Q-1: Mr. Marx, your name has been known in international forums since the 1980s, when Argentina, along with other Latin American Countries, defaulted on their foreign-debt payments and you became Argentina's main negotiator. As the architect of the famous "blindaje financiero (bailout package) - approved by the IMF earlier this year - you were able, once again, to display these abilities. If you had to compare those two very difficult moments for Argentina, what would be your regarding the similarities and differences between them?
A-1: The two decades that took place between the early 1980s and our current time did not pass by in vane. Argentina, in the early 1980s, had extremely week institutions. To begin with, democracy wasn't working. From 1983 on, our democratic system began to function, and the institutions it supports began to appear, to blossom and grow stronger. All this generated a much higher degree of popular participation in the decisions made regarding Argentina's future, and, as a consequence, it also created a much clearer sensation of the ideas, which could later be materialized. As a result of that, Argentina has become much more mature and predictable. In the early 1980s, Argentina had an extremely closed economy, and not a strong intention to connect with the rest of the world. The opening process we experimented since then brought along significant increases in terms of competitiveness and efficiency improvements, leading to a deep transformation in our productive structures. Today, Argentina is a country which economy is fully
integrated to the global community, with a more mature participation as a citizen of the world. The opening of the economy creates new challenges and the need to keep moving in the transformations process we initiated in order to reach its full potential. As a consequence, Argentina has modernized itself quiet significantly. Before, there were too many regulations that halted the development of economic initiatives from the private sector, and which generated inefficiencies in its lesser functioning. The transformation process, together with the deregulation of Argentina's economy are turning around this situation by improving our competitiveness. I would not say that as of today all that has been accomplished, but we can witness that some noticeable advancements have taken place. As an example, and going beyond many more mature economies, here the electric sector has been fully deregulated and privatized. Today, this sector has enough supply at good prices.
This comes as a result of the kind of transformation experienced by other sectors of the economy as well.
Q-2: Do you believe the IMF-led financial bailout package will help Argentina generate enough economic growth as to be able to come back to global capital markets without a problem?
R-2: Argentina's financial strategy has international debt markets as one of its key components. Even convertibility is an expression of our need to access global capital markets. The "blindaje financiero", or financial assistance package, gives Argentine a much more relaxed horizon and grants the country access to capital markets at the more convenient time. We shall not confuse the tool with its objective. Today, the goal is to bring Argentina's economy back to the path of economic growth, and you can obtain this with the help of several tools, and the financing tool is one of them.
Q-3: Regarding financial markets, the Argentine government requested the U.S. Securities and Exchange Commission permission to issue dollar-denominated debt for up to u$s5 billion. How are you planning to access de U.S. Debt markets?
A-3: We have a long-standing tradition issuing in the dollar-denominated debt markets. When we outline our capital markets' strategy, we do it having in mind global markets, which not necessarily implies that debt buyers from all over the world. Back in January, and after reopening
several debt issues, we launched dollar-denominated 30-years global bonds, and all buyers were Argentine institutional investors. Besides, we want to give additional liquidity to our issues. We are aware that capital mobility is a growing global trend, and we want to use that to our advantage.
Q-4: The government has been successful in placing debt locally and abroad, but the private sector, mainly the small and medium-sized companies, still has to go through a lot of trouble to access the credit markets. When do you believe this sector will be able to come back out to the credit markets at reasonable rates?
A-4: You cannot say that market access for the small and medium-sized companies is a black or white issue. Some of them have more access, and some of them have less. We know that this occurs through a process that many times is facilitated by an institutional framework regarding which
are the channels they can use, the functioning of those channels, and the performance of the country's credit risk profile. We are now working to improve these channels. It is quiet clear both locally and abroad, that if the sovereign has no access to credit, it becomes even more difficult for the private sector to obtain credit facilities. That is why we thought it is important to work on improving our sovereign credit risk profile so it can be used by the private sector.
Q-5: In Argentina, the average interest rate charged to the small and medium-sized companies reached 30%, a very high percentage compared to those paid, for example, in Europe...
A-5: We can and we should improve the channels and the floor given by the sovereign, but our business is not to offer credit to the PyMEs. The subsidy they receive is generally some kind of budget assignment. Some of the do a better use of these channels and some do not.
Q-6: Many blame the government for absorbing all the credit available in local and international debt markets, leaving the private sector out and thus generating a crowding out effect. What is your view on this issue?
A-6: It is necessary to clearly understand how the sequence goes. Argentine competes with the rest of the world in the global markets. If credit facilities are interrupted for the public sector, then, it would be quiet difficult it became available for the private sector. It also works the other way around, if the public sector has good access, so does the private sector. It should not be understood as a competition system but more one of which is complementary. The public sector, during the first half of last year, significantly improved its own access conditions, as it did it as well for the private sector. We should split last year into the parts. During the first part of it, I do not agree that the public sector had an easier access to capital markets than the private sector did. If something occurred, it was the possibility to access credit, and its usage was fully justified. For some reason, banks substantially lowered rates in order to attract, for example, mortgage seekers, who are individual. However, during the second part of last year, there appeared many limitations within the public sector to maintain global credit, and it was forced to take advantage to the capital availability existing within the local markets. But the alternatives were much worse. We also split year 2001 with the goal of generating an important access to credit by the private sector. All the projections over which we based the financial program for the public sector have been contemplated. There should be an excess of funds for the private sector, as we have noticed during the first few weeks of this year.
| Q-7: Both Germany and France developed at some point a second capital market for small and medium sized companies. Even taking into consideration the obvious obstacles its faces, would it be possible to develop something similar in Argentina?
A-7: We have suggested to those participating in the capital markets that they have to coordinate efforts among themselves and work together with us with the objective of actualizing the functioning of these markets. For that reason, capital market players, mainly the country's
Securities and Exchange Commission (CNV) has hired a external consultancy firm to give the a good diagnosis. In any case, we have told them through the CNV that it would be interesting to establish a second market in general, with no specific reference to any sector of activity. The markets are who should propitiate this.
Q-8: Many bourses around the world are moving towards the signing of strategic alliances. Does Argentina have any projects in this regard?
A-8: It is part of the work that is currently being analyzed. Here we have to separate the responsibility of the government and that of the private sector. In the public sector, we witness these movements. We understand that Argentina is a country connected to the rest of the world from a capital flow point of view. Maybe in Argentina this tendency is much more accentuated than in other countries. There is a global tendency towards connectivity, and Argentina has to see this as a competitive advantage it has, and, as a consequence, we should see how we adapt our own practices. The Stock Exchange, the Securities markets, or the Open Electronic Market are some of the actors, but they are private, and should also act in consequence.
Q-9: One issue that strongly calls the attention of our readers is, without doubt, the Markets' Transparency Law, which seeks to protect the interests of minority shareholders in general, and those of foreign investors in particular.
A-9: Now it has a new denomination, its called Better Practices Law, because now it includes many more issues, The project can be found on the web so people can access it and express their opinion. Jurists and legislators are also debating it. Its content is quiet ample. It includes aspects that vary from making more efficient the functioning of the corporate governance by separating responsibility issues within the different organs. It also incorporates improvements to the treatment of the usage of information. More over, it contemplates the rights of the shareholders.
Q-10: Mr. Marx, the arrival of Domingo Cavallo to the ministry of economy has not only improved the markets perception of Argentina's medium-term outlook, but it did also drastically change the financing agenda that your office had set under Machinea's administration. Cavallo seems to have decided to finance the public deficit in the local capital market as a result of his negotiations with the private banking sector. In your opinion, what are the advantages and disadvantages of this new approach?
A-10: The financing program has not been modified, since its conceptions, it has been given a very important flexibility element, and what we have been doing is using this flexibility. Now, when the market conditions in the international arena improve, and we think it’s convenient, we will come out to the global capital markets. In the meantime, will continue to use the credit facilities made available by multilateral lenders.
Q-11: Despite this, Argentina's country risk remains high, making it extremely difficult for both the private and public sector to access international sources of financing. When do you think will global investors regain faith on Argentina, what would it take to win back their confidence?
A-11: I believe that within a short time we will witness a conjunction of facts that will have the virtue of enhancing each other and would become the signal that would bring uncertainty to an end. I am talking about a correction in the deviation suffered in our fiscal accounts, the guarantee that the bailout package stays firm and the eventual economic takeoff.
Q-12: Under current circumstances, how do you think local capital markets can be further deepened and enhanced in order to meet the country's private and public sector financing needs?
A-12: As I said before, the market is immersing in a deep transformation process. But things require time, and the daily urgencies do not take us away from our long-term goals. We are working in several different fronts, but it is still too soon to see results flourish.
Q-13: Is it just a matter of time?
A-14: I think so, because since the current government took office, we have been implementing a series of reforms that, due to their complexity, or simply due to events that are out of our control, require time to see their results fully displayed. Because of this, I see that in the near future will see that our efforts will be translated into the results we are all waiting for. The medium-term goal is to reduce the relationship between public indebtedness and Gross Domestic Product. We believe that this can en achieved through actions that affect both parts of this ratio. Regarding our public debt, we are placing the fiscal sector in a sustainable path through reductions and important structural reforms that have an affect in our accounting of figures related to debt issues, such as the effects generated by changes in our private pension funds' system, now that they have been privatized. It is a system where the (fiscal) sector has a deficit and accumulates debts, but not ours. Regarding our GDP, growth is achieved through fundamental actions in the economy. This is possible thanks to the flexibilization and deregulation of the economy.
Q-14: Finally, which are your expectations regarding Congressional elections in October? Will the "Alianza" continue to be divided our will it remain sufficiently united to come out victorious from these elections?
A-14: I do believe an individual expression of an idea presented within the frame of a heated debate carries us away. The situation keeps improving because the individuals have more responsibility and this included the Alianza as such. I see an important strengthening tendency.
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