Agreement with foreign creditor banks on a new loan package has made Argentine government leaders jubilant and cleared the way for the ruling Radical Party to forge ahead with its plans for a coalition government. A communiqu'e from Jos'e Luis Machinea, the president of the Central Bank, described the deal reached Monday night in New York as ``historic.'' From details leaked to the press, it appears that most of Argentina's demands have been met by the banks. Full details of the plan were not available at press time, but were understood to include:
New funding of $1.9 billion.
An additional $250 million sought by Argentina to be provided by foreign governments, principally Japan.
Refinancing of $24 billion to $30 billion over 19 years, with a five-year grace period, and the same interest rate won by Mexico in last year's renegotiations (thirteen-sixteenths of 1 percent over the London Interbank Offered Rate).
Debt-for-equity swaps (debt capitalization) under which a dollar of new investment will be provided for every dollar of debt converted into equity investment.
The deal can be presented as a major political victory at home, as the banks originally stood firm against practically every one of these points. Bankers said at the time of Mexico's renegotiation that the interest rate was an exception and not a precedent for future talks.
The prospect of major inflows of foreign exchange will grease the wheels of the local money markets, ease pressure on the Argentine currency, and give the government ample room for maneuver to deal with problems on the labor front.
President Ra'ul Alfons'in announced plans this week for a coalition government with a sector of the Peronist party opposition, aimed at pushing through structural reforms and a constitutional change to create the post of prime minister as the principal government executive.
But this would require changes to the government's incomes policy to satisfy the demands of the Peronists entering the government. It is expected that the government, now that it has foreign financing, will have the flexibility to make new wage agreements without excessively upsetting this year's inflationary controls. The new coalition is expected to extend to the Congress, where seats will be offered to some Peronists on the Radical party tickets for the September elections.