Argentina’s Cavallo Goes on Road to Calm Panic

Argentina’s economy minister, Domingo Cavallo, will try this week to convince U.S., European and Asian investors that the panic about Argentine debt will be quelled by a major new bond swap.

“The high interest rates and mistrust of bondholders are like a high fever. We have to bring it down. I have tried and will try this week to bring down this financial fever,” he told Argentine newspaper Clarin over the weekend.

The economic minister is due in Madrid today, London Tuesday, New York Wednesday, Munich Thursday and Hong Kong Friday as he aims to persuade the world’s financial markets that the bond swap means the emerging markets crisis caused by Argentine debt worries should be nearing an end.

The government hopes $20 billion in bonds will be swapped, pushing back near-term debt servicing costs to save $4 billion in 2001, $4.7 billion in 2002 and $3 billion a year on average from 2003 to 2005. This should release money into the dormant economy and help Argentina reach the $6.5-billion 2001 public deficit goal agreed upon with the International Monetary Fund as a condition of a $40-billion multilateral credit lifeline the IMF granted in December.

But economists have warned that without a prompt return to economic growth after 34 months of recession and stagnation, the effect of the bond swap will be as brief as that of the $40-billion aid package, and the tailspin will continue.

Cavallo, who was drafted by President Fernando de la Rua’s center-left coalition after two economy ministers quit in rapid succession in March, promised that in a few weeks he would launch measures to boost all-important consumer activity, the key to Argentina’s low-export economy.

He recently launched a plan for the auto industry to bring down sales prices 15% to 20% and a “transparency law” for capital markets, aimed at reducing the high cost of credit.

Last week, Argentina’s country-risk rating, measured by the spread between its bonds and benchmark U.S. Treasuries, settled back near 900 basis points--still high, but off the 1,200 level seen since the ruling Alliance plunged into crisis late last year, sparking fears about its ability to meet debt payments.