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UPDATE: Argentina Govt Taps ARS4.4B In Ctrl Bk Forex Profits
Wall Street Journal
July 01, 2009

By Matthew Cowley Of DOW JONES NEWSWIRES

BUENOS AIRES (Dow Jones)--Argentina's government has asked the central bank to hand over 4.4 billion Argentine pesos ($1.16 billion) in profits from foreign exchange transactions to help cover the budget shortfall, government officials confirmed Wednesday.

The cash-strapped government is increasingly turning to unusual sources of financing and now wants to draw on the Central Bank's paper profits attributed to the depreciation of the Argentine peso, according to a report Wednesday in La Nacion newspaper.

Some of the money was handed over in June, and the rest will be handed over in July, according to the report.

An official at the economy ministry confirmed the information in the report, and said the step "wasn't unusual." A central bank official said the measure was taken due to the "exceptional moment" facing the Argentine economy and that this wouldn't affect the solvency of the central bank.

A large part of Argentina's reserves are held in dollars, and because the Argentine peso weakened sharply against the greenback in the fourth quarter, that led to a gain for the central bank. The peso hit ARS3.45 at the end of 2008, about a 9% depreciation from the beginning of the period.

Although the Central Bank does hand over net profits from the investment of its foreign currency reserves, it doesn't usually hand over the paper profits from currency movements.

The request has been made in part because the government doesn't expect the peso to reverse course and strengthen against the dollar, and indeed most analysts see a steady depreciation towards ARS4 at year-end. Should the currency reverse, the Central Bank might face losses on its foreign exchange operations.

The transfers represent a large part of the Central Bank's paper profits for 2008, money that hadn't originally been earmarked for the government's coffers according to the 2009 budget, the newspaper said.

Argentina's government has increased spending significantly this year, both to damp some of the effects of the global slowdown on the local economy and also because of midterm elections held last Sunday.

However, the government's sources of funding haven't kept pace, and it has taken a number of extraordinary steps to shore up its finances. The government can't turn to overseas capital markets both because of the high interest rates demanded by investors for Argentine sovereign debt and because of a dispute with bondholders over the country's $100 billion 2005 debt restructuring.

Late last year, the government nationalized private-sector pension funds, taking over ARS78 billion in assets and ARS1.5 billion in monthly worker contributions. The social security system, Anses, which now runs those funds, has since become a key player in government efforts to stimulate the slumping Argentine economy.

Earlier this week, the government unveiled plans to raise ARS12.3 billion, primarily from other state sources, including the state-owned bank, Banco de la Nacion.

On the Web: http://www.lanacion.com.ar/nota.asp?nota_id=1145588

-By Matthew Cowley, Dow Jones Newswires; +54 11 4103 6740; matthew.cowley@dowjones.com

(Alberto Messer contributed to this report)

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