Argentina is set to make a near US$1-billion payment to foreign bondholders this week while the government of President Javier Milei continues talks with the International Monetary Fund as he seeks to restore investor confidence in the serial-defaulting nation.
Interest on several hard-currency bonds comes due Tuesday, marking a major test for Milei just a month after he took office promising to overhaul South America’s second-largest economy. Despite being short on cash, the government is expected to make the payments in part by dipping into foreign reserves that got a boost from Milei’s initial shock measures.
“It would be a big surprise if they were to default,” Cathy Hepworth, head of emerging-market debt at PGIM Fixed Income said about the payment. “It’s a little less certain as the year progresses and as we get to next year.”
The tab comes due just as the government meets with IMF officials in an attempt to get its US$44-billion aid programme back on track. The country isn’t seeking a new programme nor requesting fresh funding, Presidential Spokesman Manuel Adorni told reporters in Buenos Aires Monday.
Economy Minister Luis Caputo and Milei’s Cabinet Chief Nicolás Posse, will meet an IMF delegation led by Luis Cubeddu and Ashvin Ahuja on Monday afternoon. Fund officials met on Friday with technical teams from the country’s Central Bank.
Argentine officials are hoping to reach an agreement that would unlock a US$3.3-billion disbursement the government needs to repay the IMF by the end of the month. The payment was originally scheduled for November, but the change of government delayed talks.
Bond payments
Optimism that Argentina will stay current on its obligations has helped drive an outsize performance for its dollar bonds. Over the past three months, the debt has returned 43%, better than the nine percent average for a Bloomberg index of emerging-market sovereign debt.
But the payment alone won’t alleviate Wall Street’s concerns about Argentina, whose overseas bonds still trade in distressed territory. Over the past few weeks, the currency has come under fresh pressure, local bonds auctions meant to settle importer debts have flopped, and labor unions have called for nationwide protests later this month.
All of that threatens to further limit upside on the bonds. Notes due in 2030 fell some 1.1 cents last week and money managers demand nearly 2,000 basis points of extra yield over US Treasuries to hold the country’s dollar debt, JPMorgan data show, well above the threshold for distress.
The country has another US$1.7 billion of interest and principal that comes due in July.
Samy Muaddi, who oversees $25 billion emerging-market debt at T. Rowe Price, said that if Argentines embrace Milei and his push for belt-tightening, the bonds “could go significantly higher.”
“But we’re betting against history if that proves to be the case,” he said.
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by Manuela Tobias, Kevin Simauchi & María Elena Vizcaino, Bloomberg
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