Argentina Forced To Buy Euros To Avoid NY Embargoes
(Adds confirmation from a Central Bank spokesman and further details of the operations.)
BUENOS AIRES (Dow Jones)--Argentina has begun to buy Euros in the local market to control the exchange rate of the dollar relative to the peso, in a complicated move necessary to avoid the risk of having additional Central Bank funds seized in New York.
The move highlights the strategy of some of the holders of defaulted bonds to make life so difficult for Argentina that the government ends up paying them off rather than continuing to have to deal with the headaches.
On Wednesday, a U.S. court ruled for the first time that Argentina's central bank is indistinguishable from the government and its assets can be seized by creditors to pay down debts.
The two investment firms which brought the case, EM Ltd. and NML Capital Ltd., hold defaulted Argentine government bonds and have won judgments allowing them to seize Argentine assets to settle those debts.
So far Argentina has been able to shield its assets, but Wednesday's decision allowed the investment firms to attach $105 million in central bank funds held at the Federal Reserve Bank of New York.
While Argentina is going to appeal the ruling, starting on Thursday, the Central Bank was prevented from buying dollars in the local market, as they are traditionally deposited in a foreign account which could make them vulnerable to attachment, according to Goldman Sachs.
Rather, the government intervened in the local market to keep the peso stable by buying Euro's to be deposited in a local account. This forced local banks to buy U.S. dollars locally to buy Euros from abroad, and thus it was the banks rather than the central bank that had to settle the transactions offshore, Goldman Sachs said.
A Central Bank spokesman confirmed the Euro purchases, but pointed out that none of the Central Bank's operating accounts had been affected by Wednesday's decision.
The Euro operations "are part of the Central Bank's strategy to never allow too much money to accumulate in the NY Fed's accounts" because of the risk of attachment, the spokesman said.
On Friday, the government bought the Euro equivalent of over $250 million, according to local brokerage Puente. That was "without a doubt the main support for the wholesale exchange rate despite the embargo on the accounts in New York," Puente said in a market comment.
The peso remained stable throughout the week due to the government intervention, on Friday closing unchanged from a day earlier at ARS3.88 to the dollar.
-By Shane Romig, Dow Jones Newswires; 54-11-4103-6738; shane.romig@dowjones.com |
