Argentina gives details on refinancing debt

The government has been fighting for more than a month to get the country's 23 provinces to accept a cut in their guaranteed monthly tax transfers - a key demand of the International Monetary Fund. In return, it has been negotiating with local banks to offer provinces the possibility of swapping floating rate debts, whose interest rates have in some cases reached as high as 40 per cent a year, for new 7 per cent loans.

So far, the nine provincial governors from the government's own party have signed up to the agreement, as well as four from the opposition Peronist party. The remaining 10 Peronist-controlled provinces would not be eligible for the latest swap until they sign up to the funding cuts, said Domingo Cavallo, the economy minister.

Mr Cavallo said the operation was expected to save the cash-strapped provinces more than $1bn a year in interest payments and give them three years' grace on principal repayments.

As part of the first leg of its debt restructuring, Argentina is offering all bondholders new loans paying a maximum of 7 per cent a year in return for their higher-yielding paper. The government claims the new loans, which are backed by future tax receipts, will give them more security that they will be repaid.

Few believe the new guarantees are worth the loss of profitability. But the local banks, pension funds and insurance companies that hold up to half the nation's bonds are likely to participate because the alternative is a total default, which would bankrupt many.

Mr Cavallo said he hoped to have the national and provincial leg of the debt restructuring completed before the end of November. A "global" swap targeted at foreign bondholders should be finished in two or three months, he said.

Argentina had hoped for guarantees from the international financial institutions to offer foreign bondholders as "sweeteners" for accepting lower interest payments. But the World Bank indicated on Monday it would not consider such a request.