U.S. judge freezes Argentine central bank accounts

January 12, 2010

Argentine President Cristina Fernandez de Kirchner (L) accompanied by Banco Nacion's head Mercedes Marco del Pont (C) and Economy Minister Amado Boudou arrive at the Banco Nacion in Buenos Aires January 11, 2010. By Jorge Otaola

BUENOS AIRES, Jan 12 (Reuters) – A U.S. judge has frozen accounts held by Argentina’s Central Bank in the U.S. Federal Reserve, deepening a legal dispute over the Argentine government’s plan to use foreign reserves to repay debt.

Speculation has grown in Argentina in recent days that some holders of defaulted government bonds could try to get Central Bank funds embargoed because of a plan to use $6.6 billion in Central Bank foreign reserves to service the nation’s debt.

“The funds that the central bank has in the (U.S.) Federal Reserve have been embargoed,” an Argentine Central Bank spokesman said.

The move was initiated by U.S. District Court Judge Thomas Griesa, who is handling a series lawsuits brought by so-called bondholders, the spokesman said.

The news sent locally traded Argentine bonds tumbling 2.2 percent on average.

President Cristina Fernandez fired Central Bank chief Martin Redrado last week after he opposed her reserves plan, but a federal judge reinstated him a day later and blocked the transfer of the funds to the treasury.

The turmoil has rattled financial markets and highlighted political instability in Latin America’s No. 3 economy just as Fernandez’s cash-strapped government seeks to woo investors to be able to sell bonds for the first time since a massive debt default eight years ago.

Argentina plans to launch a debt swap later this month with the so-called holdouts, who hold some $20 billion in defaulted bonds. The swap is meant to pave the way for a bond issue to ease tight state finances.

(Writing by Helen Popper; Editing by Kenneth Barry) ((helen.popper@thomsonreuters.com; +54 11 4318 0655; Reuters Messaging: helen.popper.reuters.com@reuters.net))

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