Who will blink first - Argentina or its creditors? Reuters, 12.11.03, 10:22 AM ET By Hugh Bronstein and Brian Winter
NEW YORK/BUENOS AIRES, Argentina, Dec 11 (Reuters) - Call it an $88 billion game of chicken. On one side is Argentina, the proud and once-prosperous nation that two years ago staged the biggest sovereign debt default in history. On the other are the country's jilted bondholders, appalled by the government saying it can repay no more than 25 cents on the dollar. The investors, asking 65 cents for every dollar they lent, are forming a global committee to negotiate a restructuring. But, despite the assumptions that Wall Street makes about the way defaulters must behave in order to reestablish credit, Argentina may go forward with an offer sure to be rejected. An increasingly impatient U.S. federal judge meanwhile says investors may start trying to seize government property as early as February. "This will get very ugly for both sides unless they reach a solution soon," said Ruben Pasquali, an economist for Mayoral brokerage in Buenos Aires. Argentine officials have stared down furious bondholders from Tokyo to New York, and said that the offer on the table is not negotiable, arguing that the first priority for the government's money is to shore up a country that spiraled into poverty last year after its finances collapsed. It may not be a bluff. President Nestor Kirchner, who took office in May, is under political pressure at home to reach a deal that leaves Argentina's economy enough breathing room to build on this year's surprisingly brisk recovery. "Argentines see themselves as the victims here," said James Neilson, an Argentine political analyst. "Many people believe the default was splendid, that the debt was somehow imposed on us and now we're free. It's a bizarre cultural attitude." "I think Kirchner will be much tougher than anybody believes during the (debt) restructuring, if only because he's popular and that's what most Argentines want him to do. He may be perfectly serious when he says he's not negotiating." Wall Street has been left asking itself how Argentina can promote a restructuring doomed to be rejected by investors. "One interpretation is that they are not particularly worried about launching an exchange that will fail," said Abigail McKenna, a portfolio manager at Morgan Stanley Investment Management and a member of the steering committee of the Argentina Bondholders Committee. "The other possibility is that the government feels it needs to stand tough on the terms until the last minute when a negotiation will ultimately take place." Argentina has said it wants to have the restructuring done by mid-2004. If it drags on longer, Argentine banks holding debt will still not know the worth of their assets, meaning credit will be scarce and the real economy will start to fade. Markets seem to think Argentina will eventually sweeten the deal, judging by the fact bond prices are at about 27 cents on the dollar. That is above the 25 cents implied in Argentina's current offer, even without factoring in past-due interest payments and the risk of another default. "People seem to think this will eventually get worked out," Alberto Bernal, analyst for IDEAGlobal, Bernal said. "But it will be interesting to see who makes the first move." Copyright 2003, Reuters News Service
