Rising prices for Argentina's commodity exports are bolstering the Central Bank's coffers, an unusual but positive development for the struggling economy that is providing a small boost to bondholder confidence.
Since February, net international reserves (the Central Bank's holdings after subtracting dollar deposits in retail banks, international loans, and other long-term assets) have more than doubled to US$6.9 billion, its highest level in nine months. according to local consultancy firm EconViews. The increase is a welcome change after reserves fell in the past two years amid a shortage of foreign investment and the restructuring of Argentina's US$65-billion debt with private bondholders.
Argentina, the world's largest exporter of soy products, earns most of its foreign exchange from the sale of its agricultural production abroad. This year, exports have brought in US$13.3 billion – the highest level in 18 years for this time of the season. The increase in dollar revenues helped the peso to have its best monthly performance since the end of 2019 in May, while foreign bonds rose for the second consecutive month due to the perception that higher reserves could facilitate the country to meet its obligations.
"With this flood of dollars and this surge in reserves, investors are seeing Argentina's improved ability to pay its debt," said Andrés Borenstein, chief economist at EconViews in Buenos Aires.
Imports to Argentina rose 61 percent in April, recent government data showed, a sign that policy makers may have loosened exchange restrictions that hold back international trade. As part of efforts to prop up the peso, Argentines face severe restrictions on their ability to buy dollars at the official exchange rate.
It is not yet clear whether the Central Bank will be able to hold onto reserves as farm incomes decline next month in the depth of the South American winter. At the same time, government policymakers also have just 60 days to raise the US$2.4 billion owed to the Paris Club group of private creditors, after the grace period for that payment began.
The government has not said whether it will use reserves to meet its outstanding debt payments.
In this trading season, exporters will sell soybeans, flour and oil for US$20.4 billion, a record and 25 percent more than the previous year, according to the Rosario Board of Trade.
by Ignacio Olivera Doll, Bloomberg
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