Reuters: US Dollar Report: Argentina repays $2.2 bln debt,part goes to dollar-hungry locals

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Argentina repays $2.2 bln debt,part goes to dollar-hungry locals Aug 3rd 2012, 17:08 Fri Aug 3, 2012 1:08pm EDT * Boden dates back to 2001-02 bank deposit freeze * About 78 pct of $2.2 billion paid to creditors abroad * Gov't trumpets reduction in country's debt burden * Local investors eager to get dollars amid forex controls By Hilary Burke BUENOS AIRES, Aug 3 (Reuters) - Argentina made on Friday its last payment on Boden 2012 bonds, issued in part to compensate people whose dollar savings were frozen and forced into devalued Argentine pesos during the country's painful 2001-02 crisis, the Economy Ministry said. President Cristina Fernandez said on Thursday evening that the government would send 78 percent of the $2.2 billion payment to creditors abroad since most of the original holders had sold the bonds, first issued in 2002. A banking source confirmed $1.7 billion had been remitted to foreign bondholders. The remaining 22 percent of the debt, or about $500 million, was to be paid into bondholders' accounts in Argentina. It was not clear if that money would be reinvested or withdrawn from banks to hedge against currency controls. Argentina removed its decade-old peg to the dollar in 2002 but many savers and business people still use greenbacks to protect their money against a possible depreciation of the peso and the impact of high inflation. Fernandez imposed tough foreign exchange controls in October, just after winning a landslide re-election, and slapped a virtual ban on foreign currency purchases in May. Many investors bought the Boden 2012s to get a hold of increasingly scarce dollars as the black-market rate surges. The government has touted the Boden 2012 repayment as a symbol of economic independence, 10 years after the country staged the biggest sovereign debt default in history. Fernandez and her late husband and predecessor as president, Nestor Kirchner, shrank the country's debt burden. Total public debt of $178.96 billion in 2011 represented 41.8 percent of gross domestic product, down from 166 percent in 2002. These days, more than half the total debt is easily refinanced since it is owed to public entities. "What we're going to pay now, the Boden 2012, is nothing less than the money that the banks should have returned to the Argentine people," Fernandez said in a lengthy speech broadcast live late on Thursday. In fact, the Boden 2012s were also given to banks to compensate for the forced conversion of deposits and loans into pesos at different exchange rates. Kirchner issued more Boden 2012s to sell to ally Venezuela before his government stepped up reliance on state entities, like the ANSES pensions agency. Gustavo Ber, head of Estudio Ber financial consulting firm, predicted that much of the money paid to Boden 2012 holders would be reinvested in "medium-term bonds, especially the (dollar-denominated) Boden 2015 which is its 'natural heir' since it offers ... a limited maturity and volatility as well as high liquidity." In addition to the Boden 2015, Ber said investors had expressed interest in reinvesting proceeds into the dollar-denominated Bonar 2017 and the Bonar 2013. Another possibility is that creditors withdraw the dollars transferred to their Argentine bank accounts on Friday. Dollar deposits have sunk about 40 percent since the currency controls were first imposed in October. "Our numbers indicate that small- and medium-sized savers who get paid for the Boden will continue draining their deposits," a trader at a private, Spanish-controlled bank said. "Technically the funds will be credited in accounts today but the real movement by investors will be seen starting on Monday." SHARP SLOWDOWN Friday's bond payment was made using the central bank's foreign reserves, in line with government policy since 2010. Opposition politicians say this exacerbates inflation estimated by private economists at roughly 25 percent a year. The government's primary budget surplus - once a pillar of economic policy - is seen vanishing this year as state spending remains high to stimulate domestic demand. Argentina faces another sizable debt payment in December when it will transfer $3.44 billion to holders of growth-linked GDP warrants due to a robust expansion in 2011. Analysts expect Argentina to report economic growth this year below the 3.26 percent threshold that would trigger a roughly $4 billion warrant payment in December 2013. Latin America's No. 3 economy is slowing sharply, hit in part by a drop in consumer and business confidence linked to the currency measures and import curbs. Fernandez defended the unorthodox controls as a way to keep dollars in the country and ensure Argentine companies can get the greenbacks they need to import goods for production. Former central bank chief and opposition lawmaker Alfonso Prat-Gay disputed this, saying the controls were mainly aimed at safeguarding the foreign reserves used to pay debt. "I don't think there's any other country in the world that pushes its economy to the brink of recession to make a debt payment that represents 0.4 percent of GDP," Prat-Gay wrote on Friday in La Nacion newspaper. "Because that's what this government has achieved with its currency controls." Link this Share this Digg this Email Reprints

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