Back from financial ‘darkness,’ Argentina borrows $16.5B


BUENOS AIRES: Argentina borrowed $16.5 billion on Tuesday (Wednesday in Manila) in its triumphant return to international credit markets 15 years after a disastrous default, the government said.

Finance Minister Alfonso Prat-Gay said Argentina raised billions more in sovereign bonds than it had planned in the country’s first debt auction since the default in 2001.

“The 2001 default phase is now definitively closed,” Prat-Gay told a news conference.
He said investors accepted an average rate of return of 7.2 percent on the bonds, which have maturities ranging from three to 30 years.

That was a higher rate than on much South American sovereign debt, reflecting lingering uncertainty about Argentina’s financial fortunes following a lengthy absence from the markets.

Prat-Gay earlier said the government received demand for $60 billion in bonds, several times bigger than the supply in the auction, which was initially forecast to raise between $12.5 billion and $15.0 billion.

That was “the highest demand in history in an emerging economy and among the 20 biggest debt issues in history,” he told a news conference.

“We are very happy to have come so quickly out of the darkness to be able to reconnect with the world.”

He said two thirds of the new investors were from the United States, a quarter from Europe and about 5 per cent each from the Middle East and Latin America.

Argentina will use part of the borrowed money to settle a 15-year lawsuit by US investment funds known as “holdouts” who demanded full repayment of debts dating to the default.

“On Friday, when the funds [from the bonds]are credited to our account, we will pay $9.3 billion” to those creditors, the minister said.

“We have reached 220 agreements with holdout investors of various sizes.”

Argentina’s leftist ex-president Cristina Kirchner branded the holdouts “vultures” and refused to negotiate with the holdouts, leading Argentina to be seen as a pariah on financial markets.

Her successor, conservative President Mauricio Macri, has claimed the return to the international financial fold as a victory.

Since taking power in December, he has been trying to boost Argentina’s flagging economy by scrapping Kirchner’s protectionist policies.

Macri’s opponents said poor families would bear the cost of his borrowing since public spending cuts would be imposed to pay off the debts eventually.

He has removed currency controls and raised utility prices, triggering angry protests from Argentines who say their spending power is declining.

The bond sale “is a major step forward,” Agustin Carstens, head of the IMF’s Monetary and Financial Committee, said Saturday.

“It is very good to have a country as important as Argentina putting the house in order.”

He warned, however, that Argentines would have to endure tough economic cutbacks to stabilize the economy and public finances.

“Needless to say, in the short term, some measures may be difficult to digest,” Carstens said in Washington.

The International Monetary Fund forecasts that Argentina’s economy will contract by 1 percent this year and grow 2.8 percent in 2017.

Prat-Gay has given a stronger forecast of around zero growth this year and growth of up to 4 percent next year.

After the 2001 crisis, some Argentines object to taking on new debt—not least Kirchner and her allies. Her side was only narrowly beaten by Macri in last year’s election.

“Once again, history is repeating itself and catching the Argentines out. Debt, devaluation, layoffs, political persecution, price rises,” Kirchner said in a speech last week.



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