Argentina seeks breather with local debt swap

El pasado martes 12 de Marzo el ministerio de Economía de Argentina llevó adelante un canje voluntario de deuda local. El mismo tuvo una aceptación superior al 77% y le permitió al Tesoro despejar vencimientos del 2024 y correrlos a partir del 2025. Previo a la instrumentación de este canje, Latin Finance conversó con nuestro socio Federico Marino Mac Dougall sobre las características del mismo y su percepción sobre el posible resultado.

Proposed bond swap may make it easier to reach fiscal balance, tackle inflation

Argentina launched a local bond swap on Monday in an effort to stretch out most of its 2024 maturities over the following four years, as it seeks a breather in debt payments to help rekindle economic growth and slash triple-digit inflation.

The Economy Ministry said it is proposing to exchange existing bonds — most are denominated in Argentine pesos, two are linked to the US dollar — maturing this year for new ones that will mature between 2025 and 2028, according to a press release.

The offer, which is open through Tuesday at 3 p.m. local time (2 p.m. EST), also allows investors to sell a portion of their bonds back to the sovereign, the ministry said.

The total amount of the swap is equivalent to $64 billion, according to local press reports.

If successful, the deal will allow the government of Javier Milei to reprogram the brunt of its local debt so that 30% of the total matures in December 2025, 30% in December 2026, 25% a year later and the remaining 15% in December 2028, according to the ministry.

Gaining Time

Milei, just three months on the job, is seeking to gain time with the swap to push through structural reforms to reduce public spending, a key for turning the primary fiscal account from a 5% of GDP deficit in 2023 to a 2% surplus this year. Milei has said budget deficits and the mismanagement of public finances have been at the root of the country’s recurring financial crises over the past century, including nine sovereign defaults and a most recent spike in the annual inflation rate to above 254%.

Federico Mac Dougall, a partner at Deloitte’s financial advisory team in Buenos Aires, told LatinFinance that if the swap is successful, it will make it easier to reach a fiscal balance.

This is needed. Milei suffered a major setback for reaching the 2% surplus in February when his omnibus bill of free-market reforms floundered in Congress. At the same time, the president knows that trimming public spending, such as by laying off state workers, will take time, so he is looking at other ways to achieve abudget surplusin the short term, Mac Dougall said.

"By moving the debt maturities forward, this would ease things in the short term – which is this year – to show that there has been a change in the trend in Argentina," he said. "What he is doing makes sense. The swap will make it easier to reach a financial balance."

By extending local debt maturities, the Milei administration is also seeking to reduce the need to print pesos to cover local debt payments, helping to ease the pressure of monetary expansion on inflation and stabilize the exchange rate. It will also allow the central bank to continue building up international reserves. Milei has set a target of accumulating $10 billion this year, in line with commitments under its loan pro­gram with the International Monetary Fund.

On Monday, Milei said in a video interview with LN+ that adding $15 billion in reserves would allow him to remove all currency controls, leading to a decline in inflation and a rebound in economic activity.