Opposition questions government’s plan to swap debt for pesos: ‘It’s a huge risk’

There opposition wondered about the government’s intention to carry out a new bond exchange in pesos to extend the maturities until 2024, an initiative on which the economic team has been working for a few weeks with banks and insurance companies.

“Together for Change’s legislative blocks alert to the serious risks which involves the debt swap being prepared by the Ministry of the Economy,” their criticisms from JxC began in a statement issued this Sunday afternoon.

“The aforementioned exchange will give banks an option that no investor has: a ‘good double’ corrected for inflation or devaluation and the possibility of selling all securities at any time to the Central Bank”.

“It involves currency insurance for bondholders and that debt which expires every three months now, in practice, has daily expirations. All this extended to 2024″, continues the press release.

“This action will pose a huge risk for Argentines, since it could lead to an even greater inflationary leap than that already produced by this government, in addition to generating serious problems to current and future economic management,” they said. “This interference constitutes a violation of the principles of administrative law and of the BCRA’s own organic charter,” they concluded.

The main opposition coalition had already expressed on several occasions its questioning of the management of the debt under the Frente de Todos government and had even spoken of a “bomb” referring to the maturity profile of peso bonds that the current mandate could leave to a government of another political persuasion after the presidential elections.

“The national government is only speculating with leave a time bomb to the next government”, ensured a press release from JxC a little less than a month ago. “Under the government of Alberto Fernandezhe Public debt has seen a record increase: it has already increased by the equivalent of 83 billion dollars, which generated a financing crisis in pesos which had its epicenter in June 2022. Since then, the Central Bank has been forced to buy public debt for the equivalent of 2.3% of GDPcircumventing the Treasury funding limits set by its Organic Charter” and questioning the “ debt swaps” which aim to “catch up” with the situation in order to “avoid a new default or greater monetization of public debt”.

A few minutes later, representatives of the Renovation Front came out to respond to the statement. “The defaulter believes that everyone is in the same condition. They drove the country to default in 2001. They drove the country to default (in pesos and dollars) in 2019. Tell people the truth: they will default again because they have already” , said the Secretary of Industry. Jose Ignacio de Mendiguren.

For his part, the director of Banco Provincia Sebastien Galmarini, also on Twitter, shot: “Say it shamelessly! They want Argentina to explode not just because of election speculation against the government. They also do business. They want peso debts to go unpaid, the currency to be devalued and inflation to spiral out of control, at the same time as wages lose value,” he criticized.

The proposal that they have just defined in Economics in the round trip with banks and insurance, as evidenced by GlobeLiveMediawould include a basket of 80% inflation-linked securities and 20% dual bonds, which provides holders with exchange and price hedging in pesos, whichever is most practical for the investor.

Maturities for the coming months amount to more than 12 trillion pesos between March and July and amounting to 16 billion until October. According to an estimate made by the consultant Equilibra, “if we look at the dynamic maturity profile (projection of the evolution of the CER and the exchange rate until the maturity of each instrument) more than 16 trillion pesos must to be paid (10% of GDP) between March and October,” they estimated.

Not all of this amount is in private hands, so it is expected that a relevant part, which is part of the investment portfolios of the public sector itself, will enter the proposed exchange. “Banks, both public and private, would be willing to enter this exchange, which would guarantee the conversion of more than 70% of the assets,” Equilibra estimated.

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