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ECONOMY | 06-03-2023 14:41

Argentina's opposition slams government’s plans for peso debt swap

Opposition economists slam impending peso debt swap between the government and local banks, saying it will add to the fiscal problems facing next administration in December.

Economists from Argentina's main opposition coalition have criticised an impending peso debt swap between the government and local banks, saying it will add to the fiscal problems facing the next administration due to take office in December.

Economy Minister Sergio Massa will meet with bank executives on Monday to discuss the terms of the peso note swap, according to a ministry official. An announcement with details of the deal could come later today, added the official, who asked not to be identified because the meeting is being held behind closed doors.

Argentina has about six trillion pesos (US$30 billion) of local currency debt maturing in the second quarter. As investor uncertainty mounts ahead of presidential primaries in August and general elections in October, President Alberto Fernandez's administration is seeking to swap the notes for longer-term maturities to avoid refinancing problems in the middle of the vote.

However, the opposition sees the move as an attempt to fiscally compromise the next administration, while leading economists in the pro-business Juntos por el Cambio coalition warn that the renewal could lead to even higher inflation. Annual inflation in the crisis-prone South American country is expected to have topped 100 percent during February.

"The government is preparing a debt swap with the banks, a vile and ruinous operation for the state," tweeted Hernán Lacunza, a former economy minister and top adviser to presidential candidate Horacio Rodríguez Larreta, on Sunday. "The most worrying thing is the enormous risk this creates for Argentines."

The government is expected to swap bills maturing before the end of June for new ones due in late 2024 or early 2025, people familiar with the negotiations told Bloomberg News last week. That means there will be a different government when the new bonds mature.

Talks with banks have stalled at times over the terms of the renewal. Private banks, the Economy Ministry and the Central Bank ministry and the central bank are negotiating the size of a put option to be included with the new notes. A put option is a financial instrument that allows the holder, in this case the private banks, to sell a security at a given level, even if market prices fall below that level.

The monetary authority had insisted on a put option of 200 basis points, while private banks were seeking zero to 50 basis points to keep a potential put closer to market prices, according to people familiar with the matter.

 

by Patrick Gillespie & Ignacio Olivera Doll, Bloomberg

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