Argentina boosts local debt sales to tame inflation; headache looms

viernes 24 de abril de 2015 14:55 GYT

By Sarah Marsh

BUENOS AIRES, April 24 (Reuters) - Argentina's central bank is ramping up issuance of short-term debt to soak up pesos and contain one of Latin America's quickest inflation rates, but risks creating another financing headache for the next government.

So far this year, the central bank has issued far more short-term "Lebac" securities, which typically range from three-months to one-year in maturity, than in all of 2014.

This is helping mop up some of the liquidity resulting from President Cristina Fernandez's expanding the money supply to finance populist subsidies and far-reaching welfare programs.

Between January 1 and April 1 the central bank issued "Lebacs" worth 310.70 billion pesos, compared with 261.45 billion pesos worth in the whole of 2014, Thomson Reuters data showed. To attract takers, it has also nearly doubled interest rates payable on the Lebacs in the past two years.

By doing so, the central bank is containing the upward spiral in prices that is a top voter concern ahead of October's presidential poll. Fernandez cannot run for a third term, but her ruling party is seeking to hold onto the presidency.

But the cost of this quick fix, rather than reducing the deficit, is a swelling of the central bank's debt holdings and a sharp rise in interest payments financed from its profits.

This means fewer profits to transfer to the next government at year-end. Those profits accounted for between 7 and 8 percent of government revenues last year, economists estimate.

"The central bank's strategy is to delay real solutions. The next government will be the one paying the price," said Aldo Pignanelli, a former chief of Argentina's central bank who is now advising opposition presidential aspirant Sergio Massa.   Continuación...