Argentina’s Finance Secretariat announced on Thursday that it had ended a bond auction without being able to cover all maturities, a first in Javier Milei’s administration. The government celebrated the news, saying that it reflects that banks have begun lending to the private sector. 

Some analysts, however, are skeptical and posit that it’s too early to tell whether this was indicative of the success of the economic plan or just of the investors’ disinterest in the bonds due to their low interest rates.

The Treasury placed debt for AR$4.78 trillion, while facing maturities of AR$7.1 trillion for next Monday. The rest of the maturities will be covered with “pesos that the Treasury keeps at the Central Bank for this purpose,” according to a post on X by Finance Secretary Pablo Quirno.

“This means that AR$2.32 trillion of the peso debt with the private sector has been reduced,” he added. Quirno said that this is part of the “peso remonetization process” which was “foreseen since the beginning of the program.” He called it a “return of resources from the public sector to the private sector in an unprecedented situation for our country” that also reflects an expansion of credit taken by families and companies.

Economy Minister Luis Caputo said on X that the “peso shortage officially started” on Thursday, calling  it a consequence of a policy of “zero monetary issuance” and an “increased demand for money and credit.” He called it a “crowding-in effect,” referring to an economic phenomenon mostly described in John Maynard Keynes’ and post-Keynesian theories that happens when a change in government spending leads to more private investment.

The bonds and the analysts 

A LECAP maturing at the end of October was the most successful financial instrument, attracting AR$1.5 trillion at a 3.75% monthly effective interest rate. Another LECAP maturing at the end of January attracted AR$611.256 billion at a 3.94% rate. One final LECAP  maturing on September 30 attracted AR$457,562 million at 3.98%.

“The result had already been anticipated by the economic authorities, who insist that there is an increase in the demand for money due to the expansion of private credit,” Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, told the Herald. “Banks seem to have changed their strategy and are now focusing on credit for the private sector,” he added.

Quintana said that the move could have an effect on economic activity, adding that the recovery is incipient. If it persists, however, “the private sector will surely require more financing to feed the wheel.” 

“It is a long and slow process, a somewhat structural change that will take time to have significant effects,” he explained. Lacking a significant expansionary wave, Quintana envisioned a similar scenario for the rest of 2024

Financial analyst Gustavo Ber agreed, telling the Herald that the auction’s result happened within “a current context of private credit expansion.” He said that the market’s reaction on Friday, as well as the “calmness” of the exchange rate, are proof of investors’ positive expectations.

A report by Aurum brokerage firm said that more precise data, set to be available next week, would be necessary to judge the aptness of the government’s optimism. 

Given that “all kinds of investors participate in the auctions,” it is impossible to determine “how much of what matured was held by the financial system and how much of what was placed was demanded by the financial system,” the report stated. 

“[That data is required] so we can define whether the financial system increased its lending capacity after the bidding.”

Another explanation, Aurum said, could be that some importers did not renew their debt preparing for September 30, the day a PAIS tax’s reduction will be made effective, to purchase foreign currency from the Central Bank. Aurum added that the stock of LEFI, a bond issued by the Treasury, has increased, saying that there is no shortage of pesos.

“Without this level of disaggregation, the only thing clear is that the private sector’s demand for Treasury debt dropped in [Thursday]’s bidding,” the report added.