CAPITAL MARKET
VII
Capital Market
! During most of the second quarter of 2000, Argentine
financial assets continued with the negative trend they had
concluded the previous quarter, thus reversing the upward way
they showed at the beginning of the year.
One of the external elements that influenced the most
on such behavior was the growing nervousness generated by
signs of inflationary pressures in the United States, that provo-
ked the contraction policy of the Federal Reserve, which in
May passed from gradual to aggressive. This environment in-
creased the cost of external financing for the government du-
ring the second quarter of 2000, as the result of the uncertainty
about whether the United States would be able to make and
economic soft landing or whether a new interest rate increase
would be necessary.
Although the situation provoked inconveniences to
most emerging markets, Argentina was the most affected in
relative terms, particularly due to the absence of clear signs of
economic reactivation and the weight of external public and
private obligations. Higher international interest rates affected
those expenses corresponding to debt services for the rest of the
year, which posed questions about the ability to comply with
fiscal targets set at the beginning of the year.
The drastic measures taken by the government at the
end of May to support the fiscal situation, and the better mood
of international markets, allowed this situation to be released,
which is why in June a recovery of domestic financial assets
prices took place, which went on – though fluctuating - along
the third quarter.
By the end of September, there is a greater fiscal certain-
ty, derived both from the approval of an extension of the fiscal
target agreed upon with the International Monetary Fund and
from a better situation of public revenues and expenditure
control. However, this effect was set off by the persistent weak-
ness of the Euro and the uneasiness generated by the oil price
increase. So, stock prices were, at the end of September, 12%
lower than at the end of 1999. Public securities spread, such as
FRB, were also higher than the values shown the last day of last
year.
I. International Outlook
In the second quarter of 2000, the United States eco-
nomy continued growing at a great speed, with an annualized
5.6% increase of GDP, driven by the strong rise of private
consumption. However, there was also a strong growth of cu-
rrent account imbalance, which reached to 4% of GDP. These
facts, together with the increase of wholesale inflation, which
around May was near 4% p.a., plus a still decreasing unemplo-
yment rate, were the signals that gave an alert sign of possible
labor cost increases higher than productivity, which provoked
fears about a continuous acceleration of retail inflation.
Within this environment, the Federal Reserve, in order
1
 CAPITAL MARKET

TABLE 7.1
International Capital Markets Indicators
End 1996 End 1997 End 1998 End 1999 31-Mar-00 28-Apr-00 31-May-00 30-Jun-00 31-Jul-00 31-Aug-00 22-Sep-00
Interbank Interest Rates
LIBO US$ (6 months) 5.67% 5.84% 5.08% 6.13% 6.53% 6.73% 7.11% 7.00% 6.89% 6.83% 6.74%
LIBO EUR (*) (6 months) 3.18% 3.75% 3.22% 3.52% 4.00% 4.26% 4.67% 4.78% 4.92% 5.09% 4.98%
LIBO YEN (6 months) 0.52% 0.77% 0.54% 0.23% 0.16% 0.15% 0.14% 0.30% 0.28% 0.45% 0.52%
Treasury Rates
US 1 year 5.49% 5.49% 4.54% 5.91% 6.28% 6.24% 6.37% 6.08% 6.07% 6.22% 6.08%
US 10 years 6.42% 5.74% 4.65% 6.37% 6.00% 6.21% 6.27% 6.03% 6.03% 5.72% 5.85%
US 30 years 6.64% 5.93% 5.09% 6.48% 5.83% 5.96% 6.01% 5.90% 5.78% 5.67% 5.91%
Exchange Rates
DEUTSCHE MARK/US$ 1.541 1.788 1.679
EURO/US$ 0.857 0.992 1.046 1.098 1.066 1.050 1.079 1.126 1.138
YEN/US$ 115.9 130.1 114.9 102.4 102.6 108.2 107.9 106.2 109.7 106.7 107.8
SWISS FRANC/US$ 1.346 1.456 1.386 1.594 1.663 1.720 1.681 1.631 1.667 1.744 1.732
STERLING POUND/US$ 1.171 1.656 1.661 1.615 1.592 1.556 1.496 1.516 1.499 1.447 1.459
GOLD US$/Oz Troy (London) 369.5 289.8 286.9 287.8 278.7 273.3 272.1 289.5 277.3 277.9 272.2
Stock Market Indexes
Dow Jones (USA) 6,448.3 7,916.0 9,316.3 11,452.5 10,921.9 10,733.9 10,522.3 10,447.9 10,522.0 11,215.1 10,847.4
NIKKEI (Japan) 16,361 15,258.7 13,842.0 18,934.4 20,337.3 17,973.7 16,332.5 17,411.1 15,727.5 16,861.3 15,818.3
FTSE 100 (United Kingdom) 4,118.5 5,132.3 5,882.6 6,930.2 6,540.2 6,327.4 6,359.3 6,312.7 6,365.3 6,672.7 6,205.9
DAX (Germany) 2,880.1 4,249.7 5,006.6 6,958.1 7,599.4 7,414.7 7,109.7 6,898.2 7,190.4 7,216.5 6,740.3
CAC 40 (France) 2,315.7 2,975.5 3,942.7 5,958.3 6,286.1 6,419.7 6,426.3 6,446.5 6,542.5 6,625.4 6,258.6
Latin American Exchange Rates
Argentina 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Brazil 1.04 1.12 1.21 1.81 1.74 1.81 1.82 1.81 1.78 1.82 1.85
Mexico 7.88 8.12 9.94 9.48 9.29 9.41 9.51 9.78 9.37 9.20 9.46
Latin American Stock Markets
(in local currency )

MERVAL (Argentina) 649 688 431 550 569 510 464 497 502 475 483
BOVESPA (Brazil) 7,040 10,197 6,729 17,092 17,820 15,538 14,957 16,728 16,455 17,347 16,385
IPC (Mexico) 3,361 5,206 3,913 7,130 7,473 6,641 5,961 6,948 6,514 6,665 6,550

*Up to 12/31/98 these rates corresponded to libor in marks

Source: Public Credit National Office, Ministry of Economy.

to moderate inflationary pressures, in the May meeting decided production indicators became more moderate.
to increase 0.5% p.a. the federal funds rate, thus amounting to
6.50% p.a., besides, said agency announced its intention to go This set of information made analysts conclude that

on with interest rates increases to the extent supply and de- fears about inflationary pressures in the economy had been

mand imbalances remain, i.e., inflationary pressures.
After this measure, retail price indexes evidenced a sta-
ble trend, together with the fact that unemployment rate stop-
ped falling, wage revenues also had a low growth and a decline
of stock quotes started to show. Simultaneously, some sales and
exaggerated, and that it would not be necessary that the Fede-
ral Reserve deepen the monetary restriction policy. Such fore-
cast materialized in last August’s meeting, when interest rates
remained unchanged. At that moment, monetary authorities
in said country explained that faster productivity increases had
led to a higher potential growth rate of American economy

2
 CAPITAL MARKET

without the risk of inflation. However, the Federal Reserve a 5% loss, the composite Nasdaq, made up of more technologi-
Committee left the door open for the possibility of rising rates cal companies stocks, finished with 3,650 points, a 10% decli-
in the near future if signals of increased inflation appear. ne with respect to the last day of 1999. The strong adjustment
undergone by technological stocks from their yearly peaks (25%
In turn, American Treasury long term interest rates fall when this chapter was finished, and had been 37% two
showed a stable behavior in the second quarter, being slightly months before) has eased Federal Reserve pressures. Said pres-
lower than 6% p.a., while short term rates had a minimum sures were linked to the “wealth effect” generated by stocks’
increase so as to accompany the federal funds rate’s trend. The gains during the last years, which directly affected private con-
small decrease of the long term rate (30 years) verified since the sumption.
beginning of the year seems to be the result of technical reasons,
such as the bonds repurchase the government is performing In Japan, GDP had a moderate growth in the first half
with fiscal surpluses. A controlled fiscal situation, with a bud- of 2000, which in annualized figures was near 1%. However,
get surplus forecasted for this year of over 1% of GDP, in gene- it is worth remembering the economic stagnation of the last
ral encourages a decrease of interest rates in the United States years, so analysts assume that these figures do not imply, for the
(Graph 7.1). time being, a firm growth trend. For example, the annual
GDP variation projection for the year is 1.7%, the lowest of
American stocks did not experience the revaluation of developed economies, and it continues to be the only country
the previous year during the first three quarters of 2000. Within of the group with retail deflation. The positive piece of infor-
an extremely volatile environment, the main stock indexes were mation is that unemployment has stopped increasing. This
somewhat lower than at the end of 1999, towards the end of modest result has been achieved at the expense of deepening
September. While the Dow Jones, with 10,850 points, records the fiscal imbalance up to 7% of GDP, which poses some ques-

GRAPH 7.1
Yield of US Treasury Bonds
7.0%
1 year

5 years
6.5%
30

6.0%

5.5%

5.0%

4.5%
04/16/99

05/07/99

05/28/99

06/18/99

07/08/99

07/30/99

08/20/99

09/10/99

10/01/99

10/22/99

11/12/99

12/03/99

12/23/99
01/14/00

02/04/00

02/25/00

03/17/00

04/07/00

04/28/00

05/19/00

06/09/00

06/30/00

07/21/00

08/11/00

09/01/00

09/22/00

3
 CAPITAL MARKET

GRAPH 7.2
Dollar Quotation compared to main currencies
1.2
EURO/U$S
1.1

0.9

0.8

0.7

0.6
01-06-95
03-03-95
04-28-95
06-23-95
08-18-95
10-13-95
12-08-95
02-02-96
03-29-96
05-24-96
07-19-96
09-13-96
11-08-96
01-03-97
02-28-97
04-25-97
06-20-97
08-15-97
10-10-97
12-05-97
01-30-98
03-27-98
05-22-98
07-17-98
09-11-98
11-06-98
12-30-98
02-26-99
04-23-99
06-18-99
08-13-99
10-08-99
12-03-99
01-28-00
03-24-00
05-19-00
07-14-00
09-08-00
150
Y E N /U S $
140

130

120

110

100

90

80
01- 06-95
03- 03-95
04- 28-95
06- 23-95
08- 18-95
10- 13-95
12- 08-95
02- 02-96
03- 29-96
05- 24-96
07- 19-96
09- 13-96
11- 08-96
01- 03-97
02- 28-97
04- 25-97
06- 20-97
08- 15-97
10- 10-97
12- 05-97
01- 30-98
03- 27-98
05- 22-98
07- 17-98
09- 11-98
11- 06-98
12- 30-98
02- 26-99
04- 23-99
06- 18-99
08- 13-99
10- 08-99
12- 03-99
01- 28-00
03- 24-00
05- 19-00
07- 14-00
09- 08-00

tions about the feasibility of future recovery. corresponding dollar revaluation.

The yen stabilized against the dollar during the three
first quarters of 2000, fluctuating within a range from 100 to
110 yens per dollar, although it became stronger the same as
the latter against the Euro. It is worth remembering that the
Japanese currency had had an important revaluation in 1999,
basically during the third quarter, period in which it decreased
from 122 yens per dollar to 104. Besides, the revaluation
against the Euro exceeded 25% since the launching of the
unique European currency, and it was even higher that the
In turn, in Europe encouraging economic growth signs,
with the 3.5% increase forecasted for GDP for 2000, a fact that
is also reflected in the fall of unemployment rate since last year.
Notwithstanding this, there were also worrisome increases of
wholesale inflation, together with new falls of the Euro value.
Within this context, the European Central Bank continued with
its policy of moderate interest rate rise started in the last part of
1999. These rises were not enough and near September, together
with the oil price jump (that exceeded U$S 35 per barrel), the

4
 CAPITAL MARKET
euro fell for the first time below 85 dollar cents, which eventually
provoked the intervention of the Group of the Seven’s central
banks so as to maintain it above said quotation. It is worth
highlighting the special United States interest in supporting said
intervention, since many American companies reported strong
profit declines in Europe due to the European currency fall.
The diferential between short term European and
American interest rates partially explains the Euro’s weakness
since its launching. Anyway, the most structural long term cau-
ses of this seem to be the lowest growth potential perceived of
the European economy and the lack of political willingness to
sustain the currency’s quotation at the risk of slowing down the
growth now being enjoyed, as well as the fact that the present
parities greatly favor european exports to the rest of the world.
Until these factors are not reversed, it is possible that capital
movements continue preferring the dollar instead of the euro.
Additionally, during the last year, two currencies closely related
with european economy also fell significantly against the dollar
(though in a lower proportion): the pound and the swiss franc.
II. Evolution of the Argentine Stocks
Market
In the three first quarters of 2000, the stocks market
slowed down the pace of its business transactions, continuing
with the previous year’s trend. It is worth highlighting that said
business volume fall is even underestimated due to the active
negotiation of foreign companies’ CEDEARs in the local market.
To the withdrawal of stocks from public listings, it has
to be added several cases such as Telefónica’s, that announced
the merger of its Latin American companies with the parent
company through stocks swap, the case of the Banco Santander
Central Hispano that proposed a scheme similar to its national
controlled company, Banco Río, and that of REPSOL, which
also made a swap transaction with YPF and Astra. These pro-
posals are perceived by some analysts as signs of structural re-
duction of the local market traded volume.
To this it has to be added the stocks swap proposal that
decreased the voting power of minority shareholders. In this
case by mid June 2000 started the swap of Banco of Galicia
stocks for Grupo Financiero Galicia stocks, there being an ini-
tial bad reception from part of minority shareholders.
In general, stocks prices had strong fluctuations during
the first semester of 2000. In the first months of the year, the
positive trend of stocks indices shown in the last months of
1999 continued, thus the MERVAL index recording the year’s
peak with 645 points (closing values) on March 3. Since then,
it started a strong falling process. The decline of international
and regional Stock Exchanges and the later rises of the United
States interest rates and the rise of country risk implicit in the
prices of argentine public securities were some of the factors
that caused said fall. So, the MERVAL recorded the year’s lo-
west in May, more exactly the 23rd, when it quoted 426 points.
Since then, the negative trend started to revert, after the
measures taken by the government aimed at supporting the
fiscal situation and the better international markets mood. By
the end of July, the indicator exceeded 500 points, but in
August and September, the trend went downward again, al-
though mildly. It is worth highlighting that the market’s long
term performance seems to be very unfavorable if compared to
three years ago when the MERVAL had exceeded 800 points.
Anyway, stocks prices at the end of September showed a 5%
decreased with respect to one year before, and there were even
higher losses in comparison to the beginning of the year, both
for the MERVAL and for the BURCAP indices (Table A.7.3 of
the statistical appendix and Graph 7.3).
5
 CAPITAL MARKET

GRAPH 7.3
Merval Index
Weekly Closing
900

800

700

600

500

400

300
01/03/97
02/14/97
03/28/97
05/09/97
06/20/97
08/01/97
09/12/97
10/24/97
12/05/97
01/16/98
02/27/98
04/08/98
05/22/98
07/03/98
08/14/98
09/25/98
11/06/98
12/18/98
01/29/99
03/12/99
04/23/99
06/04/99
07/16/99
08/27/99
10/08/99
11/19/99
12/30/99
02/11/00
03/24/00
05/05/00
06/16/00
07/28/00
09/08/00
III. Evolution of Public Debt Prices and risk indicators in June. In spite of the fact that in July and
Issues August said improvement did not continue, and the FRB spread
closed that two-month period above 600 points. At the end of

1. Evolution of sovereign risk
In the second quarter 2000, there were increases of
implicit sovereign risk1 in public securities’ prices (Graph 7.4
and Table 7.2).
Notwithstanding the advances in the fiscal front, in
April and a good part of May, inflation fears in the United
States, which later derived in the ½ point rise of federal funds
rates, and certain reserves of some analysts about the long term
Argentine fiscal solvency, provoked and important set back of
public securities’ prices, after which the FRB spread exceeded
700 points, while at the end of March it had been near 420
points.
After these peaks, a better international situation and
the measures taken by the government allowed for a recovery of
the closing of this chapter, there was a new decline below said
level, although it is still above the level shown at the end of
1999.
The announcement of Standard & Poor’s agency, whi-
ch did not change the argentine sovereign debt rating, had a
positive influence, thus discouraging some analysts’ pessimistic
forecasts. Anyway, by the end of September, the EMBI calcula-
ted by J.P. Morgan for Argentina was 684 points, very near that
for Brazil (710 points), but lower than at the end of the second
quarter (720 points).
2. Public Debt Issues
International market
Placements in the international market during this year,

1 Such indicators are defined as spreads between yields of different dollarized national securities and United States Treasury bonds for similar terms.

6
 PRE 4
PRE 2

RA 17
RA 03
FRB
ST RIP
DISC. 1,200
ST RIP
PAR
1,100

1,600
200

500

800

300

450

600

750

900
400

800
0
12/30/98 12/30/98
12/30/98

In basis points
Sovereign Risk
GRAPH 7.4
01/21/99 01/21/99 01/21/99
02/12/99 02/12/99 02/12/99
03/06/99 03/06/99 03/06/99
03/28/99 03/28/99 03/28/99
04/19/99 04/19/99 04/19/99
05/11/99 05/11/99 05/11/99
06/02/99

CAPITAL MARKET
06/02/99 06/02/99
06/24/99 06/24/99 06/24/99
07/16/99 07/16/99 07/16/99
08/07/99 08/07/99 08/07/99
08/29/99 08/29/99 08/29/99

GLOBAL BONDS
09/20/99 09/20/99 09/20/99
10/12/99 10/12/99 10/12/99

BRADY BONDS
11/03/99 11/03/99 11/03/99
BOCON

11/25/99 11/25/99 11/25/99

12/17/99 12/17/99 12/17/99
01/08/00 01/08/00 01/08/00
01/30/00 01/30/00 01/30/00
02/21/00 02/21/00 02/21/00
03/14/00 03/14/00 03/14/00
04/05/00 04/05/00 04/05/00
04/27/00 04/27/00 04/27/00
05/19/00 05/19/00 05/19/00
06/10/00 06/10/00 06/10/00
07/02/00 07/02/00 07/02/00
07/24/00 07/24/00 07/24/00
08/15/00 08/15/00 08/15/00
09/06/00 09/06/00 09/06/00
7
 CAPITAL MARKET

TABLE 7.2
Evolution of sovereign risk
In basis points

DATE SOCIAL SEC. BONDS BRADY BONDS GLOBAL BONDS

PRE 2 PRE 4 PAR STRIP DISC STRIP FRB RA 06 RA 17 RA 27
30-Jan-98 422 464 572 622 450 390 433 410
27-Feb-98 364 389 510 557 376 332 400 387
31-Mar-98 313 355 484 510 331 340 402 392
30-Apr-98 336 355 495 521 345 366 430 418
29-May-98 376 422 582 615 431 427 483 477
26-Jun-98 418 470 666 715 530 435 496 486
31-Jul-98 309 373 592 630 454 401 467 449
31-Aug-98 1,806 1,653 1,374 1,625 1,647 1,268 1,089 985
30-Sep-98 1,426 1,225 1,112 1,363 952 810 785 710
30-Oct-98 1,051 1,035 925 1,173 768 693 754 624
30-Nov-98 682 748 828 946 637 610 634 585
30-Dec-98 796 857 887 1,010 730 678 658 592
29-Jan-99 930 1,013 1,019 1,178 941 819 770 683
26-Feb-99 699 837 887 1,028 852 777 733 671
31-Mar-99 446 583 805 953 706 682 676 621
30-Apr-99 421 496 747 875 573 586 598 561
31-May-99 776 844 959 1,119 826 751 752 693
25-Jun-99 591 730 938 1,080 799 660 741 690
30-Jul-99 754 956 1,304 1,510 918 714 783 717
27-Aug-99 652 823 986 1,231 812 698 733 675
30-Sep-99 600 689 892 1,075 665 617 609 562
29-Oct-99 555 702 824 916 633 601 592 555
26-Nov-99 641 690 791 873 675 568 582 540
30-Dec-99 615 418 788 832 473 484 521 490
28-Jan-00 459 394 795 832 436 537 581 550
25-Feb-00 419 386 770 806 461 510 591 573
31-Mar-00 303 664 907 975 756 677 756 727
28-Apr-00 326 657 955 929 674 719 746 713
26-May-00 429 435 829 825 563 630 675 641
30-Jun-00 439 480 945 940 687 591 693 684
07-Jul-00 419 438 909 919 553 578 667 650
14-Jul-00 322 438 859 898 527 541 643 632
21-Jul-00 366 431 893 937 539 548 663 644
28-Jul-00 386 497 915 966 567 552 680 663
04-Aug-00 251 426 916 921 561 564 693 674
11-Aug-00 316 419 870 893 541 551 701 681
18-Aug-00 420 597 958 951 656 624 766 744
25-Aug-00 368 537 937 960 619 607 746 710
01-Sep-00 337 503 894 906 586 602 724 682
08-Sep-00 462 466 885 907 583 594 711 675
15-Sep-00 478 511 880 918 607 617 719 678
22-Sep-00 481 559 930 929 627 662 743 693

Source: Public Credit National Office, Ministry of Econom y.

8
 CAPITAL MARKET

TABLE 7.3
International market issues in 2000 (*)
Date of Currency Amount Amount Term Coupon Spread
Security issue issued in dollars -years- rate
(1) (2) (3)
RA EURO 10.0%/05 07-Jan-00 EURO 250 254 5.00 10.000% 618
RA EURO 10.25%/07 26-Jan-00 EURO 750 778 7.00 10.250% 587
Reop. RA EURO 10.0%/05 11-Feb-00 EURO 400 401 4.91 10.000% 556
RA Global 12.0%/20 01-Feb-00 USD 1,250 1,250 20.00 12.000% 541
Reop. RA 12,125%/19 (a) 25-Feb-00 (b) USD 433 433 19.00 12.125% 543
RA Global 11,375%/10 15-Mar-00 USD 1,000 1,000 10.00 11.375% 532
RA EURO 8,125%/04 04-Apr-00 EURO 500 481 4.50 8.125% 384
RA EURO 9%/05 05-May-00 EURO 750 670 5.00 9.000% 455
RA JPY 5,125%/04 14-Jun-00 YENS 60,000 562 4.00 5.125% 590
RA Global 11,75%/15 15-Jun-00 USD 2,403 2,403 15.00 11.750% 715
RA EURO 9%/03 20-Jun-00 EURO 1,000 931 3.00 9.000% 472
RA EURO 9,25%/04 20-Jul-00 EURO 500 476 4.00 9.250% 495
RA Global 10,25%/30 21-Jul-00 USD 1,250 1,250 30.00 10.250% 683
RA EURO 10%/07 07-Sep-00 EURO 500 457 7.00 10.000% 534
Reop. RA EURO 9,25%/04 21-Sep-00 EURO 500 446 3.83 9.250% 451
RA JPY 4,85%/05 26-Sep-00 YENS 61,500 567 5.00 4.850% 524

(*) Data as of September 26th, 2000

(a) Corresponds to the warrant exercise of the Global 2019
(b) Warrant exercise date
(1) In millions original currency
(2) In millions, as of the date and exchange rate of issue
(3) Over U.S. Treasury Bonds of similar duration
Source: Public Credit National Office, Ministry of Economy.

with information as of September 26th, amounted to a total of The average spread of these issues was 536 basis points,

U$S 12,359 millions (Table 7.3), including the Global bond with 11 years duration. That is to say that, in average, these

for U$S 2,403 millions maturing in 2015, that formed part of placements have longer terms than those made the previous

the Brady swap transaction discussed in detail in Report Nº 33. year, despite which the spread over similar term bonds from the

TABLE 7.4
Bond Placement in the International Market
Issues Amount Average Spread
Year Volume in dollars Life
(1) (years) (2)
1994 (*) 19 2,600 3.3 238
1995 18 6,370 4.0 371
1996 30 10,413 8.2 395
1997 18 10,214 14.9 310
1998 24 11,664 13.3 429
1999 40 11,869 7.6 594
2000 (**) 16 12,359 11.8 536

(*) Excludes syndicated loan for U$S 500 m illions

(**) At Septem ber 26, 2000. It includes the bond issue which was part of
a swap transaction
(1) In millions, as of the date and exchange rate of issue
(2) Over U.S. Treasury Bonds of sim ilar duration
Source: Public Credit National Office, Ministry of Econom y.

9
 CAPITAL MARKET

United StatesTreasury also decreased (Ta- TABLE 7.5

ble 7.4). Public Debt Issues in the domestic market
In 2000 (*)
TREASURY BILLS (LETES)
Analyzing issues by type of cu- Placement Date Currency Amount (1) Term Disc. Rate N.A.Rate Status
14-Jan-00 DOLLAR 259.8 91 7.12% 7.25% Cancelled
rrency, Table 7.3 shows that 40% were 14-Jan-00 DOLLAR 354.6 182 8.19% 8.54% Cancelled
28-Jan-00 DOLLAR 250.0 91 7.40% 7.54% Cancelled
made in European currency and 51% in 11-Feb-00 DOLLAR 250.0 91 7.84% 8.00% Cancelled
11-Feb-00 DOLLAR 350.0 182 8.40% 8.77% Cancelled
dollars, among which there stands out 25-Feb-00 DOLLAR 253.8 91 7.74% 7.89% Cancelled
17-Mar-00 DOLLAR 250.0 91 6.70% 6.82% Cancelled
the 15 years global bond for U$S 2,400 17-Mar-00 DOLLAR 355.9 182 7.80% 8.12% Cancelled
17-Mar-00 DOLLAR 505.9 364 8.15% 8.88% To be cancelled
millions, that was part of the previously 31-Mar-00 DOLLAR 250.0 91 6.80% 6.92% Cancelled
14-Apr-00 DOLLAR 250.0 91 7.02% 7.15% Cancelled
discussed swap transaction, and of a 30 14-Apr-00 DOLLAR 376.5 182 8.10% 8.45% To be cancelled
28-Apr-00 DOLLAR 255.3 91 7.21% 7.34% Cancelled
years bond for U$S 1,250 millions. Las- 12-May-00 DOLLAR 250.0 91 7.96% 8.12% Cancelled
12-May-00 DOLLAR 350.0 182 8.47% 8.85% To be cancelled
tly, the remaining 9% issues were made 26-May-00 DOLLAR 254.5 91 8.68% 8.87% Cancelled
in yens, the re-opening of said market 13-Jun-00 DOLLAR 254.2 91 7.39% 7.53% Cancelled
13-Jun-00 DOLLAR 352.0 182 7.99% 8.33% To be cancelled
being gradually consolidating for Argen- 27-Jun-00 DOLLAR 255.6 91 7.55% 7.70% To be cancelled
11-Jul-00 DOLLAR 263.1 91 7.52% 7.67% To be cancelled
tina, after several years of not participa- 11-Jul-00 DOLLAR 373.9 182 8.15% 8.50% To be cancelled
11-Jul-00 DOLLAR 538.7 364 8.16% 8.89% To be cancelled
ting in it. 25-Jul-00 DOLLAR 261.6 91 7.40% 7.54% To be cancelled
08-Aug-00 DOLLAR 262.9 91 7.40% 7.54% To be cancelled
08-Aug-00 DOLLAR 356.9 182 7.98% 8.32% To be cancelled
22-Aug-00 DOLLAR 250.0 91 7.40% 7.54% To be cancelled
Local market 12-Sep-00 DOLLAR 250.0 91 7.48% 7.62% To be cancelled
12-Sep-00 DOLLAR 353.8 182 8.03% 8.37% To be cancelled

As for the local market, during TREASURY BONDS (BONTES)

Placement Date Currency Amount Term Interest Spread
the second quarter the scheduled Trea- (1) Rate
10-Feb-00 (**) DOLLAR 1,387.4 3.3 11.75% 508
sury Bills (LETES) issues were made, whi- 10-Feb-00 (**) DOLLAR 1,645.4 5.3 12.13% 542
10-Feb-00 DOLLAR 307.0 3.3 11.75% 508
ch, as discussed in ECONOMIC RE- 10-Feb-00 DOLLAR 127.2 5.3 12.13% 550
25-Jul-00 DOLLAR 201.9 2.9 11.75% 514
PORT Nº 32, since 2000 were made bi- 25-Jul-00 DOLLAR 207.2 4.9 12.13% 607
22-Aug-00 DOLLAR 200.0 2.8 11.75% 573
monthly (Table 7.5). As of September 22-Aug-00 DOLLAR 200.0 4.8 12.13% 640

26th, 2000 the total issue during the year OTHER TRANSACTIONS ("PROMISSORY NOTE" BONDS)
Placement Date Currency Amount Maturity Interest Spread
was U$S 8,838 millions, less matured (1) Rate
17-Jan-00 DOLLAR 286.0 02-Nov-01 (2)+521 bp 533
issues as of said date amount to a stock of 16-Feb-00 DOLLAR 337.8 02-Nov-01 (2)+521 bp 521
16-Feb-00 DOLLAR 4.0 02-Nov-01 (3)+410 bp 349
U$S 5,000 millions. 15-Mar-00 DOLLAR 96.4 02-Nov-01 (2)+521 bp 362
15-Mar-00 DOLLAR 3.6 02-Nov-01 (3)+410 bp 296
17-Apr-00 DOLLAR 100.0 24-Abr-02 (2)+400 bp 400
According to the schedule, in 17-May-00 DOLLAR 100.0 24-Abr-02 (2)+400 bp 468
16-Jun-00 DOLLAR 100.0 24-Abr-02 (2)+400 bp 383
the bids made in the middle of each 17-Jul-00 DOLLAR 100.0 24-Abr-02 (2)+400 bp 312
16-Aug-00 DOLLAR 100.0 22-Ago-02 (2)+330 bp 330
month, LETES were place at 91 and 15-Sep-00 DOLLAR 100.0 22-Ago-02 (2)+330 bp 356

182 days and in the bid made at the
end of the month, bills placed had a 91
days’ term for U$S 250 millions. Along
the second quarter, interest rates inte-
(*) Data as of September 22nd, 2000.
(**) These BONTES were part of a securities swap transaction
(1) Nominal value in millions. In LETES it includes an additional 10%, optional
for market makers.
(2) Monthly adjusted interest rate by the dollar deposit rate, every term
(3) Monthly adjusted interest rate by dollar deposits rate, 30-35 days
for amounts in excess of US$ 1 million
Source: Public Credit National Office, Ministry of Economy.

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 CAPITAL MARKET
rrupted their downward trend started in the December 1999
bid. So, the 91 days discount rate went from 6.70% p.a. by
mid March 2000 to 7.39% by mid June, while the 182 days
rate went from 7.80% to 8% p.a. as of said dates. In turn
there were no important variations for the 364 days’ bids:
while in March 2000 the discount rate was 8.15% p.a., in
July it was 8.16%.
Since the June end bid, the upward trend of interest
rates was interrupted, due to the different measures announced
by economic authorities aimed at improving fiscal accounts
and a better international outlook since inflation fears in the
United States vanished. The 91 days’ LETES rates stabilized,
going from 7.40% at the end of August, i.e. a non significant
variation. In the September end bid, there was a rebound, when
7.73% p.a. was paid, although it seems to be the result of the
rise of borrowing rates in the financial market caused by a more
aggressive banks’ policy to capture the public’s funds, since
they sought to show, at the end of the quarter, a higher partici-
pation in the deposits market.
IV. Private Pension Funds Investments
In July 2000, the value of private pension plans re-
ached $ 19,270 millions, which represents a 14.8% increase
compared to the last day of 1999. This increase is the result of
the contributions paid into private pension funds and of the
profitability of investments made. The annual yield as of July
2000 compared to the same month of 1999 was 15.2%, while
historical annualized yield of the average system was 12.5%
p.a. as of said date. However, during the second quarter 2000,
funds yields accumulated an average negative value of 1%
2 It is worth to remember that, in the case of these securities (issued by the Federal Administration or by other state entities), there is the possibility to value
part of them, not at their market price, but on an accrued basis, i.e. at their purchase price adjusted by the capitalization of the internal return rate the security
had at the time of the purchase, in which case, the security has to be retained until maturity. Thus valuing the securities, private pension funds try to ensure
increases of the value of their shares at low risk. On the contrary, the portion of tradable securities is valued at market price and, consequently, are more
subject to capital markets’ volatility.
monthly. This means that the relevant yields had been higher
than in the first quarter, although they are historically higher
than other investments.
Tables 7.6 and A.7.4 (the latter from the statistical ap-
pendix) and Graph 7.5 show in detail the composition of the
funds managed by private pension funds. Table 7.6 shows
that during 2000 there were some changes, though not very
significant if measured in percentage points. In fact, in the first
seven months of the year, there is a minimum increase of natio-
nal and provincial public securities’ share, and a strong increase
of securities issued by foreign corporations. In turn, the most
important decrease was that of national stocks, even privatized
companies, and – to a lower extent – in mutual funds.
Analyzing these movements in detail, it can be seen
that national Public securities have the highest participation in
private pension funds’ portfolios, being as of July 2000 48.8%
of investments (a figure slightly higher than the 48.5% recor-
ded at the end of 1999). These percentages are near the maxi-
mum allowed for this investment category, which is 50%.
Within said instruments, a change among the different catego-
ries is seen with respect to December 1999, since there was an
increase of the portion of said securities valued on an accrued
basis which will be held until their maturity2 and a slight decli-
ne of negotiable securities participation.
The two categories of stocks (corporations and privati-
zed state owned companies) took a second place in July 2000,
with 15.6% of investments, which implies a steep fall compa-
red to end of 1999 figures (20.6%) and even to April this year
(19.5%). Said decline partly reflects falls of prices but also of
volume.
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 CAPITAL MARKET

TABLE 7.6
Private pension funds investments
In thousand Pesos
% Amount % Amount % Amount %
Limit of the of the of the
(1) 31-Dec-98 Fund 31-Dec-99 Fund 31-Jul-00 Fund
I. Cash and Cash Equivalents 175,239 1.5 163,040 1.0 332,685 1.7
II. Investments 11,351,155 98.5 16,624,059 99.0 18,936,760 98.3
Public securities issued by the National govt. 50 5,530,824 48.0 8,141,465 48.5 9,399,619 48.8
Negotiable Publ. Sec. issued by Nat'l govt. 2,292,438 19.9 3,731,782 22.2 3,994,279 20.7
Publ. Sec. issued by Nat'l govt. - Forward 3,238,386 28.1 4,409,683 26.3 5,405,340 28.1
Securities issued by State Organisms 15 231,125 2.0 637,630 3.8 972,371 5.0
Negotiable Sec. issued by State Org. 100,359 0.9 167,600 1.0 154,286 0.8
Sec. issued by State Org. - Forward 52,535 0.5 22,711 0.1 15,832 0.1
Provincial Govt. Securities 46,132 0.4 391,226 2.3 695,460 3.6
Municipal Govt. Securities 32,098 0.3 56,093 0.3 106,793 0.6
Long term Corporate Bonds 28 193,151 1.7 238,660 1.4 366,611 1.9
Short term Corporate Bonds 14 83,223 0.7 105,466 0.6 71,286 0.4
Convertible Corporate Bonds 28 11,839 0.1 14,245 0.1 0 0.0
Fixed Term Deposits 28 2,170,132 18.8 2,597,395 15.5 2,824,482 14.7
Fixed Term Certificates 173,087 1.5 2,084,794 12.4 2,530,748 13.1
Variable return fixed term deposits 1,997,045 17.3 512,601 3.1 192,894 1.0
Prepayable Fixed term deposits 0 0.0 100,839 0.5
Corporate stocks 35 1,823,508 15.8 3,199,541 19.1 2,774,216 14.4
Public companies stocks 14 292,170 2.5 249,218 1.5 230,898 1.2
Mutual Funds 14 759,377 6.6 1,054,646 6.3 903,405 4.7
Closed Mutual Funds 3,716 0.0 12,292 0.1 0 0.0
Open Mutual Funds 427,795 3.7 592,668 3.5 353,812 1.8
Financial Trusts 327,866 2.8 449,686 2.7 549,593 2.9
Foreign sovereign securities 10 220 0.0 211 0.0 208 0.0
Foreign corporate securities 1,044,650 5.4
Foreign corporate securities 879,448 4.6
Mutual Funds according to article 3 Instruct. 18/00 7 28,700 0.2 61,263 0.4 165,202 0.9
Regional Economies (*) 163,809 1.4 236,802 1.4 275,479 1.4
Real Estate Mortgage bonds and bills 28 40,365 0.4 14,151 0.1 13,665 0.1
Futures and Options 2 - - 40,780 0.2 22,527 0.1
Direct Investment Funds 10 21,497 0.2 32,586 0.2 37,353 0.2
III. Total Pension Funds 11,526,393 100.0 16,787,099 100.0 19,269,445 100.0

(*) This type of investment only applies to Nación A.F.J.P. and has a maximum of 50% of the total.
(1) Maximum percentage per instrument the pension funds is authorized to invest.
Source: Macroeconomic Programming Undersecretary, based on S.A.F.J.P.

In July 2000, fixed term deposits ranked third within

private pension funds preferences, with 14,7% of total funds,
which implies an important fall compared to the 15.5% recor-
ded at the end of 1999, but recovering with respect to the
13% recorded in April. A new reduction of variable yield term
3
deposits (DIVA) explains to a good extent this fall, there being
also declines in the traditional fixed yield term deposits.
Finally, it is interesting to highlight the change of some
investment categories which have shown great increases, al-
though they are still not very significant within total invest-
ments. On the one hand, there are provincial government
securities, which passed from 0.4% of investments at the end
of 1998 to 3.6% in July 2000. The most important securi-
ties held by private pension funds are issued by Buenos Aires,
Chaco, Formosa, San Juan, Misiones and Santiago del Estero.
Secondly, there were increases in the portion of foreign com-

3 These deposits are ensured their capital, and their yield is based on the evolution of an underlying financial asset (domestic or international stock exchange
indexes, stocks, public securities).

12
 CAPITAL MARKET

panies’ securities, which as of the same dates went from 0.2% change. It is also worth mentioning the advances recorded
to 1,1% of total investments, mostly made up of certificates by long term negotiable obligations in private pension funds
representing stocks (CEDEAR) traded in the local stocks ex- portfolios.

GRAPH 7.5
AFJP Investments as 07/31/00

53.83%
Goverment Securities
4.69%
Mutual Funds

8.96%
Others

2.27%
Corporate Bonds
14.66%
15.60%
Term Deposits
Shares

13