Fresh woes have hit the government of Argentina’s Peronista President Christine Kirchner this week, as natural gas giant Transportadora de Gas del Norte (TGN) defaulted on a debt payment of roughly $22 million and would seek a broad restructuring, citing difficulties related to government price controls, higher costs and the depreciation of the peso aginst global currencies, in particular the US dollar.
This has forced the government to intervene, as reported in Bloomberg.com yesterday. In a statement on Monday, TGN said the Luxembourg exchange had suspended trading of two of its bonds, “due to uncertainty over the company’s financial situation.”
The government will “undertake a complete audit of the company” during a 120-day period, Planning Minister Julio de Vido told reporters in Buenos Aires. Roberto Pons, an acknowledged energy regulation specialist, will ensure that “consumers rights aren’t affected by the company’s decisions,” he said.
TGN is one of the two largest transporters of natural gas in Argentina, delivering approximately 40% of the country’s total gas consumption and more than 50% of Argentine total gas exports. TGN has an exclusive license to operate the northern Argentina gas pipeline system for a term of 35 years.
Meanwhile, the farmers crisis has reinvigorated itself, with Argentinian soya producers once again vigourously lobbying the governemnet to relax the export tax on soya products, which was implemented earlier this year whilst commodities prices were soaring. In March, a three-week farmers strike over the soybean levy caused food shortages across the country. Farmers blocked roads, preventing trucks delivering produce to supermarkets in Buenos Aires and other major cities. Argentina is the world’s third biggest soybean exporter, with an annual harvest estimated to be worth $24bn (£12bn), the bulk of which is exported. Last year, it earned $13bn from exports of the grain. Kirchner had levied a 45% tax on soya exports in an effort to boost public funds.
Since then, sporadic strikes by farmers have impacted the Argentinian economy, a series of climb downs on the tax rate has not been able to sate the farmers. Yesterday Kirchner announced a new set of measures to boost the economy.Regarding the agricultural sector, the cut in export duties will apply only to wheat and corn, which will see their rate cut by 5% on export tax to 23% and 20% respectively. Soy export tax will not be cut from the existing 35%, however the president intimated this may change.
This is on the back of a number of a number of efforts to stimulate the slowing economy, early December saw the car industry receiving a $900M fillip to help underwrite car loans. Kirchner also managed to force through a new bill which basically nationalised the pensions industry, transferring $23 billion in private pension funds to the state, an estimated 25% of Argentina’s 40 million citizens contribute to the private funds. Their $4.5 billion in annual contributions will go to the government as well.
In mid-December, Kirchner announced an expanded stimulus plan, which will see the Argentine government committing to invest up to 111 billion pesos ($32.65 billion) in infrastructure projects from now to 2011 as a way of shoring up Argentina’s economic growth against the pounding it is taking from the financial crisis.
She said that this plan “is the most ambitious” in Argentine history and will create some 380,000 jobs with investment in infrastructure that reaches a “record” 5 percent of gross domestic product. Of the plan’s total investment up to 2011 in the energy, transportation and housing sectors, among other works, some $20.88 billion “already have the financial structure needed to carry them out,” the president said.
At 55% of GDP, Argentina’s public debt is very large. But the cost of servicing it has been low, partly because of the tough restructuring imposed on bondholders. Even so, to service its debts, the government needs to find an extra $2.5 billion or so in 2009. It cannot tap the international capital markets, because it has still not settled with some bondholders nor its sovereign creditors in the Paris Club. Instead, it is relying on Hugo Chávez. This month Venezuela’s president bought another $1 billion in Argentine bonds (taking his total purchases to $7 billion). The latest bonds pay interest of 15%—the same rate agreed by Domingo Cavallo, a former finance minister, in a notorious bond swap which precluded the 2001 financial collapse.