The Argentine president, Javier Miley, is aiming to resolve the financial crisis in his country by extending maturity dates and reducing the deficit to zero. This will be achieved through a debt exchange proposal for local debts that could exceed $71 billion.
Next week, Miley and the ministers of Economy, Luis Caputo, and Finance, Pablo Quirno, informed representatives of local and foreign banks operating in Argentina that they plan to issue peso bonds in February, with a maturity date in 2024, according to four people familiar with the meeting that took place on Thursday night, as reported by Bloomberg.
If this transaction is approved, it will be the largest local debt restructuring in the history of Argentina, surpassing a similar maneuver conducted by its predecessor last year, who paid 28.5 billion dollars in obligations during their term.
On Friday, the black market price in Argentina decreased for the sixth consecutive time, reaching a record of 1133 pesos per dollar.
According to the local brokerage company “GMIA Capital”, it is estimated that the payments of the Argentine Treasury’s debt in local currency for this year currently amount to around 57.5 trillion pesos (71 billion dollars at the official exchange rate).
This includes bonds with interest payments linked to inflation and exchange rates, as well as bonds with fixed rates, according to “JPMorgan Capital”. It is estimated that approximately 40 percent of this debt is held in the private sector, as opposed to public banks who are typically required by the government to extend their payment period.
This exchange will be added to the shock therapy measures that Maile took in her first month in office, including a depreciation of the peso by 54 percent, the elimination of large-scale regulatory restrictions, and drastic cuts in spending to address the chronic deficit (the root cause of inflation surpassing 200 percent), which has left nearly half of the country in poverty.
The urgency of the challenges that Argentina is facing is also evident, as the country owes Wall Street approximately one billion dollars in interest payments next week, while also facing a separate lawsuit worth 16 billion dollars.
After the currency devaluation in December, the central bank managed to rebuild the foreign reserves by about $3 billion, and the gap between the official and parallel exchange rates in Argentina decreased to around 10 percent from 200 percent. However, investors now anticipate increasing pressures on the Argentine currency in the coming weeks as they believe that some of Máximo Meili’s political reforms are not sustainable.
The Ministers of Economy, Luis Caputo, and Finance, Pablo Kerner, informed the bankers during the meeting that the exchange would be voluntary and that the bonds would be designed according to the banks’ needs, despite being offered at market price. Policymakers also suggested the issuance of inflation-linked bonds with maturities in 2025, 2026, and 2027 as a possible alternative to the exchange.
The meeting with bank officials took place on the same day that the Argentine Minister of Economy was supposed to start negotiations with the employees of the International Monetary Fund, who had arrived in Buenos Aires to resume talks on the government’s $44 billion program. While technical discussions began on Friday, Caputo’s meeting with IMF officials was reportedly postponed for the second time until Monday, according to many local media reports.
