Nov. 23 (Bloomberg) -- Argentine highway operator Autopistas del Sol SA’s bond default is adding to concern the budget gap will swell to the widest in nine years as the government takes over unprofitable companies, Moody’s Economy.com says.

Autopistas said Nov. 10 that the government’s failure to let it raise toll rates led to a “progressive deterioration” of its finances that will force the company to miss an interest payment due today on $155 million of bonds. The Planning Ministry named an overseer to Autopistas today, a move that Moody’s economist Juan Pablo Fuentes says could foreshadow the government pumping money into the company to keep it operating.

“Once the government enters the companies, it will have more pressure to cover the companies’ deficits,” Fuentes, 42, said in a Nov. 19 telephone interview from West Chester, Pennsylvania. “That will cause an already difficult fiscal outlook to further deteriorate. We aren’t seeing any action by the government to slow spending.”

The growing deficit may help stem a surge in Argentine bonds this year sparked by the government’s push to settle with holders of $20 billion of defaulted bonds, said Fuentes. Joydeep Mukherji, head Latin America sovereign ratings analyst at Standard & Poor’s in New York, said last week that while the debt restructuring plan is positive, the government’s “loose” fiscal policy is a concern.

Widest Since 2001

Standard & Poor’s cut the toll company’s credit rating to D from CC today, citing the missed $9 million interest payment.

Argentina’s dollar bonds have returned 127 percent this year, more than all emerging-market debt after Pakistan, which is up 168 percent, according to JPMorgan Chase & Co.’s EMBI Global Index. The average yield premium that investors demand to buy Argentine bonds instead of U.S. Treasuries dropped to 6.86 percentage points from 17.04 points at the end of 2008 as a global economic recovery bolstered demand for higher-yielding assets, according to New York-based JPMorgan.

The deficit will swell to the equivalent of 3 percent of gross domestic product in 2010, the biggest in nine years, from about 2 percent in 2009, according to Moody’s. The government posted a deficit of 6.6 billion pesos ($1.7 billion) during the first 10 months of this year, according to the Economy Ministry.

President Cristina Fernandez de Kirchner, 56, is holding down prices of public services even as inflation --which Fuentes estimates will reach 15 percent this year --pushes companies’ costs higher.

The government subsidizes electricity and gas rates, train, subway, and bus fares, and has taken back a concession to run the Buenos Aires water company that was sold to a private group in the 1990s.

‘Policy-Induced Default’

State airline Aerolineas Argentinas, expropriated from Spanish tour operator Grupo Marsans in 2008, has debts of $370 million, Transport Secretary Juan Pablo Schiavi told legislators on Nov. 19, according to the state news agency Telam. Schiavi’s spokesman didn’t return a telephone call from Bloomberg News seeking comment.

The government has overseen management at pipeline operator Transportadora de Gas del Norte SA since the company defaulted in December, citing government price controls.

The planning ministry said in a statement today that it named Hector Molina, an official at the University of Buenos Aires, to audit the company and review its service.

Planning Minister Julio de Vido said Nov. 21 that the government has no intentions of nationalizing highway concessions, according to Telam. Alfredo Scoccimarro, a spokesman for President Fernandez, didn’t return phone calls by Bloomberg News seeking comment.

Consumer Demonstrations

Autopistas’s missed debt payment is “a policy-induced default,” said Boris Segura, 41, an economist at RBS Securities Inc. in Stamford, Connecticut. “It’s an otherwise profitable business turned into a loss-making enterprise because the government doesn’t want to adjust tolls for political reasons.”

Thousands of consumers demonstrated outside congress in August to protest increases in their utility bills after the government removed subsidies totaling 493 million pesos ($130 million) on electricity and natural gas rates. The government reinstated the subsidies.

The government plans to tap international bond markets next year after restructuring the remaining debt from a 2001 default on $95 billion of bonds, Economy Minister Amado Boudou said as recently as Nov. 7. Last week, congress passed a bill authorizing the government to extend a restructuring offer to creditors who held out of a 2005 exchange that paid about 30 cents on the dollar.

“Renewed access to voluntary markets is going to allow for laxer fiscal policy,” Segura said. That’s why Argentine bond yields “will settle at wider levels than other countries in the region,” he said.

Markets Last Week

The average yield spread on Argentine dollar bonds over Treasuries fell 25 basis points, or 0.25 percentage point, last week to 7.1 percentage points, according to JPMorgan. The peso rose 0.2 percent to 3.8010 per U.S. dollar from 3.8081 on Nov. 13. The Merval stock index slid 0.1 percent to 2,231.5.

The following is a list of events in Argentina this week:

Event                                   Date
Autopistas Debt Interest Payment Due    Nov. 23
Shopping Center Sales                   Nov. 25
Supermarket Sales                       Nov. 26

To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.netEliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

Last Updated: November 23, 2009 16:56 EST