The Americas: Argentina appropriates pension funds to pay bills risk of default:
government yesterday took control of Dollars 3.5bn (Pounds 2.5bn) in
private pension assets to pay bills and keep up payments on its debt.
drastic move came a day after the International Monetary Fund said it
would not make a payment of Dollars 1.26bn due in the middle of the month
because of Argentina's deteriorating accounts. Domingo Cavallo, economy
minister, was yesterday due to fly to Washington with his entire economic
team for an emergency meeting with the IMF.
more than a year Argentina has depended on local banks and pension funds -
as well as some Dollars 27.5bn in aid from multilateral lenders - to
finance government spending and meet payments on its debt.
has already dipped into its foreign exchange reserves - which back the
country's dollar-pegged currency - to meet its debt payments.
Cavallo, economy minister, told reporters yesterday: "The money held
by the private pension funds at banks will be turned into treasury
bonds." He said the funds would be used to pay wages and state
IMF decision to withhold a payment will also hold up payments from other
multilateral lenders, increasing the chances that the country will default
on its entire Dollars 155bn stock of public debt. It has also aggravated
political pressures faced by President Fernando de la Rua. Yesterday he
called an emergency meeting of the cabinet to discuss the country's
crisis is evolving so rapidly that it is difficult to take actions that
last for more than a day," said a government adviser, who noted that
banking and capital controls introduced on Monday to stop a bank run had
already been modified. He said sentiment in the government was still
against devaluing the peso, which he said was tantamount to
some respects, yesterday's move to appropriate pension fund assets is a
continuation of the practices of the last year, in which pension funds
have been pressured into lending to the government when no one else would.
the IMF's decision to suspend lending to Argentina, the government will
have to rely further on local financial institutions and its own reserves
to keep up payments on its debt.
Cavallo is betting everything on the completion of a massive debt
restructuring, which got under way last month.
far, around half of the country's Dollars 95bn in bonds - mainly owned by
local banks and pension funds - have been exchanged for lower-interest
bonds, saving the government some Dollars 3.5bn in interest payments a
Cavallo hopes to complete a second leg of the debt exchange aimed at
international bondholders within 90 days. Yesterday he hinted that there
could be an even broader renegotiation of the country's debt. The next 90
days would be "very complicated" as the government battled with
foreign investors to restructure its debt, but the country would
"come out ahead", he said. Mr Cavallo noted that "the
important thing is that the (IMF) is going to keep working together with
Washington yesterday an IMF spokesman said emergency currency controls
taken at the weekend by Argentina were "regrettable", but that
few alternatives were available.
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