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Argentina has refinanced about $50.3 billion worth of peso-denominated sovereign debt in a record bond swap aimed at easing pressure on public accounts and making the way for liberal President Javier Miley to lift currency controls later this year.
The Economy Ministry, led by former Wall Street trader Luis Caputo, said on Tuesday it had swapped 42.6 trillion pesos ($50.3 billion) worth of bonds – representing 77 percent of Treasury instruments due this year – for those maturing between 2025 and 2028.
Caputo is trying to eliminate Argentina's fiscal deficit this year and end the government's dependence on money printing. Analysts say the ultimate goal is to limit the country's high inflation and exchange rate pressures that make it risky to lift strict currency controls imposed by previous governments.
The controls, which determine the value of the peso – about 830 pesos to the US dollar – cause huge distortions in Argentina's economy and constitute an obstacle to investment. Miley said he wants to cancel it in mid-2024.
Salvador Vitelli, head of research at Romano Consulting Group, said the debt swap was a big step forward in Caputo's overall strategy. “This will give the government more breathing room on fiscal matters,” he added.
On Monday, Argentina's central bank, run by Santiago Boselli, a close Caputo ally, cut its benchmark interest rate from 100 percent to 80 percent. Analysts said that this step aims to reduce the central bank’s obligations in real terms.
Argentina has been facing high inflation for years, and official figures showed earlier Tuesday that the annual inflation rate reached a three-decade high of 276.2 percent in February. However, the monthly rate fell to an average of 13.2 percent in February from a 20.6 percent high in January, a sharper decline than most economists had expected.
The central bank said it sees signs that inflation will continue to slow in the coming months despite the interest rate cuts. The Argentine economy has entered a severe recession, with the International Monetary Fund predicting a 2.8 percent contraction this year.
Argentina's central bank said the monetary base – the peso in circulation – has shrunk by 17 percent per month in real terms since Melli's government took power in December, partly due to a halt to money printing to finance spending.
Meanwhile, the closely watched gap between Argentina's official exchange rate and the black market dollar rate has remained relatively constant in recent weeks, at around 20 percent. Economists say the gap must remain narrow until the government can remove restrictions on the currency.
More than 70 percent of the bonds eligible for Tuesday's debt swap were owned by public sector entities, including the central bank and Argentina's Social Security Agency, almost all of which accepted the trade. Private holders exchanged 17 percent of their bonds.
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Ramiro Blazquez Giomi, head of research and strategy at Buenos Aires-based investment bank BancTrust, said private sector participation was “relatively good” given that the government had refused to make pledges to buy back bonds if they fell below a certain price, which is typically used in Argentine bond auctions. .
He said the measures taken this week showed the government was “accelerating its efforts to remove excess liquidity” in the economy, “which is the demand that will exist for the dollar when they remove currency controls.”
But the government still has to build its capacity [dangerously low] He added that foreign exchange reserves or obtaining a loan from the International Monetary Fund, in order to calm market expectations of a sudden decline in the peso against the dollar. “This is a precondition for deregulation.”
