G.BREUER
Since 1869
A Full Corporate Services Law Firm
GBA Newsletter
June 17, 2004
To
clients and friends:
Welcome
to the June edition of our Newsletter, a monthly e-bulletin prepared
by the firm bringing you a periodic update of some current events in
Argentina.
In
this issue we provide you:
It
is a pleasure to be in contact with you. If you would like more information
please do not hesitate to contact us.
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New York Judge Griesa recently ruled that creditors could only seize assets that were transferred to third parties but not used to pay off prior debts. The Judge agreed that it was too onerous for Argentina to reveal all transfers of assets out of the United States and other countries.
Although
when visiting the United States a few weeks ago President Kirchner
continued to insist that Argentina would not budge from 75% proposal and
that it would pretty much stay within the framework of the Dubai offer,
as per the recently announced new package of the beginning of June
–while still offering only 25% repayment- the offer will include the
past due interest, being therefore the 75%-cut based on the NPV of the
bonds rather than on their nominal value. There will also be a coupon
tied to GNP. However, details will come after SEC filing is made.
Approval by the stock exchanges where the offer will be listed is
expected sometime in July and up and until that point Argentina has the
opportunity to modify the offer if it has to. This will mostly depend on
the reaction of creditors, which at this point do not seem to agree with
the terms of the offer. The official strategy seems to be clear though,
as it would mainly consist in dividing the different groups of creditors
in order to negotiate with each of them separately, weakening somehow
their position in this way. On the other hand, creditors know that their
strength will consist right in the opposite. However, according to a
preliminary survey conducted by the government, the new debt
restructuring offer would have about 70% approval from creditors (added
together from the different bond categories).
Now that it has been confirmed that past due interests are included in the offer, Argentina is looking for the support of G-8 (G-7 + Russia) and the IMF to back up its offer and ensure that the creditors accept it. Meanwhile the GCAB claims that Argentina cut off dialog and that this new offer is unilateral and will never succeed. They also plan to go to G-7 to inform them of this situation. The IMF is surprised that Argentina is ready to present an offer already.
A
new IMF head has been appointed, Mr. Rodrigo Rato, who was a former
economy minister of Spain and is supported by the United States.
Argentina hopes that the new head will back up its position about not
willing to budge from the 3% GDP fiscal surplus target agreed upon with
the IMF.
On
other front, IDB is preparing a four year five billion dollar program
for Argentina, partly to help it recover from the energy crisis. They
will come to Argentina in June to finalize the agreement.
In June as well, Argentina is due for another IMF review, one of the reasons why they are rushing to come up with a debt restructuring offer. The IMF is already saying that the minimum percentage of approval in order for the debt offer to be deemed accepted should be higher than what Argentina says. There is talk of a percentage around 80%, being that Argentina previously said around 60%. Wall Street deems this determination critical.
In
April prices increased 0.9%, the highest since March 2003. So far this
year inflation is 2%.
Argentina
announced a 30% increase in tax receipts compared to last year.
Creditors are using this to argue that Argentina has the ability to
increase its debt offering as a result of increase in funds.
Rise prices without increase in salaries has caused consumer confidence to fall 1.7% during May. This is the third month it has fallen. Confidence is about 37% now.
President Kirchner has been hardly criticized for the measures he has taken to deal with the energy crisis. Mostly because rather than setting free oil and gas prices –which are currently frozen at a low rate- the government has decided to increase taxes on exports and use the money to fund a new state-controlled energy company, being such tax meant to discourage exports.
This new state-controlled energy company would develop fresh hydrocarbon reserves, expand gas and power production and expand transport capacity. It would be 65%-owned by the government and the remaining 35% by private investors. The objective of the company would be to “ensure the availability of gas and electricity at prices compatible with the economic level of the country”, all according to Planning Minister Julio De Vido.
In addition, the government is planning on launching a campaign to save gas which would reward those consumers who use less gas. Some companies claim that they cannot operate at their total capacity due to the crisis. As a result, several hundred million dollars will be lost.
Argentina has cut exports of gas to Chile causing a strain in the relationship with that country. However, for the time being Chile has ruled out applying any sanctions against Argentina for the gas cuts. In turn, Venezuela has sent a shipment of fuel oil to Argentina to help it with the crisis. As the government announced it was going to impose a 20% retention on exports of natural gas and use the extra money to finance transport projects (the gas companies are not surprised but rather frustrated), they will most likely have to pass the cost on to purchasers in addition to having to negotiate with Chile at a moment when the relations with that country are already shaky.
The European Union recently presented a draft agreement for the 10 year free trade agreement with Mercosur. Both agreed to set October as the next meeting during which they hope to finalize the agreement. In the meantime, the negotiators will work on the details of the agreement. Mercosur already announced that it wants a clause which would require the review of the agreement every three years. They also feel there is still more room for improvement with regards to agriculture products, meaning reduction of tariffs and increase of quotas.
The information given in this bulletin is for general purposes only. It does not aim to provide comprehensive legal advice on any issue. If you wish to obtain specific advice or further information, please get in touch with your regular G. BREUER contact, or contact us at
G. BREUER
25 de mayo 460
(C1002ABJ) Buenos Aires
Argentina
Tel: +54 11 4313-8100
Fax: +54 11 4313-8180
E-mail: info@gbreuer.com.ar