By Eliana Raszewski
BUENOS AIRES (Reuters) -In a bid to safeguard its dwindling hard currency reserves, Argentina’s central bank issued a new regulation on Thursday to require provinces with foreign currency debt to obtain their own financing for 60% of capital repayments.
Argentina has 23 local governments known as provinces.
The new regulation aims to make provincial debt payments “compatible” with the bank’s need to manage its foreign currency reserves, the country’s monetary authority said in a statement.
According to the regulation, provinces must submit a proposal for the repayment of 40% of their foreign currency debt to the central bank in which they can access the government’s official exchange rate, but then tap alternative financing methods for the rest of their hard currency debt load, according to the statement.
The regulation will require provinces to seek out their own financing for the other 60% over a period of at least two years.
The measure will go into effect Friday, and is designed to protect the bank’s scarce foreign currency reserves, which are needed to pay down government debt and finance some imports.
In a similar move last week, oil companies operating in Argentina were asked to finance their own imports for 90 days due to the shortage of foreign currency in central bank coffers.
Compounding the country’s ailing finances, Argentina has been hit by a $20 billion slump in critical farm exports caused by a severe drought.
South America’s second-biggest economy is also struggling to tame annual inflation, which hit 109% in April, while complying with economic targets of a $44 billion loan program with the International Monetary Fund.
(Reporting by Eliana Rasewski; Editing by David Alire Garcia and Alistair Bell)
