[When I read articles like this I usually find myself humming "Cry for me Argentina". But this time I found myself humming "The Autumn Leaves". Don't know why.] ANALYSIS-Key Argentine province faces September debt crunch By Alejandro Lifschitz BUENOS AIRES, Argentina, Aug 28 (Reuters) - Argentina's wealthiest but most heavily-indebted province, Buenos Aires, faces a litmus test in September: it must confront huge debt payments with coffers already straining amid economic crisis. Analysts agree the Argentine federal government, which is having to cope with a liquidity crunch of its own as it tries to fend off fears of a debt default, could step in to help provincial governments meet their debt obligations to head off any debt moratorium if necessary. But they warned that Buenos Aires province -- which now accounts for 33 percent of Argentine economic output and is home to a third of Argentina's population of 36 million -- must slash public spending sharply this year to avoid problems with its debt load. Investors fear an Argentine equivalent of the woes faced by Minas Gerais state in Brazil, when its own debt moratorium precipitated the devaluation of the real in 1999. In September alone, Buenos Aires -- which is run by the main opposition Peronists -- must meet $208.34 million in debt expiries, from local debt to Eurobonds, official figures show. "September is a key month," analyst Eduardo Rodriguez Diez of private think-tank Fundacion Capital told Reuters. Although some of these bonds are held by the central government -- which could refinance them -- the main challenge is some $121.92 million in local treasury bills which must be repaid by September 19. Buenos Aires province's total foreign debt stood at $5.832 billion at the end of June, or around 6 percent of its domestic product. "They have a monthly treasury deficit which does not allow them to cover their current obligations," said analyst Sofia Migueliz of international ratings agency Fitch Ibca. The woes of Buenos Aires province mirror those of Latin America's No. 3 economy as a whole, after three years without growth. During that time, consumption and investment have fallen, fiscal revenues have plunged, and public spending has risen along with interest rates. The liquidity crisis hit the province so hard it was forced to issue so-called "patacon" bonds to partially pay some state workers' salaries. The recipients can use them to pay off their taxes. Between January and June, the province had current income of $4.093 billion, down from $4.165 billion for the same period last year, while its costs rose to $4.731 billion from $4.648 billion. Worse still, almost half of the province's revenues come from the central government's payment of federal taxes. And in exchange for financial aid, the Argentine government has promised the International Monetary Fund (IMF) that it will be flexible over the amount it gives to the provinces -- which could translate into smaller payments. In the first six months of the year Buenos Aires province posted a $282 million deficit, when it had only been expected to go $24 million into the red. In the second half, Buenos Aires promised the central government that it would cut $500 million from its public spending in exchange for financial aid. But analysts feel the slice should be deeper. "There should be an additional cut," said Fitch Ibca's Migueliz. He believes provincial governor Carlos Ruckauf -- a possible contender for 2003 presidential elections -- should cut state worker salaries and issue more "patacon" bonds to meet September's debt expiries. So far Ruckauf has ordered the issuance of $90 million worth of patacon bonds, but Migueliz estimates that by the end of the year that sum could rise to $600 million. "I don't think they are going to let a province like Buenos Aires fall," said Aldo Abram, analyst at Exante consultancy. "With the financing agreed with central government and what comes in via patacons, their needs should be covered." The province agreed to mirror central government measures to cut state worker salaries and some pensions to erase the budget deficit for the rest of the year. But the provincial legislature has blocked the application of that plan to date.
