Cabinet chief vows Argentina will service debt

BUENOS AIRES, Argentina – Argentina will meet all its debt obligations in 2008 and 2009, its Cabinet chief said Wednesday, addressing investor concerns that political tensions could reduce its budget surplus and slow its debt payments.

Given foreign currency reserves of about US$47 billion, “no well-intentioned person can doubt that Argentina is going to meet each and every one of its commitments,” Cabinet chief Sergio Massa told investors in Buenos Aires.

Argentina edged near economic crisis this year when four months of farm strikes stalled exports, slashed export tax income and caused sporadic food shortages.

President Cristina Fernandez’s popularity fell to about 20 percent in several July polls, while Standard & Poor’s cut its country rating and Moody’s Investors Service slashed its outlook for Argentine debt.

Investors have warned that slowing tax income could narrow Argentina’s fiscal surplus and force Fernandez to choose between public spending and debt payments. The fear is that her weakened political position could push her to maintain spending rather than honor US$18 billion in dollar- and peso-denominated bonds that mature this year and next.

The spread between Argentine bonds and U.S. Treasuries has widened in recent months, reaching 727 basis points, or 7.27 percentage points, on Aug. 8 — the highest perceived risk since 2005, when Argentina restructured about US$103 billion in debt.

Investor concerns that Argentina may once again face cash shortages increased as the government sold Venezuela US$1.5 billion in dollar-denominated 2015 bonds at an unusually high 15 percent interest rate in early August.

Two weeks ago, Argentina announced plans to buy back an unspecified amount of 2008 and 2009 bonds, narrowing the spread to a still notable 670 basis points on Wednesday, according to JPMorgan’s EMBI+ index. The buyback will begin Thursday with US$49 million in dollar- and peso-demoninated bonds, the Economy Ministry said Wednesday.

“Argentina is a friendly country to people who want to come and invest,” Massa said. “It’s even more friendly for those who’ve put in a dollar and want to keep putting in more dollars, because that generates work for Argentines.”

Argentina has sold about US$7 billion in debt to its left-leaning ally Venezuela since 2005 — but it has not issued any other new bonds on international markets.

Argentina defaulted on about US$95 billion in bonds in 2001, the largest default in history. It restructured much of that debt four years later, swapping old bonds for new ones worth about a third of the price. About 76 percent of holders accepted the offer, while others are suing Argentina in European and U.S. courts for about US$20 billion. Their cases are still pending.

Massa declined to comment Wednesday on media reports that the government is planning to repurchase more debt from former bondholders who did not agree to the 2005 swap.

A repeat default is highly unlikely, Central Bank president Martin Redrado told investors gathered to hear Massa on Wednesday.

Argentina spends just 7 percent of its annual tax income on debt payments today, compared to about 22 percent in 2001, while its budget surplus has climbed to about 3.8 percent of GDP, more than double the 1.8 percent of GDP needed to keep servicing its debt, Redrado explained.