Argentina looks to mutual funds for additional local funding

Argentina took a new step on Friday to boost its local financing options in pesos as the midterm elections approach.

The Treasury will offer non-transferable promissory notes that can only be acquired by mutual funds, according to a regulation published in the Official Gazette. The notes will have a 30-day maturity and their returns have not yet been announced.

The move comes as the government finds it increasingly difficult to finance itself through local auctions, and after rolling over 97.8 percent of its debts in August and 104 percent in September, the two lowest levels in 2021 and below the 130 percent needed each month to meet the budget. Investors are selling their debt in local pesos and buying dollars in markets that circumvent exchange rate restrictions amid concerns that, depending on the outcome of the parliamentary election, the government could add restrictions to prevent capital flight.

This Friday's rule, published by the securities regulator, says that mutual funds may invest up to 15 percent of their assets in non-transferable notes. In the case of non-monetary funds, the institution increased the portion they can invest in unlisted assets to 25 percent from 20 percent.

Argentina's mutual fund industry has three trillion pesos (US$30.3 billion) in assets under management, of which about 1.4 trillion pesos (US$14.6 billion) are money market instruments that invest money in bank deposits. If the funds decide to invest the amounts allowed by the rule in Treasury notes, the Government could obtain financing of 450 billion pesos (US$4.6 billion) from the funds.

This measure could help the government reduce the stock of Central Bank debt, while banks invest money received from mutual funds mainly in notes from that institution, called Leliq and repos.

"This would be very useful for the government in the short term," said Javier Marcus, head of investor relations at the Buenos Aires-based asset management firm Southern Trust.