Banks and economists probed on rate hike

Banks are profitable targets for Argentine government as far as elections are concerned. They also have their rates at high levels, though rates of vote return. At least, that's current official thinking. During the last 72 hours, almost all foreign entities and ten Argentine-capital banks have been intimidated. They were asked to give details about all transactions with Argentine bonds in the last year, first and second names of managers deciding those purchases and sales and even economists advising them. Argentine government's strategy bases on the fact that interest rates for loans have soared. Nobody lends money in Argentina at more than one year or two. Banks' deposits do not grow and, therefore, there's nothing to lend. With a real inflation above 20 per cent annual, it's natural to see all this. What's more, if willing to make a good deal today, one can get into debt in pesos in 10 years at fixed rate, since if this inflationary trend continues, premiums of the last years may be paid with coins. But, of course, nobody lends. Current administration is conducting a probe into banks having bought indexed bonds and into everyone advising on such decision. They would be held responsible for having speculated with Argentine inflation and even, according to this mistake from a government which forgets that it was the one drafting these indexed instruments, for price hike. All this within a world of fiction, in which Argentine Statistics and Census Institute (INDEC) provides reliable information and no price rise.

Guillermo Moreno and Néstor Kirchner

During the last 72 hours, the Argentine Committee of Competition Defence (CNCD, in its Spanish acronym) has been intimidating foreign banks and 10 Argentine-capital entities into providing all information about transactions with Argentine bonds since July 1 2006. At the same time, they were given three days to fulfil all requirements, which include names of managers deciding investments and of consulting firms or economists advising them. This situation has triggered emergency meetings in bank associations so as to decide which attitude they will adopt. This offensive against bonds seems to hide, in fact, government's unease about banks' rate rise. CNDC, working under Argentine Internal Trade Secretary Guillermo Moreno, asked the following items of information:

1) Information about daily stock of peso-denominated bonds from July 1 2006 to the present.

2) Information about daily stock of CER-indexed bonds from July 1 2006 to the present.

3) Information about daily stock of bonds in foreign currency from July 1 2006 to the present.

4) List of daily sale transactions of CER bonds from July 1 to the present. A chart has been attached with all quoting kinds to complete.

5) Parameters and variables taken into account by the financial entity and their application to decide purchase and sale of instruments.

6) Copy of minutes of board of directors and investment committees, in which sale transactions were determined, naming members.

7) Consulting firms advising transactions with bonds in general and CER-adjusted instruments, mainly from 2002 to the present.

8) List of agreements with consulting firms from 2002 to the present, scope and extension of them. At the same time, how the entity decided to hire consulting groups and why.

Big question

Yesterday, the upper echelon and legal departments of damaged entities devoted their constant attention to this task. Out of what has been requested, some points would entail sending a container to CNDC. For example, in item 5 asking which variables have an impact on the decision to buy or sell a bond, US rate, Dow Jones, Nikkei, Bernanke's statements, Argentine President Néstor Kirchner's remarks and Brazilian real quote may be included in the answer. Yet, we also have room temperature, windchill factor, rains in Comahue (let me remind you of energy crisis). We can stretch to infinity. Ironically, we can even include the arrival of CNDC services in a decision to sell an Argentine bond.

However, despite this, what called the attention in financial market was asking data about economic consulting firms. Will government point to a particular economist? The real purpose of all this move is to make noise during electoral times so as to show government punishes those increasing interest rates, those making profits with consumer price hike. At least, bankers found comfort yesterday: data about clients buying or selling bonds were not requested. This is part of bank secret and an order of the court is necessary. Yet, everything is possible before the end of October.