Argentina Proposes Bill to Allow Dollar Contract Payments in Pesos // It's unclear if the bill will apply retroactively or if it could affect government debt.

Argentina Proposes Bill to Allow Dollar Contract Payments in Pesos

By Taos Turner
The Wall Street Journal
Monday, June 11, 2012
http://online.wsj.com/article/BT-CO-20120611-714077.html
BUENOS AIRES -- Argentine President Cristina Kirchner has submitted a bill to Congress that would allow debtors to pay U.S. dollar-denominated contracts in pesos.
The bill comes amid a broad government push to wean Argentines off their long-held preference to use dollars for major transactions. It's unclear if the bill will apply retroactively or if it could affect government debt.

In early August the government faces a $2.2 billion payment on the Boden 2012 dollar-denominated bond.

A spokesman for Mrs. Kirchner didn't immediately respond to requests for comment.

The bill, as currently written, would allow debtors to "free themselves" from paying from the dollar payment requirement by paying "the equivalent amount" in pesos.

The federal tax agency AFIP, which vets foreign-currency purchases, is thought to have approved very few requests to buy dollars in May. That fueled perceptions that a dollar-hungry government might resort to more draconian measures to make sure it has enough dollars on hand to pay creditors later this year.
 Dollar scarcity has fueled a vibrant black market where Argentines can obtain the currency at a hefty premium over the official exchange rate.

The black-market rate now hovers around ARS5.90, according to local media. In contrast, the peso closed at ARS4.49 on the local wholesale foreign-exchange market Monday.

In an attempt to assuage public concern, Deputy Economy Minister Axel Kicillof recently said the government has no plans to ban the use of dollars in the domestic economy or convert dollar-denominated loans and contracts into pesos.
In recent weeks, Mrs. Kirchner and her ministers have declared a "cultural war" against Argentines' love affair with the dollar. In a recent speech, the president said she would voluntarily swap her dollar savings into pesos, as "it's more profitable."
According to local news reports, Mrs. Kirchner declared just over $3 million in dollar-denominated savings in her latest tax declaration. But talk of a forced or coerced "pesofication" of the economy isn't going away and it hurt some bonds Monday, according to Adrian Mayoral, a trader at his family brokerage.
"There is a lot of speculation about supposed plans to 'pesofy' the economy," Mr. Mayoral said. "I can't say if any of this is more than speculation, but it's affecting the market."
The Bonar 2015 dollar-denominated bond fell about 3.4% to ARS458.5 in part on speculation that the government might try to get out of making dollar payments on its debt.