April 16, 2010Fernandez Says Investors to Do Well in Argentine Swap
Argentine President Cristina Fernandez de Kirchner, locked out of international capital markets since taking office, said an offer to holders of $20 billion of unpaid debt marks a “turning point” in her country’s history and will be a good deal for investors.
“I thought that if I could get us out of the default, I’d feel I’ve done something for this country,” Fernandez said in an interview yesterday, one hour after her government unveiled terms for the new debt swap. “We’re back in the world.”
A successful exchange of the bonds would enable Argentina, South America’s second-largest economy, to tap global markets after a record $95 billion debt default in 2001. This is the last opportunity for bondholders to accept an exchange and profit from an annual economic growth rate of 6 percent, Fernandez said.Sitting in the Casa Rosada, the pink government palace in downtown Buenos Aires where former President Juan Peron and his wife Evita addressed supporters six decades ago, Fernandez said her priority is to preserve and create jobs. Policies including loans to General Motors Co. and accords with unions helped skirt a recession during the global economic crisis, she said.
“Come, and you will do well,” Fernandez said when asked what message she had for creditors who rejected the first bond offer from her husband and predecessor Nestor Kirchner. “This is a second opportunity and they shouldn’t miss it because the same train won’t be leaving the station a third time.”
Terrorism, Lehman
In a 40-minute interview, the 57-year- old lawyer talked of subjects ranging from terrorism and global warming to the collapse of Lehman Brothers Holdings Inc. and religious conflict. Lehman exposed the need for global controls on capital flows and greater regulation, Fernandez said.
Argentina last year had a record trade surplus of $17 billion because of import restrictions and an exchange rate policy that favored local industry, Fernandez said. The economy expanded 0.9 percent, compared with a 0.2 percent contraction in neighboring Brazil and a 1.5 percent decline in Chile.
Fernandez, a former senator and the first woman to be elected president of Argentina, began her four-year term in December 2007. Nestor Kirchner, 60, took office when Argentina was recovering from the late-2001 financial meltdown that led to violent street protests, attacks on banks and five presidents in two weeks. In 2002, the peso, which had been pegged 1-to-1 to the dollar, declined 70 percent, unemployment peaked at 21.5 percent and the economy shrank 10.9 percent.
Bonds Gain
Argentine dollar bonds yield 6.01 percentage points more than U.S. Treasuries, compared with a spread of 1.75 percentage points for Brazilian debt and 3.64 percentage points for Iraqi bonds at 9:24 a.m. in New York, according to JPMorgan Chase & Co. Only Venezuela and Ecuador pay more than Argentina to borrow in dollars among major developing economies included in JPMorgan’s EMBI+ Index.
The exchange offer is worth 51.6 cents on the dollar for debt in the U.S. currency and 45 cents for the bonds in euros, according to a report by JPMorgan economist Vladimir Werning, who said the proposal is “attractive” and is likely to get a “high participation rate.”
Argentina’s untendered bonds were trading around 43 cents on the euro, up from about 42.5 yesterday before the announcement, according to prices from Exotix at 9:09 a.m. New York time. While the offer is “marginally worse than what we had previously been expecting,” it’s “probably a good idea to tender,” Exotix strategist David Aserkoff in London said in a phone interview today.
Nuclear Agreement
The government’s 7 percent dollar bonds due in 2015 last traded at 84 cents on the dollar, up from 83 cents before the yesterday’s offer and a lowpoint of 18 cents in October 2008.
“The bond swap, if successful, paves the way for the government to finance itself on the international markets again,” said Patrick Bengzon, who helps manage $11.8 billion at Silkeborg-based Jyske Bank A/S, Denmark’s second-largest banking group. Bengzon bought Argentina’s 2 percent local-currency notes maturing in 2014, the peso and some inflation-linked bonds in October, he said. “It’s the political will that counts at this point, and in that respect they will find a compromise with the market,” he said.
Earlier this week Fernandez met Russian President Dmitry Medvedev in the first visit by a head of state from that country in the 125 years since diplomatic relations were established. Russian and Argentine officials signed a nuclear-energy co- operation accord that may open the door for billions of dollars in investments in the South American country, Medvedev said.
Inflation Calculations
Since taking power in 2007, Fernandez nationalized about $24 billion of pension funds and imposed taxes of as much as 45 percent on soybean exports, prompting strikes, roadblocks and declines in output. Argentina, the world’s third-largest shipper of soybeans, counts U.S. companies Cargill Inc. and Bunge Ltd. among its largest exporters.
Inflation, calculated at 9.7 percent in the 12 months through March by the government, is running at about 25 percent, according to Alfonso Prat-Gay, an opposition leader in congress and former central bank president. Economy Minister Amado Boudou said in an interview this week the inflation data accurately captures a basket of goods consumed by low-income families.
This year, Fernandez ousted central bank president Martin Redrado, after he refused to follow an order to transfer $6.6 billion in international reserves to the Treasury to pay debt.
“I had to leave the bank because I wasn’t very obedient,” Redrado said in an interview at the office in Buenos Aires yesterday.
White Marble
Ford Motor Co. April 7 announced it will invest $250 million in Argentina to produce a new vehicle for export.
“Argentina is undergoing a transformation in which we are seen not only as a market, a customer, but as a partner,” Fernandez said from inside the Casa Rosada, a 19th century palace with white marble staircases protected by red carpets. Guards stand outside in the Plaza de Mayo, frequent site of demonstrations against the 1976-1983 military dictatorship.
Fernandez said her decision in June 2009 to lend $70 million to General Motors to complete a new car model in the river port city of Rosario led her to reflect on how she has changed since her student days, when she shouted “Yankees, go home” in defiance of U.S. influence in Latin America.
“These are the things that crises teach you,” said Fernandez. “Nothing is ever the same and one has to keep an open mind.”
AP
