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Argentina to cancel debt with Paris Club using reserves

Business Materials 2 September 2008 23:22 (UTC +04:00)

Argentina is set to pay off its defaulted debt with the Paris Club, some 6.706 billion dollars, using the reserves held by its Central Bank, Argentine President Cristina Fernandez de Kirchner said Tuesday in Buenos Aires.

From the presidential palace, Fernandez de Kirchner's remarks sent the financial markets at home and abroad a strong pro-investment signal even as the government's ability to abide by its commitments was being questioned.

Amid doubts as to Argentina's capacity to obtain fresh funds and keep its economy under control following a period of strong growth accompanied by rapidly-rising prices, the president asked those who "have the responsibility to generate wealth and employment" in the South American country to look at Argentina "in a better light."

Fernandez de Kirchner stressed "Argentina's will to pay off its international commitments" which she noted dated back to before the crisis of 2001.

The Central Bank's foreign exchange reserves currently amount to 47.1 billion dollars, which are set to go down to just over 41 billion dollars following payment to the Paris Club.

Six countries - Germany, Japan, the Netherlands, Italy, Spain and the United States - hold 87 per cent of the debt that Argentina is now set to pay off.

Argentina defaulted on a large part of its foreign debt in early 2002. With some 93 billion dollars, it was considered the largest default in history. It has since renegotiated the bulk of its commitments with most of its private creditors, although they were only granted about a third of their original investment.

Fernandez de Kirchner defined the move as "a fundamental step" in the country's debt cancellation policy, which she said was launched with the cancellation of its defaulted public debt in 2005 and the later cancellation of all the pending debt with the International Monetary Fund (IMF).

The default with the Paris Club was one of the main obstacles in Argentina's efforts to obtain financing abroad. The country had resorted to selling controversial Venezuelan President Hugo Chavez, wealthy with oil reserves, Argentine bonds.

The recent sale to Venezuela of over 1 billion dollars in Argentine bonds at interest rates close to 15 per cent caused alarm in Argentine financial circles, and the government in Buenos Aires was keen to reverse the effect and show strength, dpa reported.

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