Argentina Debt-Cut Talks Expected Within 2 Months
Argentina and its foreign bank creditors expect to begin talks on debt reduction by the end of January, Argentine President Carlos Menem said Monday.
President Menem's announcement came shortly after the International Monetary Fund agreed to grant Argentina a three-year loan facility, clearing the way for debt reduction talks to begin with the commercial banks.
Banks have customarily refrained from agreeing to debt reduction with a country that does not have an economic program approved by the fund.
President Menem said he hoped to obtain between $3 billion and $5 billion, of which Argentina can use up to 25% to collateralize bonds it hopes to exchange for bank loans at a reduction.
The country owes foreign commercial banks about $25 billion in medium-term and long-term loans, excluding some $8 billion in interest arrears, according to bankers.
U.S. banks are owed slightly less than $3.5 billion, down sharply from $7.6 billion two years ago as a result of writeoffs.
Chemical Banking Corp. and Manufacturers Hanover Trust Corp., which are planning to merge, are together the biggest lender with some $1.2 billion outstanding.
Other Money-Centers Involved
The remainder is mainly held by other money-center banks. J.P. Morgan & Co., for example, holds somewhat more than $300 million, while Citicorp holds $236 million.
Senior bankers in New York said they expect Argentina to offer a so-called "menu" of options for reducing its debt, including bonds that will be exchanged for loans at a reduction in either interest or principle.
Similar debt reduction agreements have been reached with Mexico, Venezuela, Costa Rica, the Philippines, Morocco, and Nigeria under an intiative launched by U.S. Treasury Secretary Nicholas F. Brady in March 1989.
"Brazil and Argentina are the last of the big ones," said one banker in New York.
Brazil Not as Far Along
Brazil, like Argentina, is seeking to reach an agreement on a loan facility with the International Monetary Fund in order to be able to reduce its commercial bank debt.
William Rhodes, vice chairman of Citicorp, welcomed the fund's loan to Argentina.
Mr. Rhodes, whose bank chairs the Argentine steering committee, said the international banking community was "impressed" with the efficiency of Argentina's economic team and looks forward to initiating debt reduction talks.