Report: Argentina to issue bonds for CDs

BUENOS AIRES, Dec. 24 (UPI) -- The Argentine government will issue 10-year bonds to bank depositors if the Supreme Court rules against a presidential decree converting dollar-denominated bank accounts into pesos, the Clarin newspaper reported Monday.

The dollar-denominated bonds would be given to depositors who hold certificate of deposit accounts. Those accounts were converted to pesos by order from President Eduardo Duhalde last February, shortly after the country devalued its currency following an 11-year, one-to-one peg with the dollar.

The move enraged Argentines, whose deposit accounts were converted at a rate of 1.4 pesos per dollar. The exchange rate has stabilized around 3.5 per dollar in the past three months.

Clarin reports that should the court rule against the conversion, some $11 billion now trapped in the CDs would have to be released. A ruling is expected within the next few days.

Financial institutions say they don't have the greenbacks on hand to cover that cost.

It was more than a year ago that former President Fernando de la Rua locked down accounts in Argentina in an effort to halt a run on banks.

That move served as the catalyst for violent protests in which at least 27 people were killed. De la Rua was forced to resign, and continuing protests pushed four presidents to power in the final two weeks of December.

Duhalde, who was appointed to the presidency by lawmakers and took office Jan. 1, finally lifted the freeze on saving and checking accounts earlier this month, but the CDs of some 400,000 depositors remained restricted.

Unnamed sources with the Ministry of Economy told Clarin that a ruling against the conversion might bring relief to the country's ongoing negotiations with the International Monetary Fund.

As long as Duhalde's decree stands and CDs remain restricted, the sources said, it is seen as an area of incertitude in the country's monetary policy.

The mandatory emission of bonds -- while sure to be a wildly unpopular move, and one that would likely face legal hurdles itself -- would at least clear up the matter somewhat and remove it as a hurdle for a comprehensive loan deal with the IMF, government officials are thinking.

One concern for Duhalde and his economic team is if the Supreme Court will not only rule against the conversion, but will specify how the accounts must be re-converted into dollars.

"We're not sure what is going to happen, because everybody knows that all of the judges who are in favor of re-dollarization don't think the same about defining how it is carried out," a source in the Ministry of Economy told Clarin.

At least one member of the Supreme Court -- Justice Adolfo Vazquez -- is vocally in favoring of forcing the immediate return of newly dollarized CDs to depositors.

Meanwhile, Argentina's negotiations with the IMF received a fresh touch of optimism last Friday when the Fund said it will consider extending a short-term, transitional aid package to the country.

On Monday, the La Nacion newspaper reported that Argentina and the IMF will soon sign a deal that will allow the nation to roll over debt payments it owes the Fund in the first six months of 2003.

That would give Argentina some breathing room on its federal reserves, allowing it to defend its currency should turbulence creep up.