The government will attempt to push back second-quarter peso debt deadlines until 2024 and 2025, official sources have confirmed.
The Finance Secretary is working on a proposal to agree on an instrument with banks. On Monday, opposition leaders hinted their intention to deactivate the “chaos plan” and reassured corporate executives that they will not seek to reprofile the debt again if they win the elections.
After the statement in which members of opposition coalition Juntos por el Cambio accused the government of planting a “bomb” because of the size of the debt in local currency and the interest rates, the Economy Ministry managed to pass its first market test. Despite the opposition’s statements –which the government read as attempts to destabilize it– the Finance Secretary secured a roll-over of 135%, thus accumulating total funding of AR$326 billion so far this year.
The Economy Ministry will nonetheless face a challenging year. According to data from consulting agency Sarandí, AR$12.9 billion are due in the next seven months, and two thirds of that debt belongs to private creditors. In the face of approaching elections that could involve a change of government, political signs are becoming increasingly relevant.
The government is following the opposition’s behavior closely, but a source said that after Juntos por el Cambio’s statement “there was no run [on the peso] and the blue dollar even came down”. Still, they acknowledge that “the banks’ stocks fell”, which they attribute to Patricia Bullrich’s visit to the Association of Argentine Banks. According to sources who participated in that meeting, Bullrich was joined by her economic advisors, who dismissed the idea of defaulting.
In addition to the opposition’s U-turn on what several government officials called the “chaos plan,” official sources confirmed that the Economy Ministry has started negotiating with private creditors to restructure the second quarter’s payment deadlines to 2024 and 2025.
This move seeks to create a financial instrument that would clear the financial panorama in an election year.
“The debt can be sustainable depending on the perspective. To be sustainable, you have to be credible, the debt is not very big but it has tight deadlines, in a very short term, so credibility is the main point, not so much the amount. But this is an election year, and that complicates things,” said Orlando Ferreres, head of Ferreres & Asociados, to Radio 10.
Another market source felt that the operation the government is planning is “viable”, and argued that the volume of debt is “manageable.” However, they said that the Executive is worried about other variables, such as the potential outflow of investment funds that have been “trapped” since 2019 and could create strain on financial dollar rates and the currency exchange gap.
Last weekend, Massa said in a TV interview that “the financial program not only has to provide stability to the financial dollar price”, but also “guarantee a process of recovery of the pesos circulating on the street”. He added that “in the following days we will publicly announce some measures.”
The economy minister also said that he will aim to gradually “reduce the Leliq (Central Bank Liquidity Bills) and the quantity of pesos circulating in the financial system, causing a spiral” and claimed that “there is a way for the government to keep consolidating a path of sterilization of surplus pesos, which were the result of a country that had a loan in dollars with the Fund that needed to be renegotiated, and no access to the capital market due to a very demanding negotiation with bondholders”.