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Argentina has refinanced about $50.3bn worth of peso-denominated sovereign debt in a record bond swap aimed at relieving pressure on public accounts and easing the path for libertarian President Javier Milei to lift currency controls later this year.
The economy ministry, led by former Wall Street trader Luis Caputo, said on Tuesday that it had swapped titles worth 42.6tn pesos ($50.3bn) — representing 77 per cent of treasury instruments due this year — for those maturing between 2025 and 2028.
Caputo is attempting to eliminate Argentina’s fiscal deficit this year and end the government’s reliance on money printing. The ultimate goal, analysts say, is to curb both the country’s sky-high inflation and the exchange rate pressures that make it risky to lift strict currency controls introduced by previous governments.
The controls, which fix the peso’s value — about 830 pesos to the US dollar — cause huge distortions in Argentina’s economy and are a barrier to investment. Milei has said he wants to scrap them in mid-2024.
The debt swap was a big step forward in Caputo’s overarching strategy, said Salvador Vitelli, head of research at the Romano Group consultancy. “This will give the government a lot more room to breathe on financial matters,” he said.
On Monday Argentina’s central bank, run by Caputo’s close ally Santiago Bausili, cut its benchmark interest rate from 100 per cent to 80 per cent. Analysts said the move aimed to reduce, in real terms, central bank liabilities.
Argentina has been battling high inflation for years, and earlier on Tuesday official figures showed its annual inflation rate hit a three-decade high of 276.2 per cent in February. However, the monthly rate fell to 13.2 per cent on average in February from a 20.6 per cent rise in January — a sharper decline than most economists expected.
The central bank said it saw signs that inflation would continue to slow in the coming months despite the rate cut. Argentina’s economy has entered a severe recession, with the IMF predicting a 2.8 per cent contraction this year.
Argentina’s monetary base — the pesos in circulation — had contracted by 17 per cent a month in real terms since Milei’s government took office in December, thanks partly to it halting money printing to finance spending, the central bank said.
Meanwhile, the closely watched gap between Argentina’s official exchange rate and the black market rate for dollars has held relatively steady in recent weeks, at about 20 per cent. Economists say the gap must remain narrow for the government to remove currency controls.
More than 70 per cent of the titles eligible for Tuesday’s debt swap were held by public sector entities, including the central bank and Argentina’s social security agency, almost all of which accepted the trade. Private sector holders swapped 17 per cent of their titles.
Ramiro Blazquez Giomi, head of research and strategy at Buenos Aires-based investment bank BancTrust, said the private sector participation was “relatively good” given that the government had declined to offer pledges to buy back bonds if they fall below a certain price, which are commonly used in Argentine bond auctions.
This week’s actions showed the government “was speeding up its efforts to remove excessive liquidity” in the economy, “which is the demand that will exist for the dollar when they remove currency controls”, he said.
“But the government must still build up its [dangerously low] foreign exchange reserves or secure a loan from the IMF, in order to calm market expectations of a sudden drop in the peso against the dollar,” he added. “That is a precondition for lifting controls.”
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