The Miami Herald
October 29, 2001

Debt restructuring sought
Argentina's bid for a stimulus plan dropped

 Herald World Staff

 RIO DE JANEIRO -- Battered by 40 months of recession and crushing debt, Argentina indicated Sunday that it seeks a total restructuring of its $132 billion debt, putting
 pressure on investors to take losses.

 The surprise announcement was made in Sunday newspapers in Argentina and confirmed by government officials.

 Argentina had been promising to cope with its economic crisis, not with debt restructuring but with a new economic-stimulus package. The government has been seeking
 a new economic policy after voters rebuked President Fernando de la Rúa for his handling of the economy in Oct. 14 midterm elections.

 Economy Minister Domingo Cavallo, in an interview published Sunday with the Buenos Aires daily La Nación, announced the government would not seek further cuts in
 current and former state employees' salaries and pensions, which had already been slashed 13 percent. Instead, Argentina would immediatelyseek a restructuring of the
 nation's debt ``as fast as possible.''

 The announcement could be interpreted as a technical default on debt, potentially sparking investor panic Monday in Argentina and other foreign markets.

 But an aide to Cavallo, speaking on condition of anonymity, said Argentina is not defaulting on its debt because it will continue to make payments while the debt is

 ``We hope they will see it that way,'' the official said of potential market reaction.


 Argentina appears to be betting that investors will see it in their interests to voluntarily restructure Argentine debt, since the alternative could be a ruinous default that
 sucks in and brings losses to otherdeveloping economies. Russia, Turkey and Brazil are among nations with heavy debt burdens.

 Argentina will not seek relief from the total of its debt, just a more favorable interest rate of 7 percent for all its debt. That would result in $3 billion to $4 billion in annual

 on debt payments for cash-strapped Argentina and allow the government to spend on social programs and stimulate the economy.

 ``This is a surprise. We need to see many more details,'' said Manuel Solanete, an economic analyst in Buenos Aires.

 As a guarantee, investors would be offered future tax collection as collateral if they agreed to renegotiate their Argentine debt, the Argentine economic official said.

 Cavallo visited Washington and New York last week and until Sunday had said little about the purpose of his visit. He now suggests Wall Street is favorable to his idea of
 debt restructuring.


 Cavallo's economic team announced that Argentina has hired Jacob A. Frenkel, former governor of the Israeli Central Bank, to help restructure debt. Frenkel was governor
 of Israel's central bank from 1991 to August 2000, when he left to head Merrill Lynch's Sovereign Advisory Group and Global Financial Institutions Group in New York.
 Frenkel's presence could calm potential fears on Wall Street.

 De la Rúa had been expected to announce on Sunday his new plan to turn around the economy.

 But that announcement is now expected in the coming days once reaction can be gauged to the call for debt restructuring.

                                    © 2001 The Miami Herald and wire service sources. All Rights Reserved.