Kirchner ready for Guinness records

Néstor Kirchner

The 90's were the years of "financial globalization", as foreign finances skulls like to call. As good Argentines, we quickly got in the triumph car, trying to captivate all capitals going around the world with the never-fulfilled promise of handsome profits at low risk.

Sovereign debt, which, by the end of 1990, did not exceed $60 billions, it reached to $144.5 billions on December 2001. Many Argentines still have in their minds when our ministers and state secretaries travelled across the world saying that we were "not Brazil", country collapsing in January 1999, devaluing its currency 40 per cent.

Convertibility dream would last till the end of 2001, when in circus ceremony, former Argentine President Adolfo Rodríguez Saá declared suspension of payments. Pesification of sovereign debt came with Eduardo Duhalde and his godson, successor and incumbent president, Néstor Kirchner, would finish the restructuring process.

During the 18 months (September 2003-March 2005) it took to reach a refinancing agreement of the irregular $102.5 billions, we told those lending us all sort of things, expect "pretty". In this way, government put Argentina in the absurd situation of being the country which had not only defaulted the greatest debt of history, but also the only one, being the debtor, daring throw out of its official statistics the $24.5 billions of holdouts not accepting the "generous" 70-per cent deduction (it had started at 90 per cent in September 2003 in IMF and IBRD meetings in Dubai).

So, at the same time (March 3 2005) government was revealing a 76-per cent acceptance of its swap proposal, it was also telling the world that, out of the $67.3 billions of nominal deduction it had achieved from the $102.5 billions of eligible debt, $24.5 billions (36 per cent) arose from not knowing the rights of those rejecting restructuring (true nominal deduction fell to $42.8 billions). In this way, we were defaulting debt again after having left default recently. Never seen. So original and extraordinary that it could only be made in Argentina.

Peso-denominated debt

However, this is not all. From the very moment of devaluation, government issued a lot of peso-denominated debt adjusted by CER (inflation) so as to compensate savers and to nationalize provincial debt; quasi Par for Retirement and Pension Funds Administrative Bureaus (AFJP, in its Spanish acronym); Par in pesos, Discount in pesos, etc. According to last official data from 2007 second quarter, its stock hits $56.5 billions (41.4 per cent of total sovereign debt) and, for every 1 per cent of inflation, it grows $480 millions a year. So, if true inflation now settles at almost 20 per cent annual, CER sovereign debt rise would be $9.6 billions (3.6 per cent of GDP) a year.

However, if official price increase in 2007 hits 8.6 per cent (2006's 9.8 per cent minus 0.1 per cent monthly in 2007), CER debt rise which government will recognize would only hit $4.12 billions, less than half of true adjustment (43 per cent to be precise). Supposing that, throughout the entire life of CER-adjusted debt, the difference between official inflation and the real one hovers around 10 per cent a year as it will happen in 2007, current net value of deduction at 10-per cent discount rate hits $43 billions ($35 billions at 12 per cent and $27.5 billions at 15 per cent).

In this way, Néstor Kirchner would be doing to CER-adjusted peso-denominated debt issued after 2002 devaluation (now settling at $56.5 billions) a similar deduction ($43 billions at current value) to that suffered by foreign-debt holders accepting March 2005 swap.

What's more, in the $56.5 billions, there are $21.1 billions of Par, Discount and quasi Par bonds in pesos, which came up with 2005 March swap, replacing bonds originally in hard currency issued under foreign law, which had endured deduction of said swap. The remaining $35.4 billions had already had their loss in 2002, when original bonds in dollars (issued under Argentine law) were swapped "like it or not" for peso-denominated instruments at ARG$1.40 a dollar plus CER. Strange and painful humiliation for Argentina to be "a real country."

Brand new

For that reason, Argentine senator and presidential candidate Cristina Fernández de Kirchner wore her new candidate suit during her pleasant trip to Spain by the end of July, saying that "there are crossed interests behind inflation" and stressed that "every point of inflation represents ARG$420 millions more of debt" by updating through CER. In fact, the only black hand in Argentine Statistics and Census Institute (INDEC, in its Spanish acronym) is that applied by Néstor Kirchner's administration when rigging almost all figures, but particularly inflation's, defaulting sovereign debt 2 times in 2 years, after a mega default like that of 2001, raising to 3 the sum of defaults in 6 years. An average of one fraud every two in one administration. Serial defaulters, aren't they?

And the circus movie that our country is writing about debt will continue during spring, with government trying to restructure its $5.5-billion liabilities to Paris Club without IMF intervention, when the rules of the organization provide its participation. For that reason, at the beginning of the month, during a propaganda trip, IMF managing director candidate, the French Dominique Strauss-Kahn, told Néstor Kirchner in Buenos Aires that if he wanted to refinance debt to Paris Club, he had to reach some kind of agreement with IMF. Otherwise, he would have to pay exclusively with reserves of Argentine Central Bank.

Not in vain have Venezuelan President Hugo Chávez and our bankers become the sole lenders to which government can resort. Foreign capital market needs something more than just big talk, appeals to the past and an unacceptable destruction of our statistical system so as to lend us money. At least, Kirchner should start reconstructing the missing fiscal surplus.

In 2008-2011 period, $7 billions of capital fall due, even though we are still enjoying the sweets of having restructured and increased average life of sovereign debt from 7 to 14 years, quite similar to 1993, when we were getting into Brady Plan. We all know how convertibility ended due to an irresponsible fiscal policy.