March 4, 2005 - 7:00 AM

High acceptance of Argentina debt swap

By Mary Milliken

BUENOS AIRES, Argentina (Reuters) - Against all odds, Argentina has pulled off the largest debt
restructuring in modern history as creditors agree to swap 76 percent of the country's bad debt for new bonds
despite taking a huge loss on their investment.

Worn down by three years of default and President Nestor Kirchner's hardline stance, the bulk of 500,000
creditors worldwide grudgingly accepted losses of up to 70 percent on Thursday, allowing Argentina to turn the
page on its worst ever crisis.

"This is the removal of one of the most important obstacles to our recovery," said Kirchner, who earlier this
week in Congress declared the default over.

Argentina defaulted on its debt at the peak of a four-year recession that shrank the economy by 20 percent
and left more than half of the country's population under the poverty line.

The results of the restructuring of $102.6 billion (54 billion pounds) in debt, which includes past due interest,
fell in the 70 to 80 percent range forecast by analysts from Buenos Aires to Wall Street.

"This is a success, in essence, for Argentina and allows it to move on," said Enrique Alvarez, Latin America
debt strategist at IDEAglobal in New York.

Economy Minister Roberto Lavagna said creditors holding $62.2 billion of the $81.8 billion of principal were
on board. Argentina will issue $35.2 billion in new debt to those creditors.

"The markets have spoken, they have spoken with clarity, accepting very clearly the Argentine government's
proposal," said Lavagna, the architect of the swap, some two years in the making.

Due to factors including the new bonds' low rates of interest and maturities stretching out as long as 40
years, Wall Street analysts estimate the loss to investors at up to 70 percent.

The Argentine government had sweetened the terms several times since September 2003, when it offered
less than 10 cents on the dollar. But Lavagna made it clear when he launched the six-week swap in January
that this would be the last chance to convert the bad debt.

MENDING FENCES WITH IMF

At that time, neither the government nor analysts could guarantee that the audacious offer would draw
enough creditors for Argentina to put its default in the past.

Compared to other recent restructurings in emerging markets such as Russia or Ecuador, Argentina's was
not only bigger but more complicated, with 152 bonds in nine currencies scattered around the world.

There was also formidable resistance -- from sophisticated investment funds, which said Argentina could
pay more, to 450,000 Italian pensioners, many of whom invested their savings in Argentine bonds even when
the country's finances looked shaky.

Argentina also faced skepticism from the International Monetary Fund, which insisted Buenos Aires
negotiate in "good faith" with creditors. The Group of Seven leading industrialized nations urged Argentina "to
engage constructively" with creditors in debt talks.

An improvement in international financial conditions, particularly low interest rates, played a key part in its
success, analysts said.

The swap's hold-outs, representing nearly a quarter of the debt in default, are expected to seek
compensation in court with lawsuits against the Argentine government.

Sealing the deal clears the way for Argentina to resume high-level talks with the IMF. The Kirchner
government had suspended a $13 billion agreement with the multilateral lender last August to focus on the
restructuring.

Fund spokesman Tom Dawson said on Thursday that IMF chief Rodrigo Rato will meet with Lavagna in
Washington early next week to discuss the debt swap and other issues.

"76.07 percent is high and comforting for the country. Now we have to continue our relations with the IMF and
revive the accord that was suspended," said Rodolfo Rossi, economist and former president of Argentina's
central bank.