La Nacion

US $2.180 billion is taken from BCRA



Friday, April 27, 2012



By Martin Kanenguiser



The government yesterday places a Treasury Letter at the Central Bank
(BCRA) to pay debt to private creditors with reserves, in a decision
that will allow for covering debt payments this year but will generate
more pressure on the value of the dollar.  Through resolution
131/2012, the Economy Ministry, led by Hernan Lorenzino, emitted a
letter of US$5.674 billion, and those funds will make up the Debt
Reduction Fund for this year to pay the bondholders.



This decision comes before the BCRA decides the level of reserves that
is necessary to pay debt, after the recent reform of the charter done
because the entity had been without freely-available reserves to be
able to continue making payments in the manner done in the previous
two years.



In the findings of the resolution, published yesterday in the Official
Bulletin, it is explained that the board led by Mercedes Marcó del
Pont will have to “determine the level of necessary reserves for the
execution of the currency exchange policy, and the resulting
freely-available reserves which exceed that level.”



The letter will be fully paid in 10 years, at a rate “equivalent to
what the international reserves of the BCRA yield up to a maximum
equivalent to Libor (the London interbank rate) minus one percentage
point.”  As such, it will be an interest rate close to 0.04% annually,
which will affect the patrimonial situation of the BCRA in the medium
term, as happened with the payment of the debt with the International
Monetary Fund (IMF) and the previous debt reduction funds.



The date of emission of the letters is fixed to April 20, 2012 and its
amortization will be made integrally to the maturity in one decade.
The movement of the reserves will take place, according to the
resolution, “in various tranches”, without further details.



The first, approved yesterday quickly by the BCRA board, will allow
the Treasury to appropriate US$2.18 billion to pay debt to private
bondholders in the first half of the year and even recover funds that
it set aside for payment those balances in the first quarter of the
year, which is to say, before the BCRA would again be able to help in
that task.



The most important objectives that the Treasury’s financial program
has this year are the payment of the last installment of the Boden
2012 in August and, in December, the coupon attached to GDP, magnified
by the official decision to report a greater growth figure than the
private sector.  Financial analysts consulted by LA NACION said that,
with the start of this new stage of the debt reduction fund, the
government could cover its obligations this year without any stress.



José Echagüe of Quantus Finanzas said that the amount of US$5.764
billion “is not capricious, because it is US$2.2 billion for the Boden
2012 and US$3.6 billion for the GDP coupon (of which US$800 million is
paid in pesos) and the rest is for the payment of smaller installments
of the Boden 2015 and the Bonar 10.”



With a similar analysis, Federico Bragagnolo of Econviews argued that
“with these funds they’ll be able to cover all of the debt payments in
principal and interest with the private sector for the whole year.”
He added that the Treasury might also continue using BCRA funds to pay
debt with multilateral organizations.



A little-valued guarantee



This certainty doesn’t translate into an improvement of the price of
bonds emitted by the government which quote on the markets.  On the
contrary, they remain among the most battered even among their
emerging market peers.



This is due, according to former finance secretary Lisandro Barry, to
“a strong legal uncertainty on the part of foreign companies which are
trying to take out as much of their funds as possible through the
mechanism of liquidity.”  This leads the government to study the ways
to complicate this tool for taking out funds.



Barry said that the loss of BCRA reserves through the movement of
funds to pay Treasury debt “will create some uncertainty, which will
be reflected in an acceleration of the exchange rate gap.”



A recent report from the Bein firm also takes into account this effect
of the drop in bonds.  “The main reflection of this situation is given
by the spike in the exchange rate gap, which is placed around 25%,
above devaluation expectations at one year implicit in New York
futures (23%),” he said.