Government resumes using reserves to pay debt: US$ 3.244 billion

The government again turned to the Central Bank for dollars to pay the debt. It did so by placing US$ 3,244 million in Letras Intransferibles, as published today in the Official Gazette. The corresponding resolution specifies that these dollars will be used to pay “debts in dollars that fall due in the current fiscal year”.

This is the second operation of this type carried out during the administration of Martin Guzman in charge of the Treasury Palace. The first was carried out on December 27 with the placement of Letters for US$ 1,326 million to “attend to the matured debt services”.

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Thus the Ministry of Economy resorts to reserves to avoid defaults on upcoming maturities while progressing with debt restructuring.

“We are creating the instruments provided for by law, which authorize a certain issue that we decided to complete,” a source at the Finance Ministry told Télam.

Article 61 of the Emergency Law authorizes the national government to issue letters in dollars for up to US$4.571 billion, with a ten-year term, with full repayment at maturity, at an interest rate equal to that of the Central Bank’s international reserves for the same period and up to a maximum annual Libor rate minus one percentage point. Today’s issuance completes the quota foreseen in the Emergency Law.

In addition to financing with the Central Bank, the Government will seek funds in the local market. To this end, it announced that it will make two placements of Letras del Tesoro in pesos to be able to continue facing maturities while negotiating a restructuring plan with creditors.

The first of these two operations will take place today, when Argentina will offer the market two types of Letes, one with maturity on February 28th and the other on May 28th. The settlement of these operations will take place next Thursday. The second placement will be on January 27th.

According to Portfolio Personal Inversiones (PPI), debt maturities for the rest of January total about US$ 1.53 billion, of which US$ 95 million will mature this week and US$ 700 million next week, while the last week of the month the government will have to face commitments of US$ 420 million.

“I don’t think these letters are very attractive for retailers. They are letters ‘subsidized’ by some market participants. But as long as they serve to renew letters, it keeps away a re-profiling,” says Sabrina Corujo, director of PPI, who estimates that there will be more interest in the shorter placement, with a probable rate of 40%, while for the longer one the rate would be 42%.
On the other hand, the payments of the month corresponding to international organizations reach US$ 315 million.

Since he took office in mid-December, Guzman made two tenders for Letters in pesos, aimed at renewing maturities of other debt securities.

Last Friday was the deadline for banks, financial advisors and creditors to send their formal proposals to the Ministry of Economy for debt restructuring. According to official data, the gross debt of the central administration amounted to US$ 337.267 million in mid-2019, of which one third is in the hands of private agents and another third in the hands of international organizations, mainly the IMF.