The high debt rates maintained by the Argentine government as a measure to guarantee investment and avoid tension in the exchange market, although not directly aimed at trade, do affect the production sector, an economist said Wednesday.

In an interview with Xinhua, Pablo Salvador, a doctor of economics at the University of Jyvaskyla in Finland and also a university professor, referred to the current yields in dollars and in local currency offered by Argentine debt instruments and warned about the effects these high interest rates on the economy.

The current rates of treasury bills (Letes), capitalizable bills (Lecap) and even the Central Bank bills (Lebac), which are in the process of breaking down, offer yields of up to 55 percent annually and are governed by Argentina's Central Bank (BCRA) benchmark interest rate, which is currently at 60 percent and the highest in te world.

"Such a high benchmark interest rate makes a speculative investment much more attractive than a productive investment. For example, if a company has a capital of 100,000 (Argentine) pesos (about 2595.90 U.S. dollars), it is much less risky and more advantageous for this company to purchase debt," Salvador said.

Currently, the Argentine government pays yields of up to 55 percent annually on treasury bills and 7 percent annually in the case of debt instruments in dollars. These interests, according to Salvador, are high and could hurt the production sector.

"This cools the economy because those pesos, instead of being used to buy machinery or expand facilities, is turned over to credit or the purchase of some type of treasury bill, that for the reproduction of capital is much more profitable than investing productively," Salvador said.

A high benchmark policy rate, which in Argentina's case looks to extend through the end of 2018, makes credit more expensive, which also affects the production sector, hindering its debt, he said.

Salvador believes that the current Argentine government did not have many options in the face of a high fiscal deficit other than to increase debt with local and external capital even more in a global context that generates vulnerability within the Argentine economy.

However, Salvador said, "these rates are not sustainable in the medium term," in spite of the current inflationary situation forcing the high rate to stay where it is.

The measure to keep the benchmark interest rate at 60 percent is in response to the demand for U.S. dollars and a necessity to avoid the reversal of investment flows, phenomena that lead to a devaluation and also affect the production sector.

"The production sector is the most harmed not only because the rates are so high and it is difficult to get into debt, but because those companies that use imported supplies have to buy them in (U.S.) dollars making it more difficult to buy those supplies," Salvador said.

The devaluation of the peso. on the other hand, will have repercussions on international trade, while Argentina will have advantages in its role as an exporter but loses them in import activities.

"What will clearly decline are imports ... this decline in imports comes from the increase in exchange rate and the recession; on the other hand, the exchange rate will benefit the entire exporting sector," Salvador said.