The delay on Argentina’s debt restructuring was no surprise. President Nestor Kirchner had pushed hard to keep to the original schedule, however, The Bank of New York and the Italian Security Exchange Commission requested more time, therefore delaying the launch of the new bonds to mid January 2005.
WestLB was never very optimistic on the outcome of the restructuring process as a result of the Kirchner administration's stance. There was a high probability that Argentina would not achieve a significant level of participation under its last proposed terms, which would increase the pressure from G-7 countries further.
Similarly, Argentina and the IMF put their third review on hold and will resume talks after the debt restructuring set for mid January. With this delay, Argentina will have either to resume negotiations without concluding the restructuring or to keep the IMF on hold. Argentina has US$780 mn due to the IMF in December 2004, together with US$3.8 bn on the obligations basis, of which, US$600 million is due in Q1 05. If Argentina and the IMF do not resume the program, the Fund cannot disburse any new loans. The government would have to pay the obligations without a corresponding loan.
The Treasury may have accumulated US$3 bn in deposits in Banco de La Nacion, which could be used to offset such obligations. However, President Kirchner has denied using any extra primary surplus to pay down debt, even to the IMF. According to the local press, the Treasury intends to use extra loans from the Central Bank to meet these payments.
Summing up, the government's strategy of not negotiating is leading to delays in reaching an agreement and Argentina is missing the opportunity of coming back to the external capital markets.