The Argentine central bank, desperate to hold on to dollars it needs to pay off other loans, this week refused to honor about $5 billion of contracts it made with Argentine companies in 1981 in which those companies temporarily gave the central bank dollars for pesos.
Since most of the companies borrowed the dollars from foreign banks, many of the companies will find themselves unable to pay off those loans, U.S. bankers said yesterday.
Bankers here said Argentina made clear that it is not unilaterally refusing to pay its foreign debts. But it is refusing to redeem these foreign exchange agreements, which are coming due in the next few months..
Argentina is one of many developing countries -- including Mexico, Brazil and Peru -- that are having diffciulties repaying tens of billions of dollars owed to foreign bankers in the United States, Europe and Asia.
If the companies insist on retrieving their dollars by liquidating the contracts, they will not be paid in dollars, but in dollar-denominated Argentine bonds that start to mature in five years but that pay interest from the beginning. Bankers can choose to accept the bonds in lieu of dollar repayment from the Argentine companies.
"If we do, we'll be substituting Argentine public debt for what is today Argentine private debt," said a U.S. banker.
If the banks decline to accept the bonds, the companies will have to try to buy other dollars, attempt to extend the term of the foreign loans or refuse to repay the loans.
Most of the companies involved are big Argentine concerns or subsidiaries of multinational companies.
The Argentine central bank, nearly as short of dollars last year as it is this year, encouraged private Argentine companies to borrow abroad to meet their peso needs, rather than borrowing those pesos from Argentine banks. The central bank then swapped the dollars for pesos at the 1981 exchange rate and promised the companies they could redeem those pesos for dollars at a specified exchange rate in 1982. Such foreign exchange contracts reduced the risk involved to the companies.
But the value of the peso declined much faster than either those companies or the Argentine government expected. If the central bank honored the contracts as written, the companies would make a big peso profit.
The central bank's actions may force many banks either to decide whether to accept the bonds -- if the interest is paid, banks will not have to write off the loans -- or run the risk of increasing their level of bad loans.