UPDATE 2-Argentina sees economic growth picking up in 2014

Thu Sep 12, 2013 2:17pm EDT

* Latin America's No. 3 economy seen growing 6.2 pct next year

* Forecast above threshold for payment on debt

By Guido Nejamkis

BUENOS AIRES, Sept 12 (Reuters) - Argentina's economy is expected to grow 6.2 percent next year, well above the threshold for payment on the country's growth-linked debt and picking up from this year's forecast expansion, Economy Minister Hernan Lorenzino said on Thursday.

Gross domestic product is seen growing 5.1 percent in 2013, he added, as a massive grains harvest and the automobile industry continue to boost growth. The forecasts are contained in the 2014 budget bill, which Lorenzino was presenting to Congress.

Latin America's No. 3 economy grew just 1.9 percent in 2012 after expanding 8.9 percent in 2011, according to official data. This reflected weak global demand for its exports, a poor grains harvest, high inflation and the negative impact of currency and trade controls on investment.

President Cristina Fernandez has implemented protectionist trade policies, currency controls and heavy regulation of the country's key grains sector, making her popular among many of the country's poor but frustrating the business sector.

"It's precisely these policies that we've been implementing, that protect the domestic market and Argentine jobs..., which have allowed Argentina to grow, amid the most profound global crisis since the 1930s," Lorenzino told Congress.

Argentina's forecast 2013 growth is set to beat the regional average. The economies of Latin America and the Caribbean are seen expanding 3 percent this year, as a gloomier global economy restrains exports and domestic demand, a United Nations body said in July.

But some analysts were skeptical about the Argentine data, which many say is manipulated.

"The economic growth target (for 2014) seems overly optimistic," said Nicolas Bridger of the Prefinex consultancy. "We think growth will be around 2 percent."

DEBT

Creditors were eagerly awaiting the 2014 budget estimates to see if growth would be strong enough to trigger payouts to holders of billions of dollars in Argentina's GDP warrants.

Growth of at least 3.03 percent is needed in 2014 for Argentina to pay holders of its GDP warrants in December 2015.

GDP-linked warrants shot up after the announced forecasts.

The government intends to use around $9.8 billion in central bank reserves to pay foreign currency-denominated debt, a government source told Reuters later on Thursday. That would mark a pick-up from an estimated $9.3 billion this year.

The country's trade surplus is seen at about $10.1 billion next year, slightly down from this year's forecast $10.6 billion.

That doesn't bode well for Argentina, as the trade surplus is a crucial source of foreign currency for the country, which has been virtually frozen out of debt markets since a 2002 default.

The budget bill foresees 10.5 percent inflation this year and 9.9 percent in 2014. Private inflation estimates, however, hover closer to 25 percent a year.

Argentina foresees a primary budget surplus of 2.59 percent of gross domestic product next year. The primary surplus represents government savings before debts are paid.

The exchange rate is seen at 6.33 pesos per U.S. dollar in 2014. On Thursday, the currency was trading at 5.72 per dollar at the official exchange rate and 9.26 per dollar in the black market.

Fernandez imposed currency controls to stem capital flight and safeguard the central bank's foreign reserves.

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