Re: Argentina

[SOncu@xxxxxxx]

The article below is a different way of looking at De la Rua' s address to
Argentinians. This is an excerpt from the article:

``I would see it [the default] as a buying opportunity,'' said Mark Mobius,
who manages $7 billion at Franklin Templeton Investments. ``It would be most
positive for Brazil, Argentina and Turkey.''

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11/01 22:14
Argentina to Default on $95 Billion of Bonds in Debt Exchange
By John Lyons and David Plumb and Andrew Barden

Buenos Aires, Nov. 2 (Bloomberg) -- Argentina plans to default on at least
$95 billion of bonds, more than twice the amount Russia failed to honor in
1998, by swapping the debt for securities that pay lower interest rates.

``This is something new for the financial community in terms of order of
magnitude,'' said Mauro Leos, an analyst at Moody's Investors Service. ``It
is unique in every respect.''

President Fernando de la Rua said the government will cut $4 billion of
interest payments next year through an exchange of bonds. Investors will
receive new securities that pay average rates of about 7 percent, compared
with 15 percent now, he said.

The default is a result of the government's failure to cut spending combined
with a decade-long reliance on a fixed exchange rate that made exports less
competitive and limited Argentina's ability to respond to lower interest
rates during a recession. De la Rua said the announcement shows the
government will lower interest costs, though analysts said it will do little
to inspire investor confidence and may trigger a run on Argentine banks.

One-day interest rates in pesos more than tripled to as high as 190 percent
as banks braced for a wave of withdrawals. Bank deposits have fallen 11
percent since the end of June, or by $9.1 billion.

``We could see a big outflow of deposits, and the crisis becomes accelerated
and not abated by these measures,'' said Mohamed El Erian, who helps manage
$7.5 billion at Pacific Investment Management and holds no Argentine debt.

The government is expected to announce more details of the debt exchange
later. The extent of investors' potential losses is reflected in the price of
the benchmark floating rate bond due 2005, which is trading at about 48.75
cents on the dollar. The bond's yield has tripled since June to 54.5 percent.

Brady Bonds

The default marks the second time in a little over 10 years that Argentina
has been unable to pay its debts. The country defaulted in late 1980s, and in
1992 issued about $25 billion of so- called Brady bonds in exchange for debts
accumulated in the late 1970s. Other countries that restructured defaulted
debt, such as Mexico, cut spending and reduced their dependence on foreign
capital in the years that followed.

Argentina raised about $89 billion on capital markets in the past 10 years,
most through foreign bond sales, to help finance a widening budget deficit.

``The time has come to lower the cost of the debt,'' Economy Minister Domingo
Cavallo told business executives and government officials at the state-owned
Banco de la Nacion.

The default dwarfs that of Russia, which in August 1998 stopped paying on $40
billion of domestic bonds. Argentina, which has $132 billion of public debt,
doesn't plan to restructure any multilateral loans, Finance Secretary Daniel
Marx said.

Pension Cuts

De la Rua, in an address to the nation, said the government will cut pension
contributions deducted from paychecks in half for one year to boost spending.
It also plans to lower the sales tax for credit card purchases to help spark
economic growth. The president reiterated that the country will keep the peso
pegged one- to-one with the U.S. dollar.

Argentina's floating rate bond plunged more than 9 percent to its lowest
level in six years after the International Monetary Fund 5.25 to an offer
price of 48.75 to yield 54.5 percent. The government said it doesn't expect
new foreign loans.

Investors' expectations that Argentina would default already are reflected in
the prices of many emerging market bonds. Bonds may rise after the
announcement once investors assess their worth.

``I would see it as a buying opportunity,'' said Mark Mobius, who manages $7
billion at Franklin Templeton Investments. ``It would be most positive for
Brazil, Argentina and Turkey.''

Merrill

Argentina selected Merrill Lynch & Co. to advise on a planned exchange of the
nation's bonds for new securities. Merrill Lynch International President
Jacob Frenkel is in Buenos Aires holding talks with the government.

The government also has demanded that local banks and pension funds swap at
least $14 billion in provincial and sovereign debt for securities that pay
about a third of the interest.

S&P this week cut Argentina's credit rating three steps closer to default to
``CC,'' the lowest of any country. The company said any debt exchange that
lowers the value of investors' holdings would be tantamount to a default.
Moody's also rates Argentina the lowest of any country in the world and has
raised concern about the government's debt exchange plans.

Government officials said they will offer investors one or more new bonds,
which will pay either a fixed 7 percent interest rate or floating rate of 300
basis points over the London interbank offered rate, government officials
said.