Argentina could return to the global bond market next year to refinance its debt as President Javier Milei’s government strives to restore investor confidence by moving to reduce the budget deficit, rein in inflation high and replenish international reserves, according to analysts.
“Argentina could perfectly sell bonds on international markets within 12 to 18 months to refinance maturities,” Nicolás Parrondo, executive vice president of Argentine brokerage firm Cohen, said Thursday at the Forbes Money seminar. & CFO in Buenos Aires.
Argentina was locked out of the cross-border bond market after defaulting on more than $100 billion of debt in 2019 and 2020. While the previous government restructured the bonds, a lingering financial crisis pushed up sovereign borrowing rates at prohibitive levels, leaving it dependent on the local market and multilateral lenders for limited amounts of financing.
But optimism about the country’s return to financial health has grown among investors since Milei, a right-wing economist, took power in December. His economic shock therapy program, including firing civil servants, cutting pensions and raising utility rates, is helping to reduce inflation and narrow the budget deficit – and has triggered a rally in bond prices.
“Argentina has moved from a situation of panic to a new expectation of how we are going to manage macroeconomic variables,” Parrondo said.
However, to return to global markets, Milei must continue to strengthen its credibility in Argentina by recording more results, a process that began with a drop in inflation of 25.5% month-on-month (211% year-on-year). ) in December to 11. % in March (288% annual).
The country met targets set by its main lender, the International Monetary Fund, by a “significant” margin through March, Rodrigo Valdés, the lender’s Western Hemisphere director, said at a news conference on Friday. .
The next victory could be rebuilding international reserves from net negative to nearly $10 billion net positive by the middle of this year, helped by exports of a large agricultural crop, Parrondo added.
Pablo Castagna, director of wealth management at Balanz, another local brokerage, expects conditions to improve for Argentina to sell bonds abroad again. For example, he indicated that the exchange rate has stabilized at less than 1,000 ARS per dollar on the parallel market, against 1,200 ARS in January, when there were fears that the currency would reach 3,000 ARS this year.
“Everything that has happened is very positive and optimistic,” he said.
THE NEED FOR REFORMS
Castagna nevertheless said that over the next three months, Milei will need to show progress in structural reforms, a challenge for his administration given that it has only a minority of seats in Congress. Such reforms are essential to provide clear and stable rules to attract investment and financing, and to end the economy’s frequent ups and downs, he said.
The reforms would also help Argentina regain access to international debt markets by reducing the sovereign’s borrowing costs, Castagna said.
Argentina would pay a whopping 20% yield if it sold a bond today, he said.
That’s far more than the 5 to 6 percent that neighboring countries like Brazil, Chile and Uruguay pay to increase their debt, Castagna said. It is also well above the 8% paid by Turkey, Egypt’s 10%, El Salvador’s 12% and Pakistan’s 14%.
With reforms and political stability, Argentina should be able to borrow at 10-15% and perhaps even lower, Castagna said, which would push sovereign bond prices up 20-40%, according to maturity.
“We are optimistic about what is happening,” he said.
Federico Mac Dougall, a partner in Deloitte’s financial advisory team in Buenos Aires, cautioned, however, that while much is expected of Argentina’s return to global markets, much still depends on the adoption of reforms. This has held back investors “a little bit,” he said.
Despite this, Mac Dougall said that instead of calling companies or investors to find out how to leave Argentina, they are now curious about what is happening in the country. This could translate into new investments if structural reforms are adopted, he added.
Investors, for the most part, are waiting to see the changes materialize over the next three to four months, but expectations are positive, Mac Dougall said.
“It seems like things are going better than we all expected,” he said.
