Argentina Completes Debt Swap

Argentina surpassed expectations by swapping nearly $29.5 billion of old debt for new in its drive to stamp out investors’ fears of a debt default, Economy Minister Domingo Cavallo said Sunday.

Argentina’s much-awaited exchange of short-term debt for longer-term issues will defer debt service costs by $16.04 billion through 2005, Cavallo said. The government hopes the swap will provide financial stability to help end the economy’s nearly three-year funk.

“We have defeated those who bet against Argentina,” Cavallo said. “We have resolved our most urgent needs, and now we’re going for the most important thing: growth in the Argentine economy.”

Investors have worried in recent months that Argentina’s stagnant economy might leave it without enough cash to pay its $128-billion public debt, which equals nearly half the gross domestic product of Latin America’s third-largest economy.

The $29.48-billion total swapped far surpassed market forecasts, as did the $7.82 billion in deferred debt-servicing costs through the end of 2002, which was announced by Cavallo at a news conference with Finance Secretary Daniel Marx.

Initial reaction from analysts, most of whom had predicted the swap would total about $20 billion, was favorable.

Cavallo said in Sunday’s edition of La Nacion newspaper that relief of the government’s near-term debt obligations would allow it to implement a series of measures to spur stagnant consumer spending, bolster industry and cut into a 15% unemployment rate.

Cavallo reiterated that he expected the economy to grow by the second half of the year and defended the terms of the exchange, which some economists had criticized as overly generous to bondholders and too costly for the state.