Analysis - Rising debt payments pressure Argentina to solve crisis

By Sarah Marsh

BUENOS AIRES (Reuters) - Argentina's debt servicing costs are set to more than double in 2015 as foreign reserves slide to critically low levels, boosting pressure on the nation to resolve its 12-year-old battle with creditors and regain access to international credit markets.

Debt payments in foreign currency will rise to $9.4 billion (£5.54 billion) next year, $6 billion of which is due in October to pay holders of its Boden 2015 debt, according to government data analysed by Reuters. Argentina has agreed this year to make payments to the Paris Club, the World Bank and Repsol SA that will cost about $1.5 billion in 2015, according to Bank of America estimates. That could bring the total bill to $10.8 billion, compared with about $5 billion this year, including payments on the recent agreements.

Foreign reserves, which fell 30 percent last year and stand at eight-year lows of about $29 billion, are seen falling in the second half of 2014 after Argentina's main farm exports, soy and corn, are harvested and sold in the first half.

"Payments will increase next year and it's going to be tight to pay," said Bank of America economist Marcos Buscaglia in New York, who sees reserves falling to $26.7 billion by the end of 2014.

Official data on total debt payments is open to interpretation, economists say, as it includes a medley of inter-public-sector and international loans that are usually rolled over and therefore would not affect reserves.

Reuters has stripped out most of these loans but not all, such as those held by the pension system for which a clear breakdown of bond holdings in dollars is not readily available.

Latin America's No. 3 economy, which slid into a recession in the first three months of this year, has been burning up its reserves to pay debt and finance imports.

Analysts say there are short-term fixes that Argentina can use to tide over cash flow problems as long as it soon regains access to global credit markets it has been shut out of ever since its default on $100 billion of bonds in 2002..

To do that, it needs to reach a deal with the "holdout" investors who have refused its attempts to restructure their bonds and who last week scored another victory against the country in U.S. courts.

"All the deals sealed in 2014 increase a lot the debt services that Argentina will face up to 2019," Buscaglia said. “If Argentina can tap markets, it will be a manageable schedule.”

President Cristina Fernandez says rulings that Argentina pay one group of holdouts $1.33 billion in cash would prompt new claims of up to $15 billion - an "absurd" sum she says it can’t pay.

After years of refusing to negotiate with the holdouts, Argentina says it is now ready to talk. If it does not pay or reach a deal, U.S. courts will prevent it from servicing debt held by the more than 90 percent of creditors who agreed to restructure.

The next payment is due on June 30 and Argentina has a month-long grace period, meaning it could be in technical default by the end of July.

DIRE CASH-FLOW

Argentina's cash-flow situation looks more dire if only liquid net reserves are considered. Those are the headline figure minus gold, IMF special drawing rights or bank reserve requirement deposits, depending on definitions.

Analyst estimates for net reserves range between $14.7 billion and $21 billion. There is no official estimate.

"Argentina is near bankruptcy with net foreign exchange reserves at only three months of import coverage," said Siobhan Morden, head of Latin America strategy at Jefferies in New York, which estimates net reserves at $16.5 billion.

A common rule of thumb is that a country should have reserves to cover at least three months' worth of imports in order to protect it from external crisis. Argentine imports stood at $5.9 billion in May.

"This metric shows their stock is quite low and they still have quite significant dollar liabilities. These are serious financing constraints on paying these holdout liabilities," Morden said.

That said, Argentina still has options to deal with the impending credit crunch. It could roll over much of its Boden 2015 bonds, which are governed by local law, as long as investors remain keen on high-yielding Argentine debt. It would still have to pay the interest but at least not all the amortization costs.

Elections at the end of 2015 are expected to bring in a more investor-friendly government and that plus a shift over recent months toward more pragmatic policies has improved investor appetite. The market quickly absorbed billions in Argentine bonds issued last month to compensate Repsol for the taking of its YPF subsidiary.

"Only in the worst case scenario would Argentina pay (the amortization of the Boden 2015) with reserves," said Gustavo Ber, an analyst at local consultancy Estudio Ber. "Many investors could be interested in rolling over the debt."

Argentina's central bank could borrow from foreign banks or raise the foreign currency deposits requirement for local banks to get its hands on foreign currency.

The government could also raise import restrictions to stop capital outflows and devalue the currency again to boost exports, though these measures would risk fuelling one of the world's highest inflation rates and hurting consumption. Restrictions on imports of energy or intermediate goods for manufacturers could also further hurt the economy.

"You may have trouble by 2017 if this situation persists for three years in a row," said analyst Mauro Roca of Goldman Sachs. "But a lot could happen before then.

"It's important to resolve the situation with holdouts and then Argentina can forget the reserves because once it has access to international markets it will be able to finance itself that way," Roca said.

(Additional reporting by Walter Bianchi, Eliana Raszewski and Jorge Otaola in Buenos Aires and Walker Simon in New York. Editing by Kieran Murray and John Pickering)