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ECONOMY | 29-12-2023 21:35

Argentina’s first ‘reconstruction’ bond sale to importers flops

Central Bank’s first auction to pay down importers’ debts owed to suppliers abroad flopped Thursday as the monetary authority only sold a fraction of the total it had offered.

The Argentine Central Bank’s first auction to pay down importers’ debts owed to suppliers abroad flopped Thursday as the monetary authority only sold a fraction of the total it had offered. 

The Central Bank reported that it sold just US$68 million after receiving 34 offers from Argentine importers when it previously announced a maximum of US$750 million in notes available. Bloomberg reported the sum earlier Thursday. Importers bought the bonds first, but have the right to resell most of the notes in the secondary market to other investors. 

In a statement, Central Bank officials anticipated that “the volume of participation will go up,” as the institution “continues clarifying the operative processes for subscription and required documentation.” 

The auction results mark Milei’s first setback in markets after a relatively successful currency devaluation followed by a record sale of peso debt, build up of foreign reserves and dollar bond rally. Clearing away the US$30 billion importers owe abroad is a key step before Milei’s administration can remove byzantine financial controls it inherited from the previous government. The bonds serve another purpose too of mopping up peso liquidity that could stoke inflation already above 160 percent. 

“The instrument is very important for the exchange rate unification of Argentina, because it helps to normalize the debt stocks of importers and serves as a mechanism to absorb pesos from the economy,” said Pedro Siaba Serrate, a senior economist with PP Inversiones in Buenos Aires. “If the government wants to achieve exchange rate unification, this should work better.”

The dollar-denominated securities, called “Bopreal” — which stands for “bonds for the reconstruction of a free Argentina” — offer a five percent annual interest rate, and are aimed at “providing predictability to payments associated with the stock of commercial debt of importers,” according to the Central Bank. 

A chronic dollar shortage and strict capital controls during the previous government of President Alberto Fernández backlogged billions in payments, indebting importers and putting a bottleneck on trade. Before the Central Bank lifts all of Fernández’s financial controls, importers need to settle their debts abroad to improve the monetary authority’s balance sheet. 

The notes “will offer an orderly solution to resolve the crisis generated by the accumulation of commercial debts of importers at unmanageable levels in the short term,” policymakers said in a statement. The debt can be bought in local currency, which in turn would help the central bank absorb some pesos in the economy in a bid to ease soaring inflation. 

Monetary authorities plan on holding two auctions a week until the end of January 2024. 

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