prefer to walk around eating shit in their carritos than "actually working".[/QUOTE]Funny, smart and dead on. Let us not forget that the theft "wittiness" is ready and available for your viewing pleasure in many cultures. Ugly IMHO, and usually most appreciated by other thieves or thief wannabees.

[QUOTE=Stan Da Man]For anyone interested, there was a decent article in Saturday's Wall Street Journal on Latin America, and the divide between Venezuela, Ecuador and Argentina, on one hand, and Brazil, Chile, Mexico, Columbia, Peru and similar countries on the other. You should be able to access it here: [url]http://online.wsj.com/article/SB123336272714535407.html[/url][/QUOTE]Great article. Puts a perspective rarely viewed.

Argento

[url]http://www.argentinepost.com/2009/02/argentina-on-the-cusp-of-a-recession-di-tella.html[/url]

And yet, they continue to push raises for unions.

Here's another from the Wall Street Journal, [url]http://online.wsj.com/article/SB123430877724170335.html[/url]

The title of this one says its about Latin America and commodities, but the vast majority of the article is about Argentine farmers and the dysfunctional relationship they have with the government in general, and the Kirchners in particular. There's a quote in there from Cristina where she characterizes soybeans as 'little more than a weed.' That is probably the best indication of the contempt she has for farmers and it's astonishing when one considers that 1/10th of the government's revenue came from soybeans via export taxes.

You have to feel a tiny bit for the farmers if they are compared relative to their peers in other nations. The US and Canada subsidize soy bean production while Argentina taxes the heck out of it. I know there are other factors -- including the fact that its much cheaper to grow in Argentina, at least when there's rain -- but it does seem partially true when the writer asserts that the Kirchners are paying for their populist policies on the backs of farmers. Not this year they won't, and that will spell trouble for CFK. Do you think she'll take responsibility for bungling the strike last year, or will she blame it on foreigners? Hmmmmmm. Tough call there, but perhaps the pension seizure offers an initial clue.

La Nación today reported that the purchase or "activity of sex in privados fell 50%". There is widespread concern that many of the working girls will fall below th poverty line. The article states this is in keeping with the rest of the economy in Argentina which is also falling.

[url]http://www.lanacion.com.ar/nota.asp?nota_id=1100328&pid=5852277&toi=6262[/url]

[QUOTE=Facundo]La Nación today reported that the purchase or "activity of sex in privados fell 50%". There is widespread concern that many of the working girls will fall below th poverty line. The article states this is in keeping with the rest of the economy in Argentina which is also falling.

[url]http://www.lanacion.com.ar/nota.asp?nota_id=1100328&pid=5852277&toi=6262[/url][/QUOTE]Do the laws of supply and demand even work in Buenos Aires?

Seems that there is a ton of supply, not as much demand, yet chica prices are increasing. I don't understand.

Jack

[QUOTE=Jackjack1]Do the laws of supply and demand even work in Buenos Aires? Seems that there is a ton of supply, not as much demand, yet chica prices are increasing. I don't understand.

Jack[/QUOTE]According to the article the prices are going down for lack of business. We'll see if those who raised their prices recently will lower them.

[QUOTE=Facundo]La Nación today reported that the purchase or "activity of sex in privados fell 50%". There is widespread concern that many of the working girls will fall below th poverty line. The article states this is in keeping with the rest of the economy in Argentina which is also falling.

[url]http://www.lanacion.com.ar/nota.asp?nota_id=1100328&pid=5852277&toi=6262[/url][/QUOTE]Interesting artical once its transulated

Exon

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