Argentina confirmed yesterday that it will be unable to meet all its debt payments this year, as bankers had feared.
The country, which owes $36 billion to foreigners, has no plans at the moment to renegotiate that debt, according to Jorge Raul Caminotti, undersecretary of foreign trade.
U.S. bankers, already affected severely by the financial crisis in Mexico, have close to $10 billion at risk in Argentina. Many have been expecting a request to stretch out loan payments from the Argentines, whose foreign currency reserves are thought to be dangerously low and some of whose assets are still frozen in London in the aftermath of the Falklands war.
About $15 billion of Argentina's worldwide debts fall due before the end of this year, banking sources say.
In addition, the resignation last week of Argentina's top economic officials -- the economy minister and the governor of the central bank -- has plunged the nation's economic policy into confusion and will likely make negotiations over debt rescheduling more difficult.
Bankers would probably like Argentina to apply to the International Monetary Fund for a loan, as Mexico has done. Before granting money, the IMF asks for certain policy conditions, which it then monitors over the term of its loans.
"Argentina has a trade surplus of $3 billion this year," Caminotti said yesterday. "So, logically, our debt should be paid over a longer period. We will enter into negotiations with our creditors. Whether those negotiations will be within the IMF or outside of it has not been decided."
After the shock of Mexico's near-bankruptcy, bankers are increasingly concerned about their foreign debts, with attention focused now on loans to South America, where U.S. banks are heavily exposed.
It is widely feared that Brazil, with foreign debts expected to rise almost as high as Mexico's $80 billion, will also need to stretch out some of its debt, bankers say. There was a sharp recession in Brazil last year as the government attempted to cut imports and improve its foreign exchange position. However, weak commodity prices and high interest rates on outstanding debts have hurt Brazil's balance of payments, as they have Mexico's.
Some bankers worry that the swift official help from the United States that Mexico has received will not be repeated for other large debtors that get in trouble. In addition, the more that bankers worry about their foreign debt and limit lending, the greater the likelihood that a country will be unable to meet its commitments. Heavily indebted nations such as Mexico, Argentina and Brazil depend on new money to flow in to meet their payments on old debts.
The spreading problems for international lending will be a hot topic at the annual meetings of the International Monetary Fund and World Bank in Toronto the end of this week.
Mexican Finance Minister Jesus Silva Herzog is expected in Toronto tomorrow, after today's State of the Union address from Mexican President Jose Lopez Portillo