Argentine gov't to withdraw quasi-currencies

Source: Associated Press

President Eduardo Duhalde has reached agreement with nine of Argentina's provinces for the government to retire billions of pesos worth of bonds that have been circulating as cash, a move favored by the International Monetary Fund.

These government IOUs, which are called "quasi-currencies" and have the look and feel of cash, were issued during a severe cash crunch in the early days of the country's economic crisis to help provinces meet their payroll and pension obligations.

But their issuance complicated Argentina's monetary situation, created a major headache for the Central Bank, and were criticized by international investors.

Economy Minister Roberto Lavagna, on hand at Thursday's signing ceremony with the provincial governors, called the move yet another step toward resuscitating economy still grappling with a deep economic crisis.

"This will do its part in the normalization of the economy and it will improve the purchasing power" of state workers and pensioners, he said.

Under the plan, the government has pledged to issue a series of bonds that will raise money for the Central Bank to repurchase the so-called quasi-currencies.

The financial instruments were issued by ten of Argentina's 24 provinces during the country's crisis as Argentina defaulted on $141 billion in public debt in December 2001 and devalued the peso against the dollar in January 2002.

The first phase of the buyback program will be launched in coming weeks in the smaller provinces, with larger Cordoba and Buenos Aires provinces to follow later.