Argentina's 2012 budget to tap reserves

BUENOS AIRES: Argentina's 2012 budget will authorize the government to tap foreign reserves again to pay down debt, newspaper Pagina 12 reported on Saturday, adding that the budget bill assumes GDP growth will slow sharply next year to 4.7 percent.

The budget bill also forecasts Argentina's peso will depreciate to 4.5 per dollar, while inflation -- which analysts say the government heavily under-reports -- is seen at 9.2 percent.

The paper said President Cristina Fernandez will send her budget bill to Congress on Sept. 28. Unlike last year, the bill is expected to pass due to a politically weak opposition after Fernandez's landslide primary election win in August put her on track for re-election on October 23.

"The government will include authorization to use reserves freely to cancel debt with private creditors," Pagina 12 said, adding $6.8 billion in debt owed to private creditors will come due in 2012. The paper said it had had access to macroeconomic data used to draw up the budget.

However, with excess reserves at around $6 billion, the government will not be able to rely on those funds alone and may have to turn to credit markets for the first time since a 2002 default on some $100 billion in sovereign debt.

That would represent a major shift for Fernandez, whose policies have targeted a smaller debt load.

Government officials have so far declined comment.

A government decree authorizing the use of reserves in 2011 specified a figure of up to $7.5 billion, as did the text of the 2011 budget bill, which Congress never voted on.

The former central bank chief was forced out of office in early 2010 for resisting the government's drive to use reserves, but the funds were quickly replenished thanks to booming exports and a stable exchange rate.

Argentina's economy is growing at nearly 9 percent a year, one of the fastest rates in Latin America.

However some economists worry high inflation, a less competitive peso and unorthodox policies could prompt a sharp slowdown, just as central bank reserves to cushion the economy decrease.

The trade surplus is seen narrowing in 2012 to $8.579 billion compared to an estimated $9.035 billion this year, Pagina 12 added.

Copyright Reuters, 2011