Argentine Congress promises fast approval of new debt swap

Even opposing Peronists yesterday spoke in support of the new debt swap offer due to the fact that the banks' offer has a more political than financial design, with very little room for criticism. Congress will approve the proposal by mid October. The actual offer will probably take place before the end of the year. The only thing still in doubt is the strategy hedge funds will adopt.

The Argentine government will send to Congress the bill authorizing the payment of the defaulted bond debt, which did not participate in the 2005 debt swap. The announcement made by Cabinet Chief Sergio Massa took government legislators by surprise. Until yesterday, they had not much information about the initiative which will be sent to the Lower House «mid October,» said the government official.

The only certainty Argentine legislators had yesterday was that the government should first foster the amendment of Law 26,017, known as the «ley cerrojo», passed in February 2005, which banned future negotiations with creditors who had not accepted the swap of around $120 billion.

Legal Authority

The basics of the bill highlighted the Executive's legal authority to negotiate the debt. It also stated that «the road chosen for restructuring the debt tries to achieve the maximum degree of acceptance of the market in terms of sustainability.»

It has yet to be defined if the 2009 Budget will have to be modified after President Kirchner's announcement in New York. The head of the Argentine Budget and Treasury Committee assured to this newspaper that, as a minimum, Congress «will need to pass a law modifying the 'ley cerrojo' and authorizing the issuing of bonds,» apart from possible changes to the 2009 Budget.

Massa trusts Congress will make progress in this operation which, if approved, will be settled by the beginning of 2009. «This improves the debt profile. It not only means a relief for fiscal accounts, but a much more staggered due date program year after after,» highlighted Cabinet Chief Sergio Massa.

In radio statements, the official further highlighted that if the Parliament approves reopening the debt swap, the procedure will last «120 to 150 days.»

However, according to Massa, the Congress will also have to ratify the proposal made by three banks -Barcklays, Citigroup, and Deutsche- to settle the debt with bondholders who were left out of the 2005 swap.

Importance

He also emphasized the «strong payment capacity» of Argentina, thanks to its «fiscal surplus», and underlined this announcement does not emerge from the decision to settle the Paris Club debt, «but it's even more important in terms of volume.»

According to the government official, «the assessment process» of the proposals made by three banks to swap at least 10 billion dollars in defaulted bonds «will take two or three weeks.»

Agustín Rossi, leader of the Lower House's ruling bloc, anticipated that the swap proposal the Executive Power will send to Parliament will be «passed with no problems.»