Argentina said it may delay a US$3 billion payment to the IMF next year and plans to tap a US$1.5 billion emergency credit line from private banks to ensure it meets obligations to bondholders.
The country would be the first to exercise an option to delay payments that the IMF has allowed only three others -- Brazil, South Korea and Russia. The last time any nation deferred an IMF payment was in the early 1980s, when Guyana and Vietnam made special requests before defaulting on their debts.
Argentina's latest financing plans, outlined by government officials on a conference call with investors, underscore the IMF's willingness to help as the nation tries to convince investors it will meet payments on US$95 billion of bonds.
"There's a window for a solution but it's a very narrow one," said Mead Welles, who manages about US$160 million in emerging market assets for Octagon Asset Management, LLC, which sold all its Argentine bonds in recent months and now owns securities in the country backed by commodities. "We see this as a long-term problem that's not easily going to go away." Argentina's benchmark bond rose 0.6 to an offer price of 76.81, to yield 22.5 percent, down from a yield of 33.8 percent before the IMF announced the new loan agreement Aug. 21, according to prices provided by JP Morgan Securities Inc.
With tax revenue and central bank reserves falling, Argentina sought IMF assistance last week to bolster confidence it can meet debt payments. The agreement requires spending cuts, which will be difficult as a recession drags on, depositors pull savings and Argentines protest lower wages and pensions.
"The near-term risk of default has lessened significantly, and going forward it will be tied to depositors and politics," said Mark Dow, a former IMF economist who manages US$500 million in emerging market debt at MFS Investment Management in Boston.
"What Argentina wants to do is tough, but not undoable." The IMF last week announced a new loan for Argentina, part of which is tied to a rescheduling of some of the country's bonds.
Government and fund officials didn't release details of the accord, though in meetings this week the US signaled it was willing to support additional loans for Argentina.
The US$3 billion payment due to the IMF next year is part of the US$14 billion loan the fund approved for the country in December. The loan agreement allows a payment deferral of as long as two-and-a-half years. Argentina's interest on the loan would climb 50 basis points every six months.
The three other countries that were granted this option all repaid their loans ahead of schedule, said IMF spokesman Francisco Baker.
Argentina, with US$130 billion in total debt and cut off from capital markets, won't need to borrow overseas until October 2002, government officials said. The country expects to have to raise US$2.1 billion next year on international markets.
The government plans to ask local banks and pension funds to buy or roll over at least US$3.7 billion of bonds in 2002.
The government this year will tap an emergency credit line from international banks to help cover withdrawals, central bank board member Amelia Martinez said on the conference call.
"The real risk is not at the government level anymore, but the potential impact on banks and the corporate sector," Octagon's Welles said.
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