The market is focusing on Argentina’s negative net reserves, which are preventing country risk from coming down. Moreover, it still views the government economic team’s new monetary framework with uncertainty. Meanwhile, analysts are scrutinizing the Treasury’s peso debt, which has increased following the migration of liabilities from the Central Bank. 

The government will face maturities of over AR$34 trillion this year (US$35.5 billion at the official rate, US$26.3 billion at the MEP rate). Once this debt transfer is complete, the focus will shift to rolling over these commitments and shedding light on a financial program whose fate still seems tied to currency controls.

August’s first peso-denominated debt auction will take place Wednesday. According to Congressional Budget Office data, it will need to renew maturities of just over AR$1.2 trillion. By the end of the month, another auction will be held, concentrating commitments of around AR$4 trillion.

The strategy has been to eliminate the Central Bank’s interest-bearing liabilities in order to end endogenous issuance associated with interest payments on overnight repos, then replace them with Treasury debt. This led to greater concentration of short-term maturities for the portfolio managed by Luis Caputo. Yet, this strategy alone does not meet the conditions for removing currency controls — especially while reserves deteriorate.

Initially, much of the bloated stock of remunerated Central Bank peso liabilities held by banks was migrated to public securities, especially LECAP (fixed-rate letters), on the initiative of the economic team. This transfer was completed on July 22, with the suspension of passive repos and their replacement with new fiscal liquidity letters (LEFI) for one year. These were issued by the Treasury, which now bears the cost of interest with a greater adjustment, but managed daily by the Central Bank.

Consequently, the short-term maturity profile to be faced by Pablo Quirno’s finance secretariat has increased. Between August and December, commitments amount to AR$34.7 trillion (net of Central Bank temporary advances), according to estimates by Eco Go consultancy based on official data. By these calculations, almost all (AR$33.2 trillion) is in the private sector, with banks the main player holding LECAPs.

Specifically, in August, maturities amount to AR$5.41 trillion; in September, AR$14.07 trillion; in October, AR$5.15 trillion; in November, AR$5.67 trillion; and in December, AR$4.39 trillion. In the coming years, there are peso-denominated commitments of AR$111 trillion in 2025, AR$80 trillion in 2026, and AR$54 trillion in 2027, although these figures will be more heavily concentrated in public hands.

Public officials and President Javier Milei himself initially identified the elimination of the Central Bank’s interest-bearing liabilities as a key condition for lifting currency controls. However, transferring this mass of pesos to the Treasury’s balance sheet clearly does not stop the counterpart of the public securities acquired by banks from being savers’ deposits. In a context of negative net reserves of around US$6 billion, the need to roll over these maturities remains a limiting factor in terms of removing currency controls.

Debt maturities and currency controls

Eco Go estimated that the concentration of peso-denominated debt maturities for the remainder of the year amounts to five percentage points of GDP, 10 times higher than the remaining primary surplus included in the government’s targets (0.5% of GDP consistent with the annual target of 1.7% of GDP). This figure must be added to the dollar-denominated maturities.

“Given the inherited debt stock of both the Central Bank and the treasury, fiscal consolidation is not enough to ensure the disappearance of fiscal dominance,” Eco Go wrote in its latest monthly report. “Shifting the Central Bank’s debt to the Treasury is not effective if country risk does not fall, and if the treasury cannot develop a financial program that does not depend on currency controls to refinance the higher debt maturities.” 

Moreover, declining revenue and cuts to the PAIS tax create further doubts about this fiscal consolidation, which is one of the government’s flagship policies. The government has said it will cut the PAIS tax rate to 7.5%.

“The government’s fiscal situation could worsen due to the elimination of the taxes that will have supported revenue in 2024 (in the context of real declines of around 10%),” wrote Vectorial consultancy. “Moreover, this tax cut could be offset by reintroducing income tax, reducing public service subsidies, and, if that is not enough, relying on probable but insufficient economic growth.” 

“We are still far from knowing the final result of this equation, which will determine whether the fiscal anchor moves in 2025,” it added.

Meanwhile, country risk remains above 1,550 basis points, indicating that investors are not fully buying into Luis Caputo’s roadmap. “At the moment, dollar-denominated debt maturities are still being paid with scarce reserves, while the Central Bank stopped buying dollars in June. Peso-denominated debt maturities, mostly within banks’ balance sheets, are being refinanced under the currency controls,” Eco Go noted.

It added: “Seven months into the program and despite having transformed the inherited primary deficit of 2.7% of GDP into a surplus of 1.2% of GDP, through a public spending adjustment of 5.7 percentage points of GDP while maintaining social consensus, dependence on currency controls remains intact.”