The Argentine central bank confirmed on Wednesday that there is no money exchange restrictions for the federal government or provinces to purchase US dollars to honour public debt issued offshore.
The announcement comes after the Chaco province earlier this week ‘pessified’ dollar nominated bonds triggering fears that the system could be extended to other provincial issues maturing in coming days.
“The Central bank ratifies there are no foreign exchange restrictions for the national state to address capital and interest payments on dollar denominated bonds, independently whether they are issued locally or offshore”, said the Argentine monetary authority in a press communiqué.
The bank recalled that for the State and provinces to have access to the money exchange market, bond issues must have been done offshore and in accordance with the rules of that country; that the bond issue is subject to foreign law; that the issue was floated and subscribed mostly overseas, for which the issue must comply with the rules of the issuing country and finally that they are totally integrated overseas.
The bank also pointed out that access to the foreign money exchange market is not contemplated for other domestic securities issuers “but non residents can do so to collect capital and interest of those local issues as long as they can give evidence when the funds originally entered Argentina for the investment and that they have had a minimum time of permanence in the local market”.
The bank’s announcement was strongly defended by different government officials who supported the “pesification” of debts, including Chaco Governor Jorge Capitanich and Buenos Aires province deputy-governor Gabriel Mariotti.
Capitanich said that “all bonds under national regulation should be paid in Pesos.”
The Chaco official came on stage in defence of his administration’s decision to ‘pessify’ bonds issued in dollars and at the same time urged that other government officials follow suit.
The measure adopted by Chaco province on Tuesday put local markets on alert, pushing Buenos Aires stocks down and the same with provincial bonds.
“All of the bonds under national regulation should be paid in pesos, as marked by the Central Bank rules,” Capitanich said in a press conference. He added that paying Argentine debt in Pesos “will help reduce the vulnerability of the country’s debt in foreign currency”.
Argentina's bond market suffered heavy selling this week after currency controls forced Chaco Province to pay US dollar securities in pesos. Argentine sovereign and provincial bonds on Wednesday added to the previous session's declines due to losses in global markets and concerns that Argentina's currency controls might affect bond payments.
Businesses have turned to the stock market to get dollars to pay for imports, where they can buy local stocks and bonds and sell them offshore for dollars. Most individuals have to go to the black market, where 6.20 Pesos will buy a dollar, compared with 4.7130 Pesos at the more affordable, but hard to get official rate.
Central bank stats show that dollar deposits at local banks have fallen 43% on the year to about 9 billion since the controls were put in place last year.
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So, if there is no issue then this is a policy decision rather dollar clamp issue. As such, can we expect more interest and capital payments to be pesified. It seems to be that this will probabbly be the case.Oct 11th, 2012 - 09:31 am 0
“All of the bonds under national regulation should be paid in pesos, as marked by the Central Bank rules,”
This is fine and I am behind it, however, I expect that the bonds will have to be peso bonds, not dollar. Given inflation, this will make no sense to those issuing the bonds or those buying them. I don't think they have understood that people will not buy US$ denominated bonds if they are going to be paid back in pesos...
If you pesify the economy that is your choice, however, there will be economic consequences.
Read her Botox induced lips There is no dollar clampOct 11th, 2012 - 10:08 am 0
Of course all is fine and dandy in the Land of Oz at Emerald city:Oct 11th, 2012 - 12:07 pm 0