Argentina Borrows Reserves to Pay Debts

Argentina is using $1.2 billion of central bank reserves to finance debt payments after a drop in tax revenue left the government short of cash.

The central bank this month transferred the money to state-owned Banco de la Nacion, overriding its own restrictions to make the 30-day deposit at a New York branch. The government needed the money after a recession cut tax receipts for five months, said Guillermo Mondino, one of the Economy Ministry’s top advisors.

The 10-year-old currency system prohibits the central bank from expanding the money supply or altering interest rates. In the last several months, it has been adding cash to the banking system by lending reserves after Argentines pulled $11.6 billion, or 14% of total deposits, since June. Now, by helping the government pay its debts, the central bank may further undermine confidence in the Argentine peso, analysts said.