Argentina’s Return to Bond Market Seen in Blejer Road Map

Photographer: Jason Alden/Bloomberg

Some government officials are starting to realize that “it doesn’t really matter if we have a low level of reserves as long as we can recompose our relationship with the world and particularly as long as we can go back to the capital markets,” former central bank governor Mario Blejer said. Close

Some government officials are starting to realize that “it doesn’t really matter if we... Read More

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Photographer: Jason Alden/Bloomberg

Some government officials are starting to realize that “it doesn’t really matter if we have a low level of reserves as long as we can recompose our relationship with the world and particularly as long as we can go back to the capital markets,” former central bank governor Mario Blejer said.

Argentina’s attempts to repair its standing internationally show the nation wants to tap overseas bond markets for the first time since a $95 billion default in 2001, according to former central bank governor Mario Blejer.

“They’re moving in certain areas in a very discreet way,” Blejer, who ran the central bank in 2002 after the unprecedented default, said in an interview in Buenos Aires.

Regaining access to foreign financing is key to slowing a drain in central bank reserves that have plunged this year at the fastest pace in a decade, the 65-year-old vice president of Banco Hipotecario SA said. Blejer says Argentina is showing signs of trying to resolve five key issues to regain investor confidence, including fixing economic data with the International Monetary Fund, paying its Paris Club debt and reaching an agreement with holdout creditors including billionaire Paul Singer.

Some government officials are starting to realize that “it doesn’t really matter if we have a low level of reserves as long as we can recompose our relationship with the world and particularly as long as we can go back to the capital markets,” Blejer said.

Former Economy Minister Hernan Lorenzino, who now heads the Debt Restructuring Unit, met with IMF officials in October to discuss a new consumer price index to address concerns the government is underreporting inflation. Argentina was the first nation censured by the IMF in February for alleged manipulation of economic data.

Bond Rally

Yields on the government’s dollar-denominated bonds have fallen 2.64 percentage points to 11.04 percent since Sept. 6, when local media reported Argentina planned to settle claims pending at the World Bank’s arbitration tribunal. The government later settled $677 million of claims with five companies on Oct. 18.

The extra yield investors demand to hold Argentine debt over U.S. Treasuries fell below distressed levels of 10 percentage points on Oct. 7 and touched the lowest in 27 months last week. The so-called spread narrowed 0.02 percentage point to 8.03 percentage points at 11:39 a.m. in Buenos Aires, according to JPMorgan Chase & Co.

The country’s debt has returned 28.8 percent this year, versus a loss of 6.4 percent on average for developing nations, based on the Bloomberg Emerging Market Sovereign Bond Index.

Cabinet Changes

Argentina hasn’t sold bonds internationally since defaulting in 2001. Fernandez and her late husband and predecessor Nestor Kirchner blamed the IMF and overseas investors for allowing the country to become so indebted it was forced to default.

Fernandez in 2010 began tapping reserves to make debt payments. The policy has drained reserves by 30 percent this year to $30.6 billion, the lowest in seven years. The government earmarked a further $9.9 billion in the 2014 budget to pay its foreign debt.

As recently as August, Fernandez said she would continue with her policy of obtaining funding from multilateral lenders like the Inter-American Development Bank without needing to pay rates above 10 percent demanded by bond investors to refinance or roll over existing debt.

After failing to gain the two-thirds majority she needed to make constitutional changes that would allow her to run for re-election in 2015 in legislative elections last month, Fernandez shuffled her cabinet by appointing a new economy minister, cabinet chief and central bank president.

‘More Pragmatic’

Cabinet Chief Jorge Capitanich said Dec. 3 that Argentina needs to move from a closed economic model to a more open one that’s “integrated structurally with the world.”

“The president has marked out an agenda in terms of international matters,” Capitanich said in an address to business leaders at a seminar in Buenos Aires province. “We’ve promoted the resolution of ICSID cases in order to generate conditions for financing by the World Bank” for $3 billion.

Economy Minister Axel Kicillof led negotiations with Spain’s Industry Minister Jose Manuel Soria that resulted in a preliminary accord to compensate Madrid-based Repsol SA for the seizure of its 51 percent stake in YPF SA, Argentina’s biggest energy company in April 2012.

Adopting an abrupt policy change and negotiating with institutions they have demonized for years is within the government’s nature, said Michael Roche, an emerging-market strategist at Seaport Group LLC.

Legal Claims

Fernandez’s government “is a lot more pragmatic than it’s given credit for,” Roche said in an interview from New York. “They will pivot and adopt policies that in the previous months or years were seen as antithetical.”

Paying off the ICSID claims was aimed at winning support from the U.S. government to support its appeal at the Supreme Court in its legal conflict against holdout creditors from the 2001 default rather than an attempt to repair ties with the global financial community, said Siobhan Morden, head of fixed-income at Jefferies Group LLC in New York.

A U.S. Appeals Court said Aug. 23 that Argentina can’t make payments on bonds it issued in restructurings in 2005 and 2010 unless it pays a group of holdouts led by hedge fund Elliott Management Corp. in full. The effect of the ruling is being delayed until the Supreme Court decides whether to hear the case. The litigation has spurred concern the government may opt to cease payments on its overseas bonds rather than settle with holdouts that Fernandez has dubbed “vultures.”

‘Ideological Constraints’

While the cost to protect Argentine debt against non-payment over five years with credit-default swaps has tumbled 41 percent in the past three months, it’s still the highest in the world, according to CMA Ltd.

“If they want to come to capital markets, they need to resolve legal issues first,” Morden said in a phone interview from New York. “There are ideological constraints with litigant holdouts that would need to be cleared up.”

The government created the Debt Restructuring Unit to negotiate with creditors on Nov. 29, a move that shows the intention to resolve some of the issues, Blejer said in the interview from his fifth floor office in downtown Buenos Aires. To fully repair relations, the government must complete all steps of what he called the “road map” including the most difficult one of settling with holdouts.

“The initial results are quite good but this is like a bridge,” Blejer said. “If you do three-quarters of the bridge you still don’t have a bridge and you won’t get to the other side.”

To contact the reporter on this story: Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net

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