Argentina’s Economy Minister Sergio Massa (centre right) meets with directors of banks that hold debt securities denominated in pesos in Buenos Aires January 6, 2023.Economy Ministry
Argentina’s government reached an agreement with banks on Monday to postpone the maturity of its 7.5 trillion pesos ($36.5 billion at the official exchange rate) local currency debt beyond 2024. The announcement intends to clarify the payment schedule in an election year and “remove the idea that we have a debt restructuring,” Economy Minister Sergio Massa said at the announcement.
The agreed sum is part of the 16 trillion pesos that mature this year in bonds held by public and private banks and government agencies that have been funding the Treasury for years. The exchange comes on top of the agreement struck with the International Monetary Fund (IMF) in January 2022, which meant a postponement of interest payments on the $44,000 million the organization loaned President Mauricio Macri in 2018.
This is the third exchange of bonds into pesos that Massa has completed since last June, when he took office amid the political storm that led to the early departure of his predecessor Martín Guzmán. Bondholders’ reluctance to accept government bonds forced the minister to keep raising interest rates until they reached 119%. Despite this, it failed to extend maturities beyond 2023. Each maturity of the bonds put the government under great financial pressure. Massa said Monday that the exchange “disables this idea of the bomb, that something is going to explode every two or three months.” On the other hand, “we now have a much more orderly maturity curve for 2024 and 2025 that also ties into the tax regime program,” he added.
Casa Rosada’s offering consists of two baskets, one updated for inflation and the other double covered for inflation or dollar value. The latter are the most tempting because they promise the holder the best outcome between either variable. The government now expects banks’ liability to exceed previous swap operations, which ranged from 60% to 80%. This is the only way he will be able to stop the ball of inflation arising from the banknote printing, which he appeals to finance fiscal red and debt maturities. Last month, annual inflation came dangerously close to 100%, a mark of around 6%, which is sure to be exceeded when February’s data are known.
1. The government is preparing a debt swap with the banks, a hideous and ruinous operation for the state. It would provide a “double bond” provided for devaluation or inflation – whichever is greatest – and bond buyback insurance (put) by the BCRA that could be activated at any time
— Hernan Lacunza (@hernanlacunza) March 5, 2023
The swap was hailed as a major victory at the Casa Rosada, but it drew criticism from the Together for Change opposition, which saw it as a time bomb that will detonate the next government. Since they hope for a victory with the October generals, they see themselves as victims of the maneuver. The harshest critic was Hernán Lacunza, Mauricio Macri’s last economy minister. “It is a hideous and ruinous operation for the state,” he wrote. Chief of Staff Agustín Rossi responded. “The same ones who defaulted on their debts in pesos when they ruled are trying to destabilize with a statement a month. Swapping debt into pesos gives Argentina’s economy security and predictability,” Rossi said on his Twitter account.
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