Fitch: Argentina Faces $9 Billion Funding Gap In 2002.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 9, 2001

Fitch, the international rating agency, said today in a report that Argentina, in order to avoid a sovereign bond default in the near term, requires strict adherence to the government's zero budget deficit policy, additional official financing, and a stabilization of the outflow of bank deposits. Fitch warns that in the absence of substantial additional official financing, the Argentine government will have insufficient funds to meet its domestic and external obligations through the 1st quarter of next year. Fitch currently rates Argentina's sovereign bonds 'B-' with a Negative Rating Outlook.

Argentina's capacity to meet its debt obligations through the remainder of 2001 rests on domestic institutions honoring their commitment to participate in the $1.3 billion Letes (short-term treasury debt) swap announced last week as well as to purchase $2.3 billion in additional bonds. In the event of an acceleration of bank deposit flight, these financing commitments would be at risk. Deposit flight could also ultimately undermine the viability of Convertibility.

To avoid default, Argentina requires political unity behind reform and the restoration of confidence, so that interest rates could come down, economic growth could resume, and market access could be restored. To that end, the congressional elections on Oct. 14, 2001 must produce a clear consensus behind an anti-default program that would include strict adherence to the zero-deficit goal, no matter what the tax revenue outturn is. But until there are visible signs of economic recovery, doubts over the viability of the Argentine economic model, notably Convertibility, and solvency will persist. Should growth and market access not be restored by early next year, the heavy amortization needs of 2002 - almost $19 billion - could compel Argentina to seek a rescheduling of its obligations. To stay out of the markets for most of 2002, at least $9 billion in additional official financing for debt service purposes would be required.

The Fitch Sovereign Comment, 'Argentina: Imminent Default or Margin of Maneuver?', will be available on Fitch's web site at 'www.fitchratings.com' or by contacting Market Services at 1-800-853-4824.