It is time for us to face the problems we've been postponing for 50 years - it is time to rebuild the brand of Argentina

President de la Rua

A default by Argentina, which owes a total of $132bn, would shake investors' confidence in emerging market debt, making it harder for many developing countries to borrow.

Full details have yet to be made public, but the restructuring plan centres on swapping $95bn worth of government bonds paying 15% interest for longer-term securities which will pay less than 7%.

The lower interest payments are designed to save the cash-strapped government about $4bn next year.

President de la Rua said the bond swap will be voluntary, but gave no details as to how it would be achieved.

He had hoped to reassure bondholders by underwriting the bond swap with fresh loans from the International Monetary Fund, but the IMF turned down his request for more cash earlier this week.

The government now appears to be hoping that creditors will accept the lower interest rates in return for greater security, but many analysts say the coercive nature of the bond swap makes it a default in all but name.

Investor scepticism

"They talk about a restructuring with the goal of reducing costs by $4bn. In principle that's a very interesting figure, but we still don't know exactly what the swap is like," said Luis Corsiglia, a trader for Corsiglia brokerage in Buenos Aires.

And Standard & Poor's warned that it might downgrade Argentina's sovereign credit rating again, depending on the losses bondholders suffer in the debt swap.

The restructured debt would be backed by the country's tax collection.

"It (the restructuring) will also depend to some extent, because it is backed by tax receipts, on the ability of the country to stimulate growth and revenue in the form of tax receipts," Juliet Sampson, emerging markets economist at the Bank of America told the BBC's World Business Report.

Stocks pressured, but impact limited

Uncertainty over Argentina's intentions triggered a sell-off in the stock of European companies with Argentine interests on Friday.

Carmaker Renault, which has mnanufacturing operations in Argentina, fell lower on the Paris bourse, while Spanish telecoms provider Telefonica and banking group Banco Santander, both carrying major Argentine investments, also suffered.

However, analysts do not expect Argentina's debt problems to trigger a global financial crisis on a par with the turmoil triggered by Russia's $40bn default in 1998.

They say the impact will be limited this time because Argentina's debt problems have been widely anticipated.

A steady decline in the face value of Argentine bonds since the start of the year means that a high proportion of the losses have already been absorbed.

Safety net

The debt restructuring plan formed part of a wider economic package which included a greater safety net for the poorest sections of society, and measures to boost indusrial production and exports.

But finance minister Domingo Cavallo, warned the country could not expect further bailouts from the US or the IMF.

Instead he said it would be up to Argentines to restore confidence by spending and investing more.

Value added tax on credit card purchases is to be cut in a bid to boost consumer spending.

Spending cuts

Much also depends on President De La Rua persuading powerful provincial governors to accept spending cuts, something which has not so far happened despite ongoing talks.

Argentina's stock markets closed higher on Thursday in anticipation of the announcement.