BUENOS AIRES (Dow Jones)–Before submitting the 2012 budget to Congress late Thursday, Argentina’s government defended plans to use up to $7.5 billion in the central bank’s foreign currency reserves for making debt payments.
In a draft version of the budget previously sent to legislators, the government underscored the reasoning behind key elements of the 2012 budget, according to documents reviewed by Dow Jones Newswires.
In one example, the government sought to convince lawmakers of the wisdom of using central bank reserves to pay debt, something it has done amid sharp criticism in previous years.
«It’s worth noting achievements in reducing financing costs, and international reserves, which, instead of declining after their inclusion in a debt reduction fund, actually increased ….» the government said.
Plans to include the use of reserves in 2012 through a debt reduction fund are laid out in Article 56 of at least one version of the draft budget, the final version of which has yet to be made public.
Another draft budget specifically noted that the article referring to the debt reduction fund had been removed.
It was unclear early Friday if that article was included in the final budget proposal and Economy Ministry officials couldn’t be reached for comment.
The government said it would use the reserves «to guarantee the normal fulfillment of the federal government’s obligations even in if the effects of the crisis in international financial market persist in a way that has impeded access to market financing at reasonable rates in recent years.»
Economists don’t all agree about the use of reserves and some say the government won’t even have any reserves to tap next year. That’s because economists disagree about the level of so-called «freely available» reserves.
This «available» cash is defined by law as what is left over after the central bank has set aside enough of the reserves to cover its monetary base, which totaled about $45 billion at the end of August. As of Thursday, the central bank had $49.45 billion in foreign currency reserves, leaving about $4.5 billion for possible debt reduction.
But even then, some economists say those funds aren’t actually «available» because the central bank needs them to back up local debt instruments and other commitments.
Whatever the case, legislators say the government could access $6 billion or $7 billion in reserves next year. But to do so, they say the government would have to make changes to a key currency law dating back to the early 1990s.
Government officials have voiced confidence not only that they have enough reserves available, but that Congress will eventually approve the budget that includes their use in 2012.
Source: Buenos Aires Herald