Argentine politicians keep following the same trend.

Administrations and ideas come and go but strategies stay focused on the financial investor.

That’s how it was during the ´90s and that’s how it is today.

The current Administration proposed its debt restructuring plan with guidance from financial organizations. It didn’t care to seek the opinion of the production investors, who are the actual players of the real economy.

The financial investor has a short-term mindset based on the trading of titles. The Economy Minister himself pointed out how such proposal promotes an active market. The true bondholders, Argentine and foreign, bought their titles with a long-term outlook for their savings, as opposed to a 24-hour speculation, as once labeled by this Administration. The same Economy Minister pointed out two years ago that Private Pension Funds (AFJPs) were useless entities, that they couldn’t protect their clients´ money, that they had already been rewarded with substantial commissions and that savers should sue them for their incompetence. But now it seems that according to the Minister AFJPs have really done their homework since, regardless of such declared past actions, some of them have been rewarded with official authorization to raise their commissions.

The current Economic team increased Argentina ’s public debt to a figure similar to that that they now want to leave unpaid.

This new post-default debt served to shield the financial system (public and private) from lawsuits and to resolve the crisis of several provinces by nationalizing their debt titles.

Legitimate savers are punished while financial entities and badly managed provinces are protected – a very particular rhetoric.

In 2005 Argentina will disburse more than 4 billion dollars in capital and interest payments of this new post-default debt, while the debt swap cheats bondholders with less than a 1.2 billion dollar payment. This relation continues for the next few years. Meantime, also in 2005, international credit organizations will receive 1 billion dollars in interest payments and more than 5.5 billion are expected to be refinanced.

This clearly shows how savers who trusted the Sovereign State of Argentina are punished for their credulity, or something like it.

When the government, counseled by financial institutions, states that a 70-80% debt exchange acceptance would mean success, they should make clear who exactly will relish in such triumph. Success surely for the financial entities, which will stimulate their daily operations again with Argentine titles, but the economic reality will prove a complete failure.

Why a failure?

Every single percentage point that stays outside the proposal equals one billion dollars. In other words, an 80% acceptance translates to 20 billion dollars in lawsuits.

Have Argentine authorities stopped to think with a production investor mentality? Obviously not. Such investor will not settle in a country with a 20 billion dollar lawsuit on its shoulders. Furthermore, we should add the potential lawsuits by those companies that were ruined by the pesification.

In order to re-emerge and leave its current profile behind, Argentina needs a true flood of production investments. But these investments should come in the form of new companies settling in the territory as opposed to the purchase of already existing ones.

Some economists believe that Argentina’s current sustained growth will soon lead to emulate the Argentina of 1998.

The problem is that by then the rest of the world will be in 2006 – in other words, nothing more than eight years ahead. But there are numbers which are even more frightening: an updated GDP per capita shows a regression of almost thirty years.

In the last eight years the world has been characterized by a mounting growth in productivity. In Argentina , if we take as an example the imports that seized the marketplace during the 1:1 rate of the ´90s, in the year 2006 we should expect the same picture as a decade ago.

Argentina ’s net inflation plus world production rates make the 1:3 of today equal to the 1:1 of the ´90s.

The devaluation of the dollar won’t really alter the marketplace.

New production investors are the only ones capable of lowering unemployment rates, rise fiscal income and in short, help Argentina emerge for this deep social crisis.

The Government seems unaware that foreign bondholders around the globe are potential buyers of Argentine products and some of them even stockholders of companies that could participate in the development of Argentina ’s production. If the Government denies that there is a potential client behind each bondholder, it clearly shows a wrong understanding of the functioning of the real economy.

These hundreds of thousands of creditors represent millions of others who become aware of the methods implemented by the Argentine Government.

We have seen in the last months how Spanish investments were re-directed toward other countries in the region or how an American company was forced to leave Argentina due to pressure from its stockholders…

Instead of apologizing, the Government should modify the debt offer so those savers don’t feel cruelly mistreated. When the Argentine representative apologizes to creditors in Italy and minutes later blames their Banks for promoting such investment and not warning their clients of its risks, he should, by the same token, accuse the Argentine Ministry of Economy, almost every Bank settled in Argentina and other local players of the financial domain that promoted the investment in sovereign titles (even enticing savers to buy titles with as little as one thousand pesos just months before the default was declared). How would this audacious representative of the Argentine Government define this omitted piece of information?

In a recent article in Ambito Financiero I proposed to publish a list with the names of all members of the Three Bodies of Government whom by action, commission or omission authorized or, as mentioned by the President, were accessories or roguish participants in facilitating this fraud. It would be essential to finally unmask the active or passive attitudes each one took. It would be also helpful to remind the public of the financial entities that promoted investment in Argentine titles.

Clearly those who advised the Administration in the debt restructuring offer retain a 24-hour (overnight) financial investor outlook, instead of a 10-year production investor perspective. Even if the offer stays the same, Argentina will still receive production investors, but investors who will only settle according to speculation of their revenues. And this will be paid in full by the Argentine people.

We won’t rise above this locally manufactured economic crisis without a flood of new production investors – this is how I want to call your attention.

Most such investors have already settled in Argentina and they support the debt offer since no new investors translates to no competition and a secured place in the market. That is why it is convenient for the President to start listening to other potential production investors. Also important is that Argentina ’s production investments focus on foreign trade, since those aimed at the Argentine market will only fight against earlier companies for a place in the local economy, with everything that that implies.

In short, a better debt swap offer will directly benefit the Argentine people.

Enough with the harsh political speeches aimed at bondholders. We should instead concentrate on realities such 50% of poverty, 20% of indigence and an 8-year regression. We need NEW production investors to enter our market.

The math is so simple that it becomes elemental:

Argentina proposes through new titles exchanged for defaulted debt a payment of 1.3 billion dollars in interests in the next few years.

By doubling that figure Argentina could obtain almost a 100% acceptance and consequently no litigation. This opens up the picture for solid and favorable production projects.

While doubling that figure seems astronomical at first, the real economy will benefit many times that number through investments willing to settle in a solid environment.

The President should open up dialogue with potential production investors and talk about the current conditions offered to enter our economy – this alone should convince him that the Argentine people could only benefit through a higher debt swap offer. Otherwise we will witness a very limited arrival of production capitals, and in unfavorably conditions for the most of the population.

Simplifying the equation, a more reasonable debt restructuring plan translates to many times that figure in annual production investments for many years to come.

As an example, based on different areas of the real economy, we can say that for every billion dollars that enters in the form of new production investments, 15,000 jobs are created and fiscal incomes rise to almost 200 million dollars annually.

The debt offer shouldn’t be seen through a financial perspective (let’s pay as little as possible), but instead with both eyes laid on the real economy (let’s create the conditions to attract an avalanche of production investments essentially and effectively focused on foreign trade).

An Argentina drowning in lawsuits is not the appropriate ground for such investments.

The answer is then simple, excessively simple: increase the offer and all Argentine residents will benefit. Leave aside the financial mentality and concentrate on production.