59 restructured and compensatory new debt that has emerged so far from the government’s attempts to deal with the crisis. These include, first, some $27 billion in “guaranteed loans” resulting from the domestic swap of November, 2001. In this swap, the banks, pension funds, and others exchanged about $40 billion in bonds for loans collateralized with revenue from the financial transactions tax; the shrinkage reflects exchange losses on the peso portion of these loans. The compensatory and new debts also include: (a) approximately $15 billion in bonds (Boden) issued to the banks in compensation for asymmetric pesification of deposits and liabilities; (b) some $11 billion in nationalized debt of the provinces; (c) about $6 billion in Boden held by savers as a consequence of a swap out of the frozen dollar savings accounts; and (d) additional amounts pending for further compensation of banks and savers.<sup>54</sup> Argentina’s debt restructuring promises to be extremely difficult. The central issues will be: (a) how large a primary fiscal surplus can Argentina generate on a sustained basis, to service the restructured debt; (b) how large will the GDP be expressed in dollar terms, and hence how large will the absolute base for servicing the debt be given the primary surplus target as a percent of GDP; (c) how much of the debt will the government consider “senior” or ineligible for restructuring; and, as a result, (d) how large a “haircut” of debt forgiveness will the holders of “junior” debt be expected to take. In addition to these economic issues, there will be major logistical and collectivebargaining issues in view of the wide disparity of holders, ranging from large international banks and pension funds to thousands of small “retail” holders in, especially, Europe and Japan.

The objective of debt restructuring should be to achieve a balance between sustainability of the restructured debt, on the one hand, and keeping the imposed debtforgiveness as mild as possible to facilitate preservation of reputation in the capital markets, on the other hand. On the sustainability side, most analysts would agree that Argentina should be able to achieve persistent primary fiscal surpluses in the range of at least 3 percent of GDP, and some would argue that the goal for this surplus should be 5 percent or even 6 percent of GDP. A somewhat ambitious but reachable goal, for working purposes, might be about 4.5 percent of GDP, approximately the same level as currently being planned in Brazil.

As for the absolute magnitude of the GDP base, a reasonable central estimate for 2004 is $190 billion. Nominal GDP in 2002 stood at 313 billion pesos (MECON, 2003b). With an average exchange rate of 3.48 pesos per dollar in 2002 (IMF, 2003), dollar GDP shrank to only $90 billion (from $269 billion in 2001). The end-2001 government debt of $144 billion would thus have catapulted from 54 percent of 2001 dollar GDP to 160 percent of 2002 dollar GDP even without any further increase in the debt. The prospects for this year and the next, however, are for a reversal of this increase in the debt to GDP ratio, as the effect of real appreciation of the peso restores the dollar GDP base toward a more normal level.

54 Note that the estimate of $15 billion in compensation bonds to the banks in the debt data compiled by Marx (2003) exceeds a corresponding estimate of $9 billion by Broda (2003).