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ECONOMY | 20-08-2019 09:20

Argentina’s debt profile highlights the mountain it must climb

As of March 31, Argentina had US$33.7 billion in foreign-currency debt payments due by year-end, the majority in short-term Treasury bills, or Letes, according to the latest debt report by the Finance Ministry. Most of that still needs to be repaid.

The slump in the Argentine peso last week made the country’s pile of debt much harder to repay, signalling a renegotiation may again be in the cards.

As of March 31, Argentina had US$33.7 billion in foreign-currency debt payments due by year-end, the majority in short-term Treasury bills, or Letes, according to the latest debt report by the Finance Ministry. Most of that still needs to be repaid.

As investors pull out of the country before October’s election and the likely return of a populist government to office, the warning signals are flashing. Last week, the government rolled over 43 percent of maturing Letes, less than before the opposition won a landslide victory in a primary vote on August 11, when roll rates were about 90 percent, according to Citigroup Inc.

“We expect these rollovers to be difficult between now and year-end” given President Mauricio Macri’s crushing defeat in the primary, Citigroup strategists including New York-based Dirk Willer and Kenneth Lam wrote in a note Wednesday.

Any repayments Argentina chooses to make could be financed by the US$6.3 billion still due this year from the IMF, $63.7 billion the country holds in foreign currency reserves and money flowing in from soy, wheat and corn harvests.

About 80 percent of the central government gross debt was denominated in foreign currency as of March 31, according to the Finance Ministry report. That obligation got 14 percent more expensive after last week’s slump in the peso. The bulk of offshore bonds begins to mature in 2021, with large notes due in 2026, 2028 and 2035.

It’s not just dollar-debt that is going to cause a headache for Argentina. Peso-denominated debt due in 2019 was at 1.4 trillion pesos as of March, of which 150 billion pesos were inflation-linked. Most of that debt falls due in the next few years.

Morgan Stanley strategists said there’s almost US$14.7 billion in T-bills maturing in October. That includes peso-denominated notes, or Lecaps, dollar-denominated Letes and inflation-linked peso-denominated bills, or Lecers.

“With markets already pricing in a very low probability of policy continuity and high uncertainty regarding the path for economic policy, liquidity and solvency issues will be watched closely,” strategists led by London-based James Lord wrote in a report Wednesday.

Average yields on hard-currency bonds spiked as high as 21.2 percent last week, sending a gauge of implied probability of default over the next five years surging to about 80 percent. Downgrades from two of the main rating companies and the resignation of Economy Minister Nicolas Dujovne on Saturday capped the week, sending bonds falling again on Monday.

About the data

Debt data are from Argentina’s Finance Ministry. The second chart takes into consideration peso-denominated debt converted to dollars using the March 31 rate, which was at 43.35, according to the Ministry report.

The figures comprise the central government’s loans, Treasury bills and government bond principal and interest payments. Loans include those with international institutions, official organizations, commercial banks, guaranteed loans and also transfers to the Central Bank.

by Davison Santana & Aline Oyamada, Bloomberg

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