March 4, 2010 / 4:00 PM / 9 years ago

UPDATE 4-Argentina Pres. vows to push on with reserve plan

* Judge blocks government from using reserves to pay debt

* Argentine president says she will go ahead with plan

* Gov’t appeals amid legal, political wrangling

* Bond spreads tighten on push to repay debt-analyst (Adds govt appeal, constitutional lawyer, market reaction)

By Kevin Gray and Helen Popper

BUENOS AIRES, March 4 (Reuters) - Argentina’s president defiantly vowed on Thursday to tap billions of dollars in foreign currency reserves to pay debt and appealed a court order blocking her latest attempt to use the funds.

Two days after Fernandez signed a new decree to transfer some $4.4 billion in reserves to the Treasury, a federal judge issued a ruling that ordered the Economy Ministry not to use the money “in any way” until Congress reviews the decree.

The ruling was a setback in her drive to use the country’s savings to help pay some $15 billion in debt coming due this year. But debt markets cheered her determination to repay debt at a time when the cash-strapped government is trying to restructure $20 billion in defaulted bonds and return to international debt markets.

“I’m convinced I’m acting within the limits of the Constitution,” she said in a televised national address. “This president wants to, and will, pay debts with central bank reserves.”

Argentine sovereign bonds outperformed the JP Morgan Emerging Markets Bond Index Plus 11EMJ, tightening seven basis points to 768 over U.S. Treasuries while the index tightened two basis points to 283.

“Everybody was listening to the president’s speech and she made it very clear that the government wants to pay,” one New York-based sovereign analyst said. “Argentina had been underperforming the market for a while and what we are seeing today could also be a technical rebound.”

Locally-traded Argentine bonds <AR/BONOS> pared losses after Fernandez pledged to meet debt obligations. The bonds were down 0.3 percent on average in afternoon trade.

Fernandez this week revived her plan to tap some $6.6 billion of foreign reserves, stoking political tensions and raising prospects that the newly appointed central bank president, a government ally, may be ousted by Congress. For more see [ID:nN04227667].

The battle over Fernandez’s plan has heightened investor concerns over political uncertainty in Latin America’s No. 3 economy. It also has prompted questions over whether the planned swap of $20 billion in defaulted debt will move forward.

“This (court ruling) is another embarrassing development for the government,” said Alberto Ramos, a senior economist at Goldman Sachs in New York.

DEBT REPAYMENT FUND

Fernandez issued a decree in December setting aside more than $6 billion in reserves to guarantee debt payments this year, aiming to lower the country’s costs of issuing new debt.

She fired former Central Bank President Martin Redrado for refusing to hand over the money and the reserves decree was blocked by a court after opposition lawmakers challenged it.

Fernandez annulled the decree on Monday and replaced it with two new ones that ordered the transfer of $4.4 billion for private creditors and $2.2 billion to pay multilateral lenders. The Central Bank immediately handed over the larger amount.

Economy Minister Amado Boudou said the government planned to make at least $100 million in debt payments this week, but it was not immediately clear how much had already been paid.

Some analysts suggested she might try to use the money despite the new injunction, but constitutional lawyer Gregorio Badeni played down that possibility.

“If the president goes ahead, it could be a crime because she would be going against a judicial order,” said Badeni, who represented Redrado.

In Fernandez’s speech she criticized judges and said opposition to her plan amounted to an attempt to bring down the government.

“What stands out is the lack of respect of the law,” said Juan Diedrichs, an analyst at Capital Markets Argentina. “That’s the most serious thing.”

Fernandez insisted that the government has the right to use the reserves.

“This isn’t the Central Bank of Namibia or Uganda. This is the central bank of the Republic of Argentina,” she said.

Her new decrees to tap reserves, seen by some analysts as a strategy to boost government spending ahead of next year’s presidential elections, drew protest from the opposition, which effectively took control of Congress this week.

A Senate committee voted to reject the president’s appointment of Central Bank President Mercedes Marco del Pont, who is widely seen as a close to Fernandez and still needs Senate confirmation.

Her appointment is expected to be put to a vote in the Senate next week. (Additional reporting by Jorge Otaola, Guido Nejamkis, Walter Brandimarte, Juliana Castilla and Hugh Bronstein)

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