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Argentina Tries to Finish Debt Deal

November 5, 2001

BUENOS AIRES, Argentina (AP) _ Government officials continued to hammer out a plan Monday to restructure the country’s crushing debt load and prevent a default on billions of dollars owed to foreign and domestic lenders.

The mega-debt swap announced by President Fernando De la Rua aims to save the country $4 billion in interest rate-payments next year and to ease investor concern that a default is near for this troubled South American economy.

Assuming Argentina is able to persuade investors to trade in higher-yielding bonds for lower ones, economists still remain skeptical that the latest series of economic measures announced last week will be enough to pull the country out of three years of recession.

``Let’s imagine the swap goes well and everyone swaps bonds,″ said Argentine economist Enrique Cerda Omiste. ``It’s a national success: interest rate payments drop by $4 billion. However, total interest rate payments in 2002 will total $14 billion, requiring a huge cut in spending to meet the balanced budget.″

And further cuts will be nearly impossible for Argentines to swallow.

Seven sets of spending cuts in two years have chopped public workers’ salaries by 13 percent, while in the cash-strapped provinces, violent riots and sporadic social unrest have led governors to threaten to sue the national government for overdue funds.

``The government doesn’t have any political or social leeway to impose more spending cuts,″ said one economist, Nicolas Caruso of Scotiabank Quilmes.

Despite the scarcity of details about the plan, investors pushed the benchmark Merval index up 3.2 percent, or 7.13, to 229.63 on news that the government may be close to reaching an agreement with provincial governors on tax revenue payments.

Public opinion hasn’t kept De la Rua from implementing unpopular measures in the past and the president said last week in announcing the voluntary swap that no other funding was available for the country.

After swooping in to rescue Argentina twice in the past year with massive financial bailout packages, the International Monetary Fund said that Argentina must now stand on its own.

De la Rua is placing a lot of faith in the debt swap, but economists say there’s little else to be done this late in the game.

De la Rua ``is like a frog in water and the water is boiling,″ said New York-based economist Christopher Ecclestone of Buenos Aires Trust Co.

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