[Marxism] Problems and Realities 3

["sartesian" <sartesian@xxxxxxxxxxxxx>]

Market Insight: Don’t cry for Argentina
>By Benedict Mander in Buenos Aires
Published: April 17 2006 17:35 | Last updated: April 17 2006 17:35

Argentina is back in the game after its disastrous fall from grace in
2001. In Latin America’s current investment climate, where demand
continues unabated despite growing political risk, it had no difficulty
last month in making its first new bond issue direct to international
investors since 2001 – for $500m. Another issue of $500m is expected
soon.
Argentina has preferred to rely on Venezuela and local investors for its
financing needs. This year it has borrowed $1.5bn at below market
interest rates from Venezuela, which is flush with petro-dollars and
eager to build its influence in the region.

Now Argentina is confident enough to look to borrow from further afield.
“It was a very important move and really showed for the first time that
the government is ready to issue at market prices, the same as everyone
else,” said Miguel Kiguel, a finance secretary in the 1990s, who points
out that international investors accounted for more than 80 per cent of
demand of the recent issue.

The environment is propitious. “People are so desperate for paper they’
ll take it from anybody. Bankers will have been calling on Argentina
saying ‘please, please issue new paper’,” says Walter Molano, an
emerging markets analyst for BCP Securities. “When the external
situation changes Argentina will suffer from whiplash as the market
aggressively turns.”


Argentina is unable to issue debt in a foreign country without risking
the seizure of funds by the “hold-out” investors who did not enter the
restructuring last year and still own $20bn of untendered debt.
But this now does not appear so serious a problem. Mr Kiguel calculates
that Argentina only has to pay an extra 30-50 basis points on locally
issued debt. Without a settlement for hold-out investors, Argentina must
keep paying that premium.

Some hold-outs might be regretting their decision. Many people
considered last year’s harshly negotiated exchange a kind of market
barbarism. But thanks to Argentina’s strong growth – over 9 per cent
last year – the abstruse gross domestic product warrants included in the
restructuring have doubled in value since November. Analysts say they
could well pay out their $40bn limit, almost half of the face value of
the defaulted debt.

Argentina might even have stumbled on a revolutionary instrument, closer
to equity than a bond, where payment is linked to the performance of the
economy. It even provides protection for the government during
recessions.

The warrants pay out only when GDP is greater than its level predicted
in the prospectus, which conservatively started at 4.2 per cent in 2005,
then the government pays a percentage of the difference. Mr Molano
suggests GDP warrants could be “the key to re-establishing credibility
in international capital markets”.

Argentina has limited need for the international capital markets, for
now at least, while it runs budget and current account surpluses.
Financing needs are hardly burdensome in the short and medium term –
most obligations were back-loaded well into the future with its debt
restructuring last year. The MVA Macroeconomia economic think tank in
Buenos Aires reckons its debt-to-GDP ratio can recover from 76 per cent
now to 40 per cent by 2012.

With $2bn issued already, Argentina is half way to the $4bn funding
requirement it has for this year. Half of the remainder will come from a
World Bank loan, and it can draw on a large pool of domestic pension
funds....


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