Argentina says debt default is over

Argentina was poised last night to announce it had reached agreement with its creditors to restructure $103bn (£54bn) of its debts, more than three years after declaring the biggest sovereign debt default of modern times.

Its president, Nestor Kirchner, was expected to confirm overnight that about 75% of the country's bondholders had agreed to swap their old debt for new at a loss of up to 70 cents in the dollar - also a record and one that Mr Kirchner has called "the biggest haircut in history" for investors.

Six weeks ago the Argentinian government made the offer to its 700,000 bond holders to swap debt of $81bn plus interest from 2001 for about $41bn of new debt. The offer, which was basically "take it or leave it", closed last Friday with the country needing two-thirds approval to complete the deal. Those creditors who vote against will get nothing, although they are threatening to sue to recover their debt.

Mr Kirchner announced on Wednesday that acceptances were running at between 70% and 75% and declared the country's default over.

"With this huge effort, our country has left the default behind ... for the first time in Argentina's history, a debt restructuring has culminated in a drastic reduction of the country's debt," he said.

Many bondholders, of which the biggest single group are Italians, indicated they would accept the deal but some had been holding out, hoping to get a big enough bloc to prevent the restructuring.

But the Argentinians, led by finance minister Roberto Lavagna, played hardball, persuading a majority of bondholders that the deal on the table was the best they would get. He has been accused of bullying creditors, a turnaround in a world where usually debtors get bullied.

Mr Lavagna maintains that the country cannot afford to pay back any more than it is offering without impoverishing its people, something it has pledged not to do.

Argentina declared its default in December 2001 in the midst of economic turmoil that continued through 2002 as the economy virtually collapsed. Since then, it has grown strongly and the stock market has soared by 50%.

For now, the country's outlook is fairly rosy but commodity prices are falling and the government is in dispute with foreign-owned utility firms, which are suing it for up to $17bn for freezing the rates they can charge Argentinians for electricity and water.

Over half of the creditors who stand to lose money are ordinary Italians who during the 1990s were encouraged by Italian banks to buy high-yielding Argentinian bonds.