MercoPress. South Atlantic News Agency

Thinking in October, Cristina Fernandez demands from banks a new round of low cost business loans

The construction industry has slowed down considerably

Argentina will demand that banks grant a new round of low-cost business loans from July through December, totalling about 3.8 billion dollars, the central bank said on Thursday. The decision comes four months ahead of mid-term elections next October.

The figure represents 5% of bank deposits as of May, or 20.09 billion Pesos, and banks must charge a 15.2% interest rate on the loans, well below private annual inflation estimates that hover near 25%.

This lending requirement has been in place since July 2012 as the government tries to bolster credit and sustain investment. Half the loans must go to small and medium-sized businesses.

Growth in Latin America's third largest economy has slowed sharply in the last one and a half years due to sluggish global demand, high inflation, and the impact of government import and currency controls on business and consumer confidence.

The central bank said in a statement that banks lent about 34 billion pesos (6.4bn dollars) under this initiative in the last year, or about 1.5% of GDP.

Many banks have complied with the official lending requirements in part by renegotiating loans with their current clients at lower rates.

Lending levels in Argentina are among the lowest in Latin America. Many smaller companies do not qualify for state-subsidized bank loans because of tough requirements, and both deposits and loans tend to be short-term due to inflation and the country's volatile history.

Although support for President Cristina Fernandez has fallen dramatically from the 54% victory of 2011, she remains a formidable contester and the opposition parties have yet to find the right candidate.

All efforts are now concentrating on spurring the economy in the coming months including the very generous tax amnesty bill which ‘hopefully’ in the next weeks will inject billions of dollars into slow moving sectors such as construction and energy, precisely because of lack of funds in hard currency.