Government proposes peso debt swap that may top US$71 billion

Argentine President Javier Milei is proposing a local debt swap that could top US$71 billion, aiming to stabilise the country’s finances by pushing off maturities and reducing the deficit to zero.

Economy Minister Luis Caputo and Finance Secretary Pablo Quirno told representatives of local and foreign banks operating in Argentina that they plan to issue new peso bonds in February to swap for the 2024 maturities, according to four people with direct knowledge of the meeting that took place Thursday afternoon.

It would be the largest domestic debt rollover in Argentina’s history, surpassing a similar maneuver last year by Caputo’s predecessor, Sergio Massa, who pushed out US$28.5 billion in maturities during his tenure.

An Economy Ministry spokesperson didn’t immediately respond to a request for comment. The talks are ongoing and terms of the proposal could change.

Argentina’s parallel exchange rate weakened Friday for the sixth straight session to 1,133 pesos per dollar, another record.

Argentine Treasury debt payments in local currency for this year are currently estimated at 57.5 trillion pesos (US$71 billion at the official rate), according to local brokerage GMA Capital. That includes notes with interest payments tied to inflation, the exchange rate and fixed rate bonds, according to GMA, which estimates that around 40% of this debt is in the private sector, instead of public banks which are generally forced by the government to rollover.

The swap would add to Milei’s shock therapy measures in his first month in office, including a 54 percent peso devaluation, mass deregulation push and sharp spending cuts to fix a chronic deficit at the root of inflation galloping over 200 percent that’s put nearly half the nation in poverty. It also shows the urgency of the challenges Milei faces: Argentina owes Wall Street creditors nearly US$1 billion of interest payments next week while it separately faces a court ruling on a US$16-billion case.

After the December devaluation, the central bank built back foreign reserves by about US$3 billion and the gap between Argentina’s official and parallel exchange rates narrowed to almost 10 percent from 200 percent. But investors now expect the Argentine currency to come under increasing pressure in the coming weeks as investors view some Milei policy overhauls as unsustainable.

Caputo and Quirno told bankers the swap will be voluntary and the bonds will be tailored to the banks’ needs, although they will be placed at market prices, the people said. The policymakers proposed issuing inflation-linked bonds maturing in 2025, 2026 and 2027 as one possible alternative for the swap.

The meeting with bank officials came the same day Caputo was supposed to start talks with staff from the International Monetary Fund who arrived in Buenos Aires to restart negotiations on the government’s US$44-billion programme. While technical level discussions got under way Friday, Caputo’s meeting with IMF officials got pushed for a second time, until Monday, according to several local media reports. An IMF spokesman didn’t immediately comment on the schedule change.