:quality(85)//cloudfront-us-east-1.images.arcpublishing.com/infobae/OPNTSZJ3YTERXEX7F6PBGABM2M.jpg "The government has liquidated peso maturities and is now facing shortage of dollars due to drought")
The Treasury got significant buy-in from the exchange it made yesterday, even above what was expected by investors. In total, it refinanced the debt for $4.3 trillion, which will now be transformed into new peso securities maturing in 2024 and 2025. The result has allowed the government to shed the heavy backpack represented by the millionaire maturities of the second quarter, since which managed to liquidate 61.5% of the total maturities in pesos.
The result of the operation allows the government to get some air and get rid of a problem that has worried the markets for months, linked to the strong accumulation of debt maturities in local currency. Security holders had resisted buying debt that matures beyond June, due to fears generated by PASO and the memory of what happened in 2019.
By significantly reducing the volume of debt maturing in the second quarter, which until this operation exceeded 6,000 billion pesos, the risks of such a concentration are considerably minimized. The possibility of a “reprofiling” of the debt is practically excluded, while the issuance of pesos by the Central Bank is also minimized to buy securities from holders who do not wish to refinance in the coming months.
For debt that matures in the short term and has not been swapped, the economy ministry said bidding would continue as it happens every month. Most likely, it will persist with short-term debt, but it will slowly overcome the August “wall”. In other words, an attempt will be made to induce banks, companies and individuals who hold securities in pesos to buy debt that matures beyond the primary elections.
The significant result obtained at the exchange will facilitate the refinancing of the debt that did not enter the coming months with fewer shocks. Moreover, it reduces the need for monetary issuance, which favors Argentina’s relations with the IMF.
Indirectly, the swap is also good news for Argentina’s relationship with the IMF, by reducing an important factor in the expansion of the quantity of money. Last year, for example, the crisis that affected local currency debt involved the issuance of 2 trillion pesos between June and July. This strong turbulence, which also had an impact on the foreign exchange market, led to the sudden departure of Martín Guzmán from the Ministry of Economy.
From the Ministry of Economy, they pointed out that the greatest participation was concentrated in banks and in the public sector, since between the two they entered with 85% of their holdings in the stock market. It was also detailed that state bodies such as the BCRA itself, ANSES (through the Guarantee and Sustainability Fund) and Banco Nación accounted for 34% of the total eligible securities, a much lower percentage than the two exchanges which had been done previously.
The share contributed by other players, such as UCITS or corporate cash, was much smaller. In these cases, it is much more difficult to significantly extend the duration of the bonds they hold in their portfolio.
“All the actors – they indicated from the Palace of the Treasury through a press release – agreed on the relevance of this operation, since it contributes to smoothing the profile of the maturities of the debt of the Treasury, to reduce the uncertainty and improve financing conditions”.
After this result, Sergio Massa still has the main challenge months before the elections: the extreme scarcity of foreign exchange due to the drought and its brutal impact on harvests. The new Grain Market and CREA calculations already mark a sharp increase in the expected loss compared to the last campaign, which could even approach $25,000 million. The drought is already expected to be even worse than that of 2009.
Netting maturities in local currency relieves the dollar, which is essential in this context. However, the sharp decline in farm gate sales as harvest returns will be a huge challenge in the months leading up to the election. It will not be easy to contain the pressure on the various exchange rates, as evidenced by the continuous sales that the Central makes daily to avoid a jump in the official dollar.
For now, an even more rigid exchange rate is expected in the coming months. There will be greater restrictions on imports and a strong impact on economic activity, which in recent months has already shown clear signs of entering recession, which could worsen in the coming months.
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