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US$10 billion in reserves will be used next year
Ambito Financiero
July 13, 2010

As was reported two months ago by this newspaper, the Economy Ministry is preparing the ground to go back to using reserves with the goal of paying debt in dollars, but in 2011. The preliminary calculations that are being done by the Finance Secretariat estimate that next year it will be necessary to use no less tha US$10 billion , a substantial increase in relation to the US$6.569 billion that is coming due during this year.

This jump is explained above all by the payment of some bonds in foreign currency that this year have no maturities due. The most notable case is the Bonar V, whose payout in March of next year will require US$1.5 billion. This bond is coming fully due, which has become a favorite of conservative investors. This is due to it offering an interest rate above 8% a year in dollars and it comes due in only nine months.

Another heavy burden will be the payment on the GDP coupon. This year it doesn't pay out, as 2009 had a recession. But next year investors will receive a dividend corresponding to growth in 2010, which right now had a practical floor of 6%. The payment in dollars will not be less that US$1 billion, which would have to be added to the corresponding amount for the unit attached to GDP but quoting in pesos (this last one, for being in local currency, doesn't come out of the reserves but from Treasury funds).

The Central Bank has been following an aggressive policy of buying currency, which brought up the reserves to yesterday surpass US$50.2 billion. It's closing in on the record registered in March 2008, when they surpassed US$50.5 billion.

The strategy seeks to strengthen the reserves position before applying the US$2.3 billion in paying a new capital payout on the Boden 2012 in the first week of August. "When we make this payment, which is the biggest of the year, we'll still have more reserves than we had in January, when the debate began over the corresponding use of Central Bank resources to cover maturities," they said at Economy, defending their policy.

For next year the pressure on the entity run by Mercedes Marc del Pont will be still more intense, as debt coming due is growing. However, both at Economy and the BCRA they are seeking to minimize the effect over the volume of the reserves. "Part of what is coming due is with multilateral organizations, which are coming back to lend to us practically in line with what we pay out," they said.

This strong presence of the Central Bank in the currency markets to accumulate reserves has almost had no impact on the quoting of the dollar until now, which stands at 3.955 pesos. That is due to the fact that the supply of dollars had a big increase in the quarter from April to June: the trade surplus reached US$7.57 billion.

The use of reserves will generate, assuredly, new controversies between the Casa Rosada and Congress. But for now the government has its hands practically free to use this mechanism through a DNU.

It happens that the legislation on the use of reserves passing through Congress is stuck. The Verna bill, which copied Cristina's decree for the Executive to be able to use reserves, was approved in the Senate but never passed the House. And in the lower chamber they approved a bill overturning the DNU that allowed the use of reserves, but it was never taken up in the Senate. With this as the situation, there is no obstacle either in the legislature nor the courts against the government going back to using reserves by decree.

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