Argentina makes key $4bn debt repayment

Buenos Aires — Argentina, battling to rebuild depleted foreign currency reserves, sent a major signal to markets on Thursday by repaying more than $4bn on a bond, a milestone as libertarian President Javier Milei seeks to woo back creditors.

Milei’s government, whose pledge to balance the books with a tough austerity agenda has turbocharged asset markets but pushed up poverty, had promised to pay about $4.36bn to settle interest and principal on its local and international bonds.

“They say a promise is a debt ... In this case, it’s PAID!” Argentinian finance secretary Pablo Quirno wrote on social media platform X on Thursday.

Some analysts fretted the payment would further strain the central bank’s foreign reserves, which fell $1.73bn on Wednesday to $31.18bn. Net reserves of freely available funds are estimated to be in the red.

Others pointed out a significant portion of the repaid funds might be reinvested in the country’s sovereign debt due to its high yield and an increasingly attractive country risk rating.

“In terms of dollar-denominated sovereign bonds, now that January’s coupons and principal payments are being made, we believe part of that cash flow could be reinvested in the same bonds, further reducing the country risk spread,” said Juan Manuel Franco, chief economist at Grupo SBS.

Argentina’s financial markets have been buoyant thanks to Milei’s tough “zero-deficit” policies, cooling inflation and the government’s commitment to meet its debt obligations. The risk premium on the country’s bonds has slid sharply in recent months.

On Wednesday, ratings agency Moody’s Investors Service raised the ceiling on Argentina's credit rating for local and foreign currency. It said its decision reflected “the increased predictability and the greater consistency in economic policy that has led to a rapid reduction in monetary and fiscal imbalances that were stoking very high inflation”.

“The government’s policy actions to unwind restrictions on cross-border payments and foreign exchange convertibility have increased availability of foreign currency liquidity in the country despite the low capital account openness. Government policy has shifted toward a reduced role of the state in the economy and less interventionist policies that suggest a lower likelihood of transfer and convertibility risks in the event of a sovereign default,” Moody’s said.

The central bank recently announced a $1bn repurchase agreement with international banks to bolster its reserves. The government is also negotiating with the IMF for new funds in addition to a current $44bn loan.

Reuters