LatinNews Daily - 23 March 2023

ARGENTINA: Gov’t orders bond swap to ease pressure on peso

On 22 March, Argentina’s government led by President Alberto Fernández announced that public sector institutions would be required to swap their holdings of US dollar bonds for peso-denominated notes, in an attempt to shore up dwindling foreign currency reserves and avoid a devaluation. 


Triple-digit inflation and the impact of an ongoing drought on grain exports (an important source of foreign cash for the Argentine economy) are pressuring the peso and driving down Argentina’s foreign currency reserves. This raises not only the risk of devaluation, but also that of a default on large foreign debts, such as the US$44bn Extended Fund Facility (EFF) agreement reached with the International Monetary Fund (IMF) – two scenarios the Fernández government will be especially keen to avoid in an electoral year. 

  • The measure to force state-run institutions to sell their US dollar securities was announced as aiming to “reduce the volatility of dollar money markets in particular and capital markets in general, avoiding an impact on inflation among other things”. Argentina has been dealing with multiple parallel exchange rates for years (some sector-specific ones created by the government itself), with the US dollar sometimes worth double the official rate on the black market. 
  • The measure could also save the government around US$4bn, according to the secretary of economic policy Gabriel Rubinstein, who tweeted that the state would be reducing its foreign debt without tapping into central bank (BCRA) reserves. The BCRA’s gross foreign reserves have fallen to US$36.72bn as of 17 March, from over US$44bn at the beginning of the year. Net reserves are believed to be far lower, with one estimate from local brokerage firm Portfolio Personal Inversiones (PPI) cited by Reuters putting them at US$4.4bn in February. 
  • The government has also moved to manage its local debt, yesterday selling Ar$416.5bn (US$2bn) in peso-denominated notes and bonds due in 2024 and receiving fresh financing of Ar$50bn, according to a statement sent to Bloomberg. 

Looking Ahead: The plan to sell public bodies’ US dollar securities is due to be formalised by decree today (23 March), with analysts already warning that the measure could backfire if it increases demand for US dollars.

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