Bloomberg News

Argentina Makes a $2.2 Billion Final Payment on 2012 Bond

August 03, 2012

Argentina today made its final $2.2 billion payment on bonds issued to savers whose dollar- denominated bank accounts were frozen by the government a decade ago.

“We have finished paying,” the Economy Ministry said on its website, where a digital display had shown the countdown to the payment.

The disbursement closes a chapter for Argentina, which issued the securities in 2002 after it limited withdrawals from bank accounts and defaulted on $95 billion of debt. Owners of dollar accounts were given the choice of accepting the so-called Boden bonds, which are denominated in the U.S. currency, or having their money converted into pesos.

“A historic cycle is coming to an end,” President Cristina Fernandez de Kirchner, 59, said last night in a speech at the Buenos Aires stock exchange.

The floating-rate bonds have risen 2 percent to 12.42 cents since June 12, when Fernandez said in a speech that the payment would be made in dollars “as it should.” The securities had dropped to as little as 12.07 cents on June 1 on speculation the government, which is trying to reduce the use of the greenback in South America’s second-largest economy, would make the payment in pesos.

The government issued $17.4 billion of the bonds, according to data compiled by Bloomberg. The debt has cost the country $19.6 billion to pay, Economy Minister Hernan Lorenzino wrote in an article circulated by state news agency Telam on Aug. 1.

Currency Restrictions

Since her re-election in October, Fernandez has forced companies to repatriate export revenue and money invested abroad, limited imports and banned most purchases of foreign currency as she tries to shore up central bank reserves and stop money from leaving the country.

Blocked from international credit markets since the default, Argentina has tapped international reserves to pay foreign debt. The government plans to use $5.7 billion this year, after using $14.1 billion over the previous two years. The bank’s holdings fell to $46.7 billion yesterday from as much as $47.8 billion on April 27.

After two restructurings in 2005 and 2010, the government has cut the ratio of debt to gross domestic product to 42 percent from 166 percent in 2002, according to Lorenzino.

Economic Growth

The economy grew an average 7.8 percent per year from 2003 to 2011, as it recovered from an 11 percent contraction in 2002. The elimination of a 10-year currency system that pegged the peso at par with the dollar helped local industry compete with foreign goods, boosting production and exports. The peso trades at 4.5860 per dollar.

“The payment shows that it’s possible to came out from a terminal crisis with growth and without making people pay the cost,” Lorenzino said in an interview with Buenos Aires newspaper Ambito Financiero, which was posted on the presidential website. “Our policy of reducing debt will continue as a state policy.”

On June 12, the World Bank said that Argentina will undergo the sharpest slowdown in Latin America, expanding 2.2 percent this year.

Since July 3, Lorenzino, 40, has sent daily tweets counting down the time to tomorrow’s payment. He also set up three TV screens in the Economy Ministry’s lobby and created a website display showing the countdown days, hours, minutes and seconds.

Bond Yields

The average yield on international government bonds stood at 12.48 percent yesterday from as high as 14.2 percent on May 30.

The cost of insuring Argentine bonds against default for five years fell 16 basis points to 1,126 basis points, according to prices compiled by Bloomberg. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to comply with debt agreements.

The extra yield investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries fell 34 basis points to 1,049 basis points today, data compiled by JPMorgan show.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net; Camila Russo in Buenos Aires at crusso15@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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