Author: Santiago Fittipaldi

nmart03 Among international bondholders, Argentine President Nestor Kirchner has made few friends recently. After all, Kirchner has asked bondholders to take a 70% loss on their Argentine holdings and has turned a deaf ear to their pleas for a less draconian restructure. At $103 billion, it is the largest in history-with losses to match.

In what Argentina says is its final offer, bondholders were asked in January to exchange their defaulted bonds for up to $41.8 billion in new pars, quasi-pars and discount bonds with longer maturities and lower interest rates. In effect, for every dollar (face value) of bonds exchanged, holders get a new bond worth 30 cents.

Kirchner argues that paying more would spell disaster for the country’s fragile socio-economic balance as it emerges from a severe recession that prompted the sovereign default in the first place. However, bondholders point to Argentina’s strong primary surplus and growing reserves as indications of its ability to improve the offer.

"There will be no improvement, there will be no new swap," said finance minister Guillermo Nielsen when asked if the government-which tweaked an initial offer to recognize past-due interest-would consider modifying its terms in the future. Some contend January’s "final offer" is a bluff to get holders to exchange the bonds, after which the government might offer holdouts better terms to wrap up the deal.

The Global Committee of Argentina Bondholders (GCAB), which represents holders of $38 billion worth of bonds, says it is not signing on. There are also lawsuits pending in Germany and Italy. The boycott is a tricky gamble that may or may not pay off. In ads placed by the government in several international newspapers to promote the deal, it said, "Argentina does not contemplate future payments for eligible bonds that do not participate in the swap."

Bondholders, who have not received coupon payments since 2001, may cave in to cut their losses. Argentina’s private pension funds, which account for 17% of the bonds, jumped at the offer after negotiating earlier with the government. With more than 38% of the bonds in the hands of Argentines, Kirchner may find it easier to sway his compatriots to get the restructure completed.

Santiago Fittipaldi