Argentina swaps $4.3 bln in debt, easing payments

Argentine investors have agreed to trade $4.3 billion in bonds for longer-term loans, allowing the government to postpone repayment until 2014 and easing its debt burden as the world economic crisis saps public income.

President Cristina Fernandez on Wednesday said 97 percent of local holders of the so-called guaranteed loans had accepted the swap, demonstrating their "confidence" in Argentina's slowing economy.

The agreement will cost bondholders two percent of their initial investment, saving the government about $1.6 billion, or 8 percent of the debt payments it owes this year, Cabinet Chief Sergio Massa told reporters.

In exchange, the deal guarantees investors a preferential 15.4 percent interest rate for 2009, and returns that are 2.75 percentage points above country's benchmark interbank lending rate each year through 2014.

Unlike the previous loans', the new interest rates are not linked to Argentina's official inflation rate, which most economists agree is vastly underreported. That makes the swap more attractive, said Carolina Schuff, an analyst at the abeceb.com economic Web site in Buenos Aires.

Argentina has seen public income plummet as the world economic crisis slashes demand for its soy, wheat, corn and beef exports - raising concern it could miss debt payments or fall into deficit. But government officials and analysts agreed Wednesday's loan swap would help cover $20 billion in obligations due this year, likely boosting investor confidence.

"What you're seeing is a plan that responsibly manages public debt and confirms the conviction, the will and the capacity of Argentina to pay each and every one if its obligations," Massa said.

Still, affected bondholders may have had little choice but to take the deal, especially following the government's December nationalization of the country's 10 pension funds, said Daniel Kerner, an economic analyst at the Eurasia Group in New York.

The main investors signed on for the swap are Argentina's Social Security Administration, state banks Banco Ciudad and Banco Nacion and private banks Banco Galicia, BBVA Banco Frances S.A., Credicoop Coop. Ltdo., state news agency Telam reported.

"Local banks probably want to appear as collaborative and establish good relations with the government for fear of future retribution," Kerner said in a note to investors.

Foreign investors own another own another $5.1 billion in guaranteed loans, and may negotiate a separate deal in talks set to begin Feb. 11, Massa said. The 3 percent of local investors who didn't accept Wednesday's swap have until then to sign on, he added.

The original loans were set to mature between 2009 and 2012.

A severe drought and falling demand for Argentine exports could cost the country's farming sector $5 billion this year - and cost the government $4.3 billion in export tax income, estimates Milagros Gismondi, an analyst at the Orlando Ferreres y Asociados consultancy in Buenos Aires.

Yet the swap "shows the government is intent on trying to pay its debt" despite those conditions, said Gabriel Torres, a senior analyst at Moody's Investor Services in New York.