April 30 (Bloomberg) -- Argentine bonds show growing speculation that the country will default for the second time this decade as inflation and anti-government protests swell.

The nation's $10.8 billion of floating-rate dollar bonds due in 2012 yielded 7.20 percentage points more than Treasuries of similar maturity at 5:43 p.m. in New York. That implies an almost 20 percent chance of Argentina halting payments in the next two years, according to Credit Suisse Group. No other emerging-market government securities have as high a probability of default.

The 19 percent decline in bond prices since President Cristina Fernandez de Kirchner took office in December shows investors are losing faith even as record commodity exports spur the longest economic expansion in at least two decades. Confidence waned after statisticians accused the government of fabricating data to hide an inflation surge and farmers alienated by a tax increase staged a nationwide strike that caused food shortages last month.

``Argentina has serious problems,'' said Igor Arsenin, an emerging-markets strategist at Credit Suisse in New York. ``There's a lack of investor confidence. They are concerned lenders won't be willing to extend credit if this continues.''

The country's floating-rate dollar bonds fell 19 cents on the dollar to 54 cents in the past year. Argentina's bonds are the worst performing emerging-market debt, according to JPMorgan Chase & Co.

Credit-default swaps tied to the country's debt and expiring in 2010 rose 1.88 percentage points to 4.92 percentage points this year, according to Bloomberg data. That means it costs $492,000 to protect $10 million of bonds from default.

Soybeans, Wheat, Corn

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The bonds are falling even though growth exceeded 8.5 percent in each of the past five years amid a rally in soybeans, wheat and corn that pushed up prices by more than 100 percent.

Foreign reserves jumped to a record $50.5 billion in March. Credit Suisse forecasts a budget surplus equal to 1.1 percent of gross domestic product this year, a reminder of late Citibank Chairman Walter Wriston's comment following Mexico's default in the 1980s that a ``country does not go bankrupt.''

The expansion increased inflation that Fernandez's predecessor, her husband Nestor Kirchner, tried to conceal last year by tapping a political appointee to rig the data, according to union workers at the National Statistics Institute.

Farmers' Protests

Union leader Daniel Fazio said in February 2007 that the appointee, Beatriz Paglieri, forced statisticians to break from standard data-gathering procedures. Kirchner and Fernandez say the government figure, 8.8 percent, is accurate. Barclays Capital Inc. estimates annual inflation soared to a five-year high of about 25 percent from 3.7 percent in 2003.

``The fundamentals have definitely gotten worse,'' said Ward Brown, who manages $3 billion of emerging-market debt, including Argentine bonds, at Massachusetts Financial Services in Boston. ``We are being more cautious.''

Fernandez raised taxes on soybean and sunflower exports last month to spur production of milk, beef and wheat for the domestic market. Farmers had produced record soybean and sunflower crops because those items were exempt from price controls and export restrictions imposed by her husband in 2005.

Farmers responded to the taxes with nationwide demonstrations. The protests, the biggest since the anti- government rallies that preceded the 2001 default, triggered food shortages, prompting Kirchner to accuse the farmers of trying to ``freeze'' the economy.

`Confrontational Style'

``It's part of the confrontational style of politics the Kirchners have shown,'' said Joydeep Mukherji, an analyst at Standard & Poor's in New York. ``A country that is doing so well wouldn't normally have such protests.''

Investors were counting on Economy Minister Martin Lousteau, a 37-year-old trained at the London School of Economics, to restore credibility to the CPI data and curb spending to bring down inflation, Mukherji said. That optimism faded April 24 when Lousteau quit.

S&P cut its outlook on Argentina's B+ rating to ``negative'' from ``stable'' the next day and the yield on the 5.83 percent inflation-linked peso bonds due in 2033 rose 0.76 percentage point to 10.76 percent, according to Citigroup Inc.

``Lousteau seemed to be trying to come up with a more credible inflation measure,'' Mukherji said. ``Argentina has a history of growth and then very negative situations. Lousteau was more conscious'' of this, he said.

`Question Marks'

The floating-rate notes are part of about $30 billion of debt the government issued under Argentine law rather than international law since the default, causing investors to demand higher yields.

Those securities would be the easiest for the government to stop paying if it lost access to financing, Arsenin said. The yield spread on the notes is 2.30 percentage points wider than the credit-default swaps tied to the country's international debt, according to Credit Suisse.

``The question marks around the government's policies have sharpened,'' MFS's Brown said. ``They need to do something more orthodox to bring the inflation issue under control.''

To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net

Last Updated: April 30, 2008 18:09 EDT