Brazil & Southern Cone - 28 September 2004
ARGENTINA: No sign of compromise over debt
Argentina's President Néstor Kirchner reiterated for the umpteenth time on 22 September that the government will not improve its offer to bondholders. This wouldn't be particularly remarkable, were it not for the fact that it came at a moment when many people, including the Argentine government itself - was confident a deal was soon to be done.
Before dismissing residual demands for Argentina to improve its offer to honour just 25% of the US$88bn defaulted commercial debt, Kirchner had said that a deal would be done 'nice and soon'. An article in the UK's Financial Times newspaper suggested the same but said the government would still have to improve its offer to honour just over 30% of the value in order to bring the bondholders onside. Even this, the newspaper said, 'would be a huge victory for Kirchner and his economic team, and would win them a place in the record books for obtaining about twice the debt relief managed by any comparable country'.
There is no sign that the government is going to make this relatively minor concession, however. The Global Committee of Argentina Bondholders (GCAB), the largest group of its kind, offered to return to the table on 13 September, saying that 'If we sit down, we can probably work out something'. `There are so many ways to bridge the gap[…]we're disappointed that Argentina won't do it,' Hans Humes, co-chairman of the GCAB, declared. Economy Minister Roberto Lavagna replied merely that 'They waited too long for a conciliatory message'.
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ECONOMIC OVERVIEW: ARGENTINA
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The economy has been slowing down. In the second quarter the economy grew by only 0.5% quarter-on-quarter. This was the slowest rate of growth since the first quarter of 2002 when the economy was collapsing after the ending of convertibility in late 2001. The government was relieved by the feeble second quarter growth: it had been expecting the economy to contract thanks to the energy crisis which peaked in April 2004. A better-than-expected performance from industry saved the quarter: industrial output was up by 6.9% year-on-year, thanks to a 13.2% rise in manufacturing and a 32.4% jump in construction. Overall in the first half of the year, the economy grew by 9.0% year-on-year. Despite the solid performance by industry in the second quarter, year-on-year, there was drop in investment, exports and domestic consumption. What has saved the economy has been the strength of domestic demand. Outlook The problem is that for 2005, the government is forecasting, optimistically,
that exports and investment will pick up while the domestic economy will
falter. The problem with these assumptions is that the government has
some influence over domestic consumption, but less over demand for the
country's (largely commodity) exports or whether foreign investors choose
Argentina for their projects. The budget assumptions for 2005 are: growth
of 4%, a stable exchange rate (Arg$3.05 to the dollar) and inflation of
7.9%. The main increase in public spending will be on debt servicing.
The exchange rate forecast for 2005 of Arg$3.05 to the dollar may prove
to be optimistic: for this year the government forecast an average exchange
rate of Arg$2.84, but the actual average has been Arg$2.95. |