Argentina’s $15 Billion Reserves Collapse Over, Fabrega Says

Argentine foreign currency reserves will end the year little changed at about $28 billion as a record harvest and a devaluation of the peso halts an outflow of funds, central bank President Juan Carlos Fabrega said.

The reserves will stabilize after dropping almost $15 billion in the past 17 months to $28.5 billion, aided by about $30 billion of grain exports this year, Fabrega said during an event in Buenos Aires yesterday. Argentina devalued the peso by 21 percent on Jan. 23 to boost exports, he said.

The reserves cushion will help South America’s second-biggest economy meet payments on its foreign debt as the Economy Minister Axel Kicillof negotiated settlement for an estimated $10 billion in defaulted loans with the Paris Club, an informal grouping of creditors. Argentina agreed on an arrangement to clear overdue debt payments over a five-year period, the club said in an e-mailed statement.

Argentina’s policy is “surely on the right path,” Fabrega said. “The immediate effect” of January’s devaluation “was we were able through various measures to stabilize reserves.”

The government in the past six months has settled with Spanish oil company Repsol SA for the expropriation of its share in crude producer YPF SA and introduced a new consumer price index after pressure from the International Monetary Fund.

Slowing Inflation

After monthly consumer prices rose 3.7 percent in January, the government has been able to slow inflation, he said. Consumer prices rose 1.8 percent in April, the national statistics institute reported. The central bank will “accompany” the inflationary slowdown by adjusting interest rates accordingly, Fabrega said.

Foreign currency holdings will get a boost as farmers export the remaining two-thirds of a record harvest of 108 million tons of soy, corn, wheat, sunflowers and sorghum, Fabrega said.

Appointed by President Cristina Fernandez de Kirchner to head the country’s central bank in November, Fabrega said an escalation of reserve losses in January after they fell 29 percent in 2013 prompted him to devalue. He declined to say where he expected the peso to finish the year, saying “the truth is things aren’t falling apart.”

The peso will weaken to 10 per dollar by year-end and 12 per dollar next year, from 8.0743 yesterday, according to the median forecast in a survey by Bloomberg.

The 65-year-old Fabrega, who previously ran state-run Banco de la Nacion Argentina, said that while his new job is complex, he is proud to have been assigned the challenge.

“It’s been six months but I have to tell you that it seems like six years,” Fabrega said.

To contact the reporters on this story: Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net; Daniel Cancel in Buenos Aires at dcancel@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Philip Sanders, Bill Faries

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