WASHINGTON - Argentina's major creditor banks ended a stalemate on a $23 billion debt-restructuring package Wednesday by giving in on a crucial point.
Under the compromise, the banks agreed to accept so-called discount bonds in lieu of payment for at least 35% of their outstanding loans. Those bonds are considered much less attractive than another option offered by Argentina.
The agreement, reached during talks here at the annual meeting of the International Monetary Fund and World Bank, makes "significant progress toward completing the subscription process" of the restructuring package, said Citicorp vice chairman William R. Rhodes. He heads the bank advisory committee overseeing the negotiations.
Recruiting Other Banks
However, senior bankers close to the talks quickly warned that they have yet to convince other banks and institutions that hold Argentine debt to fall in line so that the agreement can be carried out.
"The [bank advisory] committee is going to be supportive," said one U.S. banker, "but it's going to be hard getting the remaining banks into one room to beat up on them.... An all we've got is about two wet noodles to beat them up with."
Argentina and its foreign creditor banks agreed in June to reduce the country's debt under an initiative launched by U.S. Treasury Secretary Nicholas F. Brady three years ago.
The agreement offered banks two options. The first would let them exchange their loans at par for Argentine government bonds bearing a reduced interest rate. The second allowed them to exchange their loans at a 35% discount for bonds bearing a higher interest rate.
Argentina had hoped to close the deal in early August but was balked after banks opted massively for par bonds because, with interest rates falling, many liked the idea of locking their loans into a fixed, long-term rate that was close to prevailing market rates.
They also believed it would be easier to sell such bonds in the secondary market.
However, this bias would increase the cost for Argentina, which would have to collateralize more loans at 100% of their face value rather than only 65%.
Limiting Funding for Bonds
The International Monetary Fund and other multilateral lending agencies also limited the amount of funding that could be used to guarantee par bonds.
In his statement, Mr. Rhodes said the 13 members of the bank advisory committee had agreed to exchange at least 35% of their loans for the so-called "discount bonds" and the remainder for "par bonds."
The committee members, including Citicorp, Chase Manhattan Bank Corp., Bank-America Corp., and Chemical Banking Corp., loaned about one-third of the $23 billion Argentina owes foreign creditors.
Senior bankers said that French, Swiss, German, British, and Japanese member banks of the advisory committee will meet in coming weeks with about 80 banks from their own countries holding more than $50 million each in Argentine loans. They will try to persuade the 80 to go with the 35/65 ratio.