The foreign exchange clamp in Argentina is reaching the provinces, one of which at least was unable to honor maturing bonds in dollars and made the payment in Argentine Pesos.
The province of Chaco, (whose governor Jorge Capitanich is a close ally of President Cristina Fernandez) paid interest and principal on US dollar-denominated bonds in Argentine Pesos because it didn't have authorization from the central bank to make the payment in dollars.
In a statement, the Chaco province finance ministry said it paid 1.2 million pesos (264.000 dollars) on Oct. 4--the due date for the payment--after taking into account the current exchange rate regulations established by the central bank.
The statement came a day after the Buenos Aires Stock Exchange asked the provincial government to explain why it didn't pay in dollars.
Last Friday, the exchange said in a filing: It has come into the exchange's knowledge that the province doesn't have the authorization from the central bank of Argentina to buy the dollars necessary to make said payment.
The bonds in question--about 7.7 million dollars in 17-year bonds and 11.6 million dollars in nine-year bonds--were issued under Argentine law in 2006.
For almost a year, the Central Bank of Argentina and the federal government have vetted most requests by individuals, businesses and now provincial governments to buy foreign currency on the regulated exchange market.
President Cristina Fernandez has resorted to hard currency rationing and trade barriers to bolster the central bank's international reserves, which she uses to pay her government's creditors. The controversial measures have allowed the central bank to stabilize its reserves at around 45bn dollars.
The administration has also taken steps to eradicate the use of the dollar in the economy, especially in real estate transactions and as a savings medium, and has repeatedly called on Argentines to save in Pesos.
For generations, Argentines have viewed the dollar as a haven for their savings due to Argentina's long history of economic crisis and devaluations.