Argentina to borrow cash again, 15 years after default

3 min

Buenos Aires (AFP)

Argentina seeks to end 15 years of financial isolation on Monday when it sets out to borrow cash on international credit markets for the first time since a 2001 default.

The country is looking to boost its struggling economy and settle a 15-year lawsuit by US investment funds which its ex-president Cristina Kirchner branded "vultures."

"Argentina is back," said Finance Minister Alfonso Prat-Gay in Washington this weekend.

Now that a US court has cleared the way for Argentina to start borrowing again, the government planned to issue up to $15 billion in medium- and long-term bonds on Monday.

"It is an important, epoch-changing event," said Gaspard Estrada, a specialist at French Latin America affairs observatory OPALC.

"It serves partly to pay the vulture funds, to finalize an agreement with the remaining creditors, and to give the government room to maneuver to restart the country's economy."

"It is a major step forward," said Agustin Carstens, head of the International Monetary and Financial Committee of the IMF, on 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.

Conservative President Mauricio Macri has been scrapping Kirchner's protectionist policies and opening up Argentina's diplomatic and financial ties.

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

- Argentine debt jitters -

South American countries generally borrow at 3.0 to 4.0 percent interest, but analysts forecast Argentina would have to offer a higher rate in its new bond issue.

Edward Glossop, an analyst at research group Capital Economics, estimated it would have to offer investors a yield of between 7.0 and 9.0 percent.

"The issuance of external debt is likely to have a significant impact on the economy over the medium term," he said.

After the 2001 crisis, some Argentines object to taking on new debt -- not least Cristina Kirchner and her allies.

"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.

"These are just a few of the calamities that the new government has caused in barely four months."

Argentina did not borrow in the 12 years under Kirchner and her late husband and predecessor Nestor, Estrada said.

Excluding the previous debt to the holdouts, it lowered its debt thanks to high prices paid for its commodity exports, which have since fallen.

Getting access to Latin America's third-biggest economy is an appetizing prospect for foreign banks.

The finance ministry said it has enlisted Deutsche Bank, HSBC, JP Morgan, Santander, BBVA, Citigroup and UBS to organize the bond sale on Monday and Tuesday.

But it has included a clause to prevent a small number of shareholders from blocking the restructuring of the debt.

That is a measure to avoid a repeat of Argentina's fight with the "holdouts," international investment funds that sued it in the US courts for full repayment after its 2001 default.

Credit rater Moody's raised Argentina's sovereign rating on Friday ahead of the bond sale.

It still ranks as a speculative investment with a "high credit risk," but less high-risk than before.

Macri on Saturday announced a series of social welfare measures that he said would help the poor cope with the cuts.

He said family welfare subsidies would be expanded to more people and tax breaks granted for those with the lowest incomes.