Telefonica sues Argentina for pesification

Telefonica de Argentina (NYSE: TAR) has joined other utility companies in mounting a legal challenge against the Argentine government following the country's abandonment of the fixed peso-dollar exchange rate in January 2002, local press reported. The move follows a similar action made last year by the shareholders of Telecom Argentina (NYSE: TEO), which invoked a bilateral trade agreement between Argentina and Italy. The "pesification" of the Argentine economy 18 months ago blew a huge hole in the balance sheets of many local companies, by converting income into devalued pesos while leaving debts in dollars. The two telcos were among the Argentine companies most indebted to the international bond markets. The lawsuit charges the government broke its contract with the foreign owners of the telcos and other utilities companies, all of which were privatized during the 1990s. Some papers are speculating the lawsuit is a tool by the companies to force the government to liberalize utilities rates, which have been frozen since the devaluation, despite inflation of more than 40% during 2002. The government of the new President Nestor Kirchner has said it will take up the issue, but so far has not guaranteed a specific timetable for liberalization. Telefonica de Argentina is 97% owned by Spain's Telefonica (NYSE: TEF) while 54.7% of Telecom is held by a joint venture between France Telecom (NYSE: FTE) and Telecom Italia (NYSE: TI). Other utilities with similar lawsuits are Sempra, CMS, AES, LG&E Energy and Suez. The suits are filed with the governemnt's center for foreign investment dispute settlements Ciadi.