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Venezuela charges high interest rate on Argentina's bonds

Interest rates at 14-15 percent are higher than those Buenos Aires paid during the 2001 debt crisis

Under Hugo Chávez, Venezuela has bought USD 6.4 billion in Argentinean bonds (Photo: Efe)

EL UNIVERSAL

The two major Argentinean newspapers, Clarín and La Nación, said they were stunned by the high interest rate the Venezuelan government has charged recently to buy USD 1 billion in Argentinean sovereign debt bonds.

Both newspapers explained that Argentina is paying an interest rate ranging from 14 to 15 percent, which is higher than the interest rate Buenos Aires paid in 2001 when the Latin American country was hit by economic turbulence following the economic measures implemented by then Finance Minister Domingo Cavallo.

Clarín said, "Argentina had to swap bonds worth USD 1.4 billion for the USD 1 billion in cash Venezuela paid. The interest rate is nearly two points higher than the rate the Venezuelan government charged last May 23, when Venezuelan President Hugo Chávez bought USD 1 billion in Argentinean US-dollar denominated Boden 2015 bonds."

Based on these figures, Argentina is to pay a 14.87 percent interest rate, whereas the interest rate Peru is paying to place sovereign bonds with the same maturity as the Argentinean titles ranges from 5 to 6 percent.

Analysts concur that Argentina was forced to undertake this operation because it failed to reach an agreement with the holders of USD 20 billion in Argentina debt bonds, as they refuse to refinance their debt in 2005.

Chávez said last Tuesday in Buenos Aires, during his visit to Argentina, that he would continue to provide financial aid to Argentina, "as far as he can."

"We are going to meet Argentina's needs insofar as they emerge and provided that we are able to help," Chávez stressed.

The Venezuelan ruler confirmed the recent operation during his visit early this week, when he told reporters that Venezuela bought USD 1 billion in Argentinean US-dollar denominated Boden 2015 bonds "one week ago."

Venezuela has become a key source of funds for Argentina. In fact, Venezuela has bought approximately USD 6 billion in Argentinean debt bonds over the past two and a half years.

Usually, when the Argentinean bonds are in possession of the Venezuelan Finance Ministry, it sells the titles in Venezuelan bolivars with a premium to previously selected Venezuelan banks.

Venezuelan financial institutions purchase the bonds and resell them abroad to obtain foreign currency amid the tight exchange controls in force in Venezuela.

The banks that have not covered their legal positions in dollars, can keep the foreign currencies whereas the financial institutions that have exceeded their quota, sell the dollars in the parallel market at a price that benefits them.

Translated by Gerardo Cárdenas