Sabri forwarded this one also.
11/01 15:59 IMF Rules Out New Loans for Argentina; Bonds Tumble (Update7) By Emily Schwartz Washington, Nov. 1 (Bloomberg) -- The International Monetary Fund ruled out any additional financing for Argentina unless the government forces provinces to accept a cut in federal payments. The benchmark floating rate bond plunged more than 12 percent to its lowest level in six years as provincial governors indicated an agreement is unlikely, increasing the prospect of a default on some of the nation's $132 billion of public debt. ``We recognize the difficult political situation down there and the difficult political discussions between the central government and the provinces in particular,'' IMF spokesman Thomas Dawson said. ``Resolution of that is naturally a requirement for going ahead with the program.'' Overnight interest rates in pesos more than tripled to as high as 190 percent as domestic banks braced for a wave of withdrawals. Deposits fell by 11 percent, or $9.1 billion, since the end of June. Pesos for December delivery fell to 1.055 pesos per dollar from 1.03 pesos, signaling waning confidence in the ability of Argentina to maintain its one-to-one peg with the U.S. dollar. The floating rate bond due 2005 fell 6.5 to an offer price of 49, the lowest level since March 1995. That pushed the yield up to 54 percent, triple the yield of June. Rating agencies say Argentina will be in default if it forces investors to swap debt for new securities that have lower value. ``No news except a comprehensive restructuring would be able to change the dynamics in Argentina,'' said Bruno Boccara, Standard & Poor's analyst for Argentina. President Fernando de la Rua will announce at 8 p.m. (6 p.m. in New York) in a videotaped address to top business executives that he has ordered a restructuring of Argentina's $95 billion of outstanding bonds, a person familiar with the announcement said. Economy Minister Domingo Cavallo will speak to the executives after de la Rua's statement, the person said. Negotiations The government, in talks with provincial governors for 17 days, wants to reduce the $1.4 billion it transfers to provinces each month in tax revenue. In exchange, it promised to help cut the provinces' debt burden by requiring domestic banks and pension funds swap at least $14 billion of provincial bonds and loans for new securities. The government and provinces are ``very far away'' from an agreement, said Carlos Ruckauf, the governor of the Buenos Aires province. Dawson suggested that Argentina may have trouble obtaining a $1.2 billion loan payment from a $22 billion package, which was expected by the end of the year, unless the government fulfills its pledges to the fund. The government had hoped to speed up that payment, analysts said. The government has counted on IMF loans to make a proposed debt exchange more attractive to investors. The government has selected Merrill Lynch & Co. to help advise on lowering financing costs on $95 billion of outstanding bonds through a similar exchange. Merrill International President Jacob Frenkel arrived in Buenos Aires today to meet with government officials. The government has said the new securities would pay lower interest but be guaranteed by IMF and other international loans. $3 Billion If the government can't meet its commitments to the IMF, Argentina won't receive a $3 billion payment intended to be used in the planned debt exchange, Dawson said. In addition, he said, an acceleration of funds ``is not being considered. It is not in the cards.'' U.S. Treasury Secretary Paul O'Neill has indicated that any more assistance for Argentina should come from the IMF and not the U.S., which is the fund's largest shareholder. The IMF still hasn't scheduled a visit by an IMF team to Argentina, which would have to finish its work before the lender can release the next payment from the credit line. ``We would expect a fund mission would go down once the authorities have concluded their considerations,'' Dawson said. ``That could be in the near future and would be expected to happen once sufficient progress has been made on the fiscal side.'' Payment Made Argentina made payments on $117 million bonds due today and faces another $1.18 billion in debt payments in November, including loans from international lenders. The Buenos Aires province, the nation's most populous, has $47.3 million in payments to bondholders this month. The IMF's decision to withhold loans to Argentina will make those payments more difficult, analysts said. ``Given that the IMF has stated it is not considering advancing the December disbursement into November, the November amoritizations will have to be met primarily with new cash from the pension funds,'' said Christian Stracke, Latin American debt strategist for Commerzbank AG. ``It may also make any cash payment of debt to the provinces difficult if the central government must conserve cash reserves to cover amoritizations.'' -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
