Argentina looks to roll over US$1.6 billion of local debt mountain

Argentina's local debt auction scheduled for Wednesday will serve as a final test of local investors' appetite for government peso debt as annual inflation soars to 99 percent, a three-decade high.

The Treasury will seek to refinance some 305 billion pesos (US$1.6 billion) of local debt, more than half of the 500 billion pesos in government securities maturing in February, according to local broker Portfolio Personal Inversiones (PPI).

The sale of discount Treasury bills, inflation-linked bonds and other securities will last until 3pm Wednesday.

Cut off from global credit markets, Argentina's government has accumulated a debt burden of some 33 trillion pesos (US$174 billion), while being forced to offer higher interest rates and shorter maturities to attract investors. Analysts fear that this tactic will work for a few more months, until investors refuse to refinance the securities before the October presidential elections, triggering Argentina's second local currency debt default in four years.

Still, private sector investors, such as banks and investment funds, are likely to continue to refinance their local bonds as long as the government sells very short-term notes that mature before the election, according to PPI.

The situation could become complicated when the window for such short-term debt "shortens in the run-up to the elections," PPI analysts wrote.