Buenos Aires Times | Debt in Argentina is deepening to new depths as political tensions rise

Even by the standards of Argentina’s debt crisis and 2020 default, the country’s sovereign bonds are now trading at unprecedented lows.

Benchmark records set for 2030 have fallen nearly four cents on the dollar to 20 cents since Silvina Batakis was named economy minister on July 3, threatening a mess left in a government battling unrest. in the economy. Before debt restructuring two years ago, bonds, with higher coupons than they do now, never dropped to 23 cents.

This is a sign of how inclusive things are that even notes due in 2046 recently traded below 20 cents, even though the government confirmed last week that it would make a coupon payment of nearly US $ 700 million. which must be paid on July 9. investors a quick 5.5 percent return on the bonds within a few days, it is not enough to raise their interest.

“The market is already pricing in a catastrophe, or something close to there,” said Joaquín Almeyra, a fixed income trader at Bulltick LLC in Miami. “No one can predict what will happen in six months, and there’s no way you can make an investment in that context.”

Argentina’s current debt problem occurs even though the government pays almost none of its sovereign bonds. Two years ago, debt had coupons as high as eight percent, with those notes sinking as low as 23 cents on the dollar before a restructuring deal gave lenders about 53 cents. . Securities now have coupons rising from as low as 0.5 percent and no principal to pay until 2024.

Where now?

The pessimism last week stemmed from uncertainty over how Batakis, a prominent bureaucrat linked to the leftist faction of the government led by Vice-President Cristina Fernández de Kirchner, would run the economy.

For now, Batakis has indicated that he will continue on the path laid down by his predecessor, saying in a TV interview on July 6 that the government will not reduce the official exchange rate, that it will not raise taxes on the exchange rate. exports, and that its target fiscal deficit of 2.5 percent of gross domestic product for this year will remain in place.

But in an economy plagued by a litany of problems including 60 per cent inflation, falling parallel exchange rates and falling demand for local debt rollovers, there is little confidence that the country will meet the targets set at a US $ 44. -billion lending program with the International Monetary Fund. And that’s the only thing that keeps Argentina’s foreign currency reserves and with it, debt payments in dollars.

“The government could use lowering the official exchange rate as a last resort,” said Javier Casabal, a fixed income strategist at Adcap, a local brokerage. “But keep in mind that one of the main problems with the shortage is energy subsidies, which will increase in a devaluation, which will exacerbate the problem.”

Subsidy dispute

Batakis said on Thursday that Argentina would “move rapidly forward in reducing subsidies,” according to a summary of his statements to local media outlets sent by a spokesman.

The efforts of his predecessor, Martín Guzmán, to raise energy prices were met with opposition by leftist lawmakers in Argentina’s Energy Ministry, and his inability to move forward on the issue was a major reason for his resignation. , according to a report by Portfolio Personal Inversiones.

A spokesman for Batakis did not respond to requests for further comments.

Maintaining the status quo will not serve to rebuild investor confidence in the crisis -prone country. There are prospects for regime change in the October 2023 elections, but investors are wary of jumping back to Argentina, especially when other countries with lower risk of default offer similar and income.

“The problem is that the elections are pretty far away, and while the opposition has a good chance of coming back, we could still face more damage,” said Nathalie Marshik, managing director for fixed income at Stifel Nicolaus & Co. in New York. “The Batakis will not destroy the boat, but the boat can capsize on its own.”

by Scott Squires, Bloomberg