The Group of Seven industrialised countries has said it is satisfied with measures announced by Argentina to deal with its debt crisis.

Late on Thursday, President Fernando de la Rua announced a restructuring of his country's debts which many analysts regard as a de facto default.

But in the first official reaction to the plan, the US Treasury and G7 finance ministers issued a joint statement on Friday saying they were "pleased" Argentina had taken the initiative to deal with its debts.

The statement stressed the importance of Argentina returning to a sustainable economic path.

The G7 includes Britain, France, Germany, Italy, the United States, Japan and Canada.

Nervous markets

The announcement should steady nerves in Argentina's markets, which have so far shown a lukewarm response to the announcement.

Fear remains that investors will have no alternative but to exchange their bonds for securities paying lower interest.

Argentine bond prices fell in early trade on Friday, while traders on international markets were distracted by news of rising US unemployment and the Microsoft settlement.

Forced to swap

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 government appears to hope 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.

President de la Rua said the bond swap will be voluntary, but it is unclear what alternatives investors have other than to accept the new terms.

"Although they are saying you can choose if you make the swap or not, I think it is very difficult if banks and pension funds say they don't want to make the swap. I don't think Argentina can pay the capital and interest on its debt as it is now," Hernan Fardi, analyst for Maxinver consultancy, told the BBC's World Business Report.

Investor scepticism

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

"The issue is if an exchange occurs in what we consider a distressed situation, in which the alternative available...is vague and possibly unfavourable... the judgement we make is whether the terms of the bond provide less value than the original terms," Standard and Poor's Jane Eddy told the BBC's World Business Report.

It is still too early to say what the impact of Thursday's statement will be, she said.

"The ability to make a judgement as to whether this debt exchange creates a better fiscal balance for the Republic is still uncertain," she added.

Contagion limited

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.

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.