The Argentine government issued a bond on Wednesday aimed at foreign investors, called the BONTE, for US$1 billion. The administration made the decision as the country’s central bank has not bought U.S. dollars to strengthen international reserves since it struck a US$20 billion deal with the International Monetary Fund (IMF) in April.

The BONTE will have a fixed rate, mature in 2030, and include a two-year put — that is, an option for the holder to sell the asset by a specified date — coinciding with the beginning of the 2027 presidential electoral campaign.

The tender started Wednesday at 10:00 a.m. and will close at 3:00 p.m. It can only be subscribed to in U.S. dollars.

When Milei announced the new agreement with the IMF in April, he said that gross international reserves would sit at US$50 billion by May. At the time of writing, they are US$38.3 billion. Net international reserves are minus US$13 billion.

As part of the IMF deal, the country adopted a currency band scheme. The dollar is allowed to float between AR$1,000 and AR$1,400, and the Central Bank buys or sells dollars to manage the exchange rate if it reaches these limits. 

The IMF deal allows the administration to buy dollars to accumulate reserves, but the Central Bank has chosen not to. One of the goals the deal set for June 13 consists of accumulating an extra US$5 billion in international reserves, although most analysts believe that the government will require a waiver.

At an event on Tuesday, Finance Secretary Pablo Quirno did not answer a question on the matter when speaking to journalists. “We do not make forecasts for the future, “he said, adding that the agreement with the IMF is “much more comprehensive than the accumulation of reserves.”

Sebastián Menescaldi, an economist and associate director of EcoGo consultancy, said that the government does not want to issue pesos to buy reserves, as it thinks they will “return to the market and generate more inflation.” He added that he would be “calmer” if the Central Bank bought reserves. 

“That would give more sustainability to the process because one thing is having dollars that you borrow for six months, and another is having dollars because someone wanted to have pesos — they would stay in the economy for a longer term,” he said.

In this context, the government also kickstarted a plan to lower taxes and loosen reporting requirements for everyday transactions, urging people to use the U.S. dollars they hide “under the mattress” to incentivize consumption without having to issue pesos.

In a Tuesday report, the Aurum Valores brokerage said the BONTE tender means that the Treasury understands that buying dollars at its current value, AR$1,148, “is convenient to accumulate reserves.” The report also wondered if AR$1,148 is the floor of the currency band.

“In short, we believe that it is good that the government has acted pragmatically, getting out of the trap in which it was trapped by the statements of Milei and other officials about only buying foreign currency at the floor of the band,” the report said, adding that the dollar falling below US$1,000 seemed “very unlikely.” 

“It is also good that they can increase reserves by placing debt in the international market, regaining access in a context in which the technical positioning of local debt held by non-residents is minimal,” the report said.

However, Pablo Repetto, head of research at Aurum Valores, said that taking debt is an “alternative mechanism they found instead of buying directly from the market.” He said the decision of not buying U.S. dollars in the market is not “very logical” as it would be the “direct route” to strengthen international reserves. 

“That was probably decided as a political rather than technical matter,” he added.