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Argentina Budgets $9.9 Billion of Reserves to Pay Debt in 2014

Argentina will tap a record $9.86 billion of central bank reserves next year to make payments on its foreign debt, according to the 2014 budget bill presented to Congress today.

South America’s second-biggest economy will expand 6.2 percent in 2014 after growing 5.1 percent this year, Economy Minister Hernan Lorenzino told lawmakers. Annual inflation will slow to 9.9 percent in December of next year from 10.5 percent this year, according to estimates included in the bill.

“We Argentines must keep working for the continuity of this project which has focused on employment, enabling the most important historic cycle in the past years of growth combined with social inclusion,” Lorenzino said.

Since 2010, President Cristina Fernandez de Kirchner’s government, which has avoided borrowing internationally at rates that would be the highest among emerging markets, has drained reserves to pay foreign-currency obligations.

Reserves have fallen 23 percent to $36.58 billion since March 2010, when Fernandez decreed the use of central bank funds to pay debt. Since then, the government has used $39 billion of reserves for that purpose, Lorenzino said today.

Argentine government dollar-denominated bonds yield an average 13.66 percent, more than double the 6.33 percent average for emerging-market peers, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

Tax revenue will increase 27 percent while spending will rise by 19 percent in 2014 from this year, enabling the government to obtain a budget surplus of 0.11 percent of gross domestic product, compared with a deficit of 1.77 percent of GDP this year, according to the budget bill.

Exports Increase

The world’s largest exporter of soybean oil expects the 2014 trade surplus to narrow to $10.1 billion from $10.6 billion this year, according to the bill.

The peso will have an average value of 6.33 pesos per dollar in 2014, compared with 5.72 pesos per dollar today, according to the budget proposal.

Since former President Nestor Kirchner replaced staff at the national statistics institute, known as Indec, in 2007, Argentina has under-reported inflation, according to private economists and the International Monetary Fund.

In the 12 months to the end of August consumer prices rose 10.6 percent, according to the institute, while a report compiled by opposition lawmakers using statistics provided by private economists put the increase at 25.2 percent.

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