Debt swap confirmed: government to defer payments until after elections

"This is a debt program that deactivates the idea of a bomb,” said Economy Minister Sergio Massa

Economy Minister Sergio Massa announced this afternoon that he reached a deal with banks and investment funds for a AR$7.5 billion voluntary debt swap that seeks to reprogram maturities to 2024 and 2025.

“This voluntary swap breaks the idea that Argentina is at the doors of a debt reprofiling every week,” Massa said. “Having an orderly and predictable debt profile is crucial for the financial system and the government.”

Eligible securities for the swap were those due in March, April, May and June. The debt swap offer consists of a basket of securities with two options: one with inflation-adjusted bonds (CER) and another that combines CERs and dual bonds. Dual bonds pay their creditor whichever is higher between the inflation rate and the peso depreciation against the US dollar.

Sources close to the matter told the Herald that the bonds will allow its creditors to buy a put option from the Central Bank, and that it could be exercised during the entire life of the bonds by exchanging them at market price. A puttable bond means its owner has the right to demand early repayment of the principal.

The deal was reached today after Massa met with representatives of the HSBC, BBVA, Santander, Patagonia, ICBC, Macro, Santa Fe, San Juan, and Credicoop banks, as well as with the presidents of two banking associations.

Finance Secretary Eduardo Setti, chief advisor of the Economy Ministry Leonardo Madcur, Central Bank president Miguel Ángel Pesce and Economy vice-minister Gabriel Rubinstein also participated in the meeting, among other members of the government and the Central Bank.

“We are going to show Argentine society that our financial system is completely robust,” Massa said.

Opposition backlash

The government considers the swap to be a way to ease the currency exchange tensions in a presidential election year and help clear the bulky calendar of payment deadlines between now and the end of the year.

“This is a debt program that deactivates the idea of a bomb, that every two or three months something is about to explode,” Massa said during the announcement, referring to a February press release by opposition coalition Juntos por el Cambio  that called the pesos debt “a time bomb.”

By postponing a large portion of those payments to the first years of the next administration, the government contends that it will placate the fears of a default after the February press release and opposition members’ subsequent statements suggesting they might not pay the debt.

“The gravest thing is the enormous risk that it generates to Argentines,” said a joint tweet by the three most relevant Juntos por el Cambio economists yesterday. “Should the [put] option be pursued, that could activate a new inflation jump.”

Massa also spoke about the media campaign against the economic measures, quoting an outlet that said “it smells of reprofiling.” Reprofiling is a term established by the opposition to describe a unilateral change of debt maturities. 

In response, Massa pointed at the opposition in his speech by describing the last reprofiling as a source of “frustration, pain and failure” in 2019 — which happened under former president Mauricio Macri’s administration.

“All those ghosts are now gone,” Massa said.

The minister also said that he would fight inflation by tightening the fiscal order, accumulating international reserves and controlling monetary emission. He said that the economic team would put the intra-government debt in order and would work to guarantee credit access to the general public.


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