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LatinNews Daily - 07 January 2020

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ARGENTINA: Relying on domestic lending to stay afloat

On 6 January, Argentina’s economy ministry issued a statement in which it announced that it will make two more bonds issues in the domestic market this month to raise more funds to balance the public finances.

Analysis:

The Argentine government is in a difficult financial position, with President Alberto Fernández recognising that it currently does not have sufficient funds to repay the debt accrued by the previous administration led by Mauricio Macri (2015-2019). With Argentina effectively unable to access international financial markets until it renegotiates its debt with foreign creditors, the Fernández administration is reliant on raising funds in the domestic market to continue servicing its debt and avoid falling into another default. The government’s failure to come up with a comprehensive plan to resolve the situation in the medium term may undermine investors’ appetite for these bonds.

  • Since assuming office on 10 December 2019, the Fernández administration has resorted to the local financial market twice, raising a total of Ar$37bn (US$587.5m) in two separate bond issues. This has helped the government meet some of its immediate debt obligations and prevented it from falling into default.
  • In effect, this has also bought time for the government to try to renegotiate its debt with foreign creditors; to make the necessary fiscal adjustments that would allow it to raise more funds; or to find alternative sources of financing.
  • But the debt obligations keep coming thick and fast, and with the no discernible progress being made in the foreign debt renegotiations or in finding alternative sources of financing, the government is once again in need of more credit to repay the debt due this month.
  • The ministerial statement announced the auctioning of peso-denominated treasury bonds (Letes) maturing on 28 February 2020 and on 28 May 2020, which will be auctioned off on 7 January and 27 January. The statement does not specify the total value of the bonds that will be on offer and says that the interest rate will be determined by the level of demand.

Looking Ahead: Argentina must repay some US$1.5bn of its debt this month and the government will be hoping to raise enough funds to cover most if not all of this sum.