Argentina's Chaco Province Makes Dollar Bond Payment in Pesos

By Ken Parks

BUENOS AIRES--Argentina'sChaco Province paid interest and principal on U.S. dollar-denominated bonds in Argentine pesos last week because it didn't have authorization from the central bank to make the payment in dollars, the province's Finance Ministry said over the weekend.
In a statement, the ministry said it paid 1.24 million pesos($264,000) on Oct. 4--the due date for the payment--after taking into account the "current exchange rate regulations established by the central bank."
The statement came a day after the Buenos Aires Stock Exchange asked the provincial government to explain why it didn't pay in dollars.
On Friday, the exchange said in a filing: "It has come into the exchange's knowledge that the province doesn't have the authorization from the Central bank of Argentina to buy the dollars necessary to make said payment."
The bonds in question--$7.65 million in 17-year bonds and $11.6 million in nine-year bonds--were issued in 2006.
The provincial government couldn't immediately be reached for comment. Argentine government offices and many businesses are closed Monday in observance of a public holiday.
For almost a year, the Central Bank of Argentina and the federal government have vetted most requests by individuals, businesses and now provincial governments to buy foreign currency on the regulated exchange market.
President Cristina Kirchner has resorted to hard currency rationing and trade barriers to bolster the central bank's international reserves, which she uses to pay her government's creditors.
The controversial measures have allowed the central bank to stabilize its reserves at around $45 billion.
The Kirchner administration has also taken steps to eradicate the use of the dollar in the economy, especially in real estate transactions and as a savings medium.
For generations, Argentines have viewed the dollar as a haven for their savings due to Argentina's long history of economic crisis and devaluations.
Mrs. Kirchner's aggressive policies aimed at de-dollarizing the economy fueled rumors earlier this year that her government might force investors who own foreign-currency denominated securities to accept payment in pesos.
The $2.2 billion payment on the government's Boden 2012 bond in August was thought to be especially at risk of " pesification." In the end, the government made the payment in dollars following repeated assurances by Mrs. Kirchner.
Write to Ken Parks at ken.parks@dowjones.com

  (END) Dow Jones Newswires
  10-08-120040ET

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