The economic team is looking to finalize details in the following hours for an initiative the Economy Ministry considers a key to ease the currency exchange tensions in a presidential election year: the pesos debt swap that may cover a basket of securities for more than AR$ 7.5 billion.
A Monday meeting with banks, insurance companies and mutual investment funds aims to move forward on convincing them to join the operation and to help clear the bulky calendar of payment deadlines between now and the end of the year. An announcement could come in the following days, said sources from the Economy Ministry.
Economy Minister Sergio Massa and his staff believe it is essential to reorganize the pesos debt payment deadlines — which are concentrated in the months prior to the primaries (PASO) and the general election— fearing a “unilateral restructuring” if the opposition should win the elections, an idea that was fueled by opposition coalition Juntos por el Cambio. They believe a debt swap that postpones a large portion of those payments to the first years of the next administration may reduce most of the exposure to electoral noise and the pressure over parallel dollar rates before each Treasury bond bid.
It’s an ambitious initiative. The initial idea was to reprogram the deadlines to 2024 and 2025 —that is, skipping the electoral barrier that affected the biddings of the last months. The idea of phasing the new deadlines across different months grew stronger recently. Several sources detailed that bondholders who enter the swap will receive either inflation-indexed (CER) securities or dual ones — which provide a double cover paying out more between the hike in prices and the official dollar rate — which would be key to stretch out payment deadlines.
In particular, 80% of the new instruments will be linked to inflation, and the remaining 20% will be dual bonds. This indexation is the cost the Treasury will pay in order to navigate the toughest months –a strategy they have already used in the last swaps. In addition, the Central Bank will offer a sort of liquidity insurance for those who enter the swap, with details that are being negotiated separately.
According to a top official source, the menu of eligible securities for the swap will include those that are due in March, April, May and June. According to figures from consultant agency 1816, there are AR$ 7.7 billion that are due within that period. From that total, 1816 estimates that 37% of it is owned by the Central Bank, the ANSES Pension Reserve Fund (FGS) and state banks, whose renewal is risk free. 44% of it is owned by private banks, mutual investment funds, insurance companies and foreign investment funds — this is the key segment the Economy Ministry aims to get into the swap. The remaining 19% is in the hands of corporations, individuals and other public entities.
According to official sources, Secretary of Finance Eduardo Setti will meet with the directors of the main institutional investors at noon on Monday with the aim of finishing the last details of the operation. Massa may also join the meeting.
“We are going to start talking with the mutual funds and insurers, as the conversation with banks has already been ongoing for a while,” a senior official said. However, ministry sources say they are close to finishing the deal in order to make the announcement.
Sources from institutional investors confirmed that progress has been made in the negotiation. Several analysts also agree that regulatory restrictions these agents must abide by in order to obtain dollars will make many people lean towards joining the swap if the offer is good.
Opposition and “chaos plan”
Another issue highlighted by the 1816 agency is that in the last two weeks the market started to demand 2024 bonds, which compressed the yields to 9% plus CER and 4% over the variation in the official dollar rate.
“If this incipient demand for 2024 securities continues, there will be a significant ‘window of opportunity’ for a swap,” a report stated.
How do you explain that demand? “Maybe it’s because Juntos por el Cambio, who went from issuing statements about the “pesos bomb” to hinting that they are willing to pay,” suggested 1816. For the moment, Patricia Bullrich was allegedly reprimanded by the banks gathered in Adeba (Argentine Banks Association), the economists working for Horacio Rodríguez Larreta suggested a gradual exit of the currency exchange restrictions, and Martin Tetaz said to FM Millenium that he supports “the pesos debt swap because no one wants to see that thing exploding”.
However, Juntos por el Cambio reactivated their so-called “chaos plan” and launched an onslaught against the operation even before it was announced. A new statement read: “This action will carry an enormous risk for Argentines since it could lead to a hike in inflation rates even greater than the one this government has already caused, as well as causing serious problems for the present and future management of the economy.” They also questioned the inclusion of a dual bond and the Central Bank’s put option.
The new statement was criticized by both the ruling party and market agents. For example, Secretary of Commerce Matías Tombolini tweeted: “The opposition’s suggestion is absolutely irresponsible and unheard of, it’s only meant to create uncertainty and unease. This way, they continue to choose to be part of the problem instead of offering alternatives that could project them as part of the solution.”
Along the same lines, the Frente de Todos block at the Senate went against the statement by JxC legislative blocks: “They go out to spread unease and uncertainty before every decision of the National Government and even any potential economic decision. Yet they didn’t say a thing when Macri’s administration lead the country to a pesos debt default, took an astronomic loan with the IMF without going through Congress and ignoring the rules, and increased Argentina’s debt in more than US$ 100 billion”. They added: “It looks like they only want to make Argentina explode. They should reflect and act in the serious way this moment is demanding of every sector of society”.
The head of Adeba (the chamber of private Argentine capital banks ), Javier Bolzico, responded to opposition economists who were echoing the lines of the JxC statement on social media. Bolzico tweeted: “The proposed debt swaps are by title, not by holder; that is to say, for all holders. The banks have a small percentage of total debt. So, saying it’s “with the banks” is — at a minimum — falacious.”
By launching the swap, the government will seek to send a strong signal with a view to calm the currency exchange panorama over the next few months, at a time when currency scarcity due to drought has become a major concern for the economic dynamics of 2023.
In this context, the Economy Ministry is expecting the IMF to announce the flexibilization of currency accumulation targets, which were becoming unreachable. In this case, the intention is to show the organism’s will to maintain a program which the economic team views as the main anchor for inflation that is showing no quarter.