Determined to ease exchange rate tensions after eight rounds followed by increases in blue, the Government has decided send a signal to the market and aimed all guns down in dollars. With this objective, the Minister of Economy, Sergio Massa, announced on Tuesday the start of the buyback of foreign debt for 1,000 million dollars, an operation that had a positive impact on the dollar bond market, with increases of up to 11%. and a bridging the gap.
“We have taken the decision to carry out an external debt buy-back process Argentina for over 1,000 million dollars which starts today“said Sergio Massa today at 9 a.m., before the markets open. The blue hit a new nominal high of $378 yesterday, a level that has begun to generate concern in the corridors of the Palacio de Hacienda and forced the reaction of the economic team.
In the Economy offices they confirmed at least two purposes: the reduction of the exchange differential (today, between 92 and 107%) e of the cost of the loan reflected in the country risk, which has dropped to 1881 points today. “The measure should benefit and lower the parallels, it should have an impact on financiers, CCL and MEP, where you have the mixed bond and dollar market, and we are already seeing a decline in country risk,” they assured close to Massa.
Specific, the Treasury has ordered the Central Bank to repurchase foreign-registered securities, initially Global 29 and Global 30, in the secondary market. The “Liability Strategy,” for which no initial amount and terms have been specified, will have a total effective value of up to $1,000 million, equivalent to a nominal value of between $2,500 million and $2,700 million. And it will be financed with “dollars” deposited in a Treasury account.
that way, The government tries to get hold of bonds at affordable prices and proposes to carry out an “indirect intervention” to expand the offer on the foreign exchange market with the introduction of foreign currency. “Both markets, bonds and exchanges, are somehow connected, it is effective to narrow the gap to the extent that it is strengthened with other measures that increase the supply of currencies and improve confidence,” sources close to the Economy explain .
As a sign of coordination, the Central Bank accompanied the announcement with a rise in the interest rate for banks (for passive repo transactions with a duration of 1 working day from 70 to 72% and for active transactions with a duration of 1 working day 95 to 97%). The institution authorized the adjustment in an attempt to stem the decline in parallels, after keeping the reference rate unchanged since December, despite the acceleration of inflation in December to 5.1% per month.
The measures have been well received by the market, where, however, doubts persist about the ability to accumulate reserves and the resources available to add expenditure. “Aggressive, as always Massa, reasonable,” they said in a private bank. “I think it’s heading in the right direction, but that the market will do the numbers along with what’s missing in dollars from the drought,” they indicated from a portfolio of funds.
They explain to the Treasury that the measure has been taken now because it was “convenient” to buy them at current values, as part of the readjustment of the debt curve in pesos and dollars, without excluding a future REPO with foreign banks. While in the financial sector the announcement was read as a response to “previous leaks” that could have fueled the rally that began in September in dollar bonds and equities.
One of the unknowns is the cost of the operation. Massa’s team supports him using reserves will not affect the goal with the IMF because it would only affect gross reserves as Treasury own resources. How much at spending, they say it will be compensated by savings due to lower energy imports and reduced energy subsidies. Massa said there was an “exceeding” of targets in 2022.
“This is a first step of $1,000 million. Very focused on the global ones, especially the short-term ones; 29, 30. We understand that this is where we need to attack for the best debt management, debt profile and Argentina maturity profile,” the economy minister said in the morning from the fifth-floor auditorium of his ministry, without the presence of the press.
But analysts believe the deal amount will be lower. “It is to give a framework that justifies the intervention to lower the dollar MEPs and CCL, I doubt that they will buy back 1,000 million. It seems to me that it smokes to scare and keep the dollar at bay with two pesos (or two dollars). It has no reserves and the IMF doesn’t allow you to use reserves like this and less if you don’t have them. They sell them to you as debt restructurings and buybacks,” said a former central bank official.
“I don’t know where the resources will come from, neither the BCRA nor the Treasury are in a comfortable position to buy debtWhile it is true that it is beneficial for improving the debt profile, it is not credible for the capacity of the public sector in general. If there are no dollars, won’t importers complain? And does the Treasury have deposits to pay interest to the IMF and buy back the debt? Rare,” said Guido Lorenzo, director of LCG.
For Isaias Marini, economist at Econviews, the repurchase “they probably have a limited direct effect on country risk but that market contagion could lead to a further decline, and this is reflected in the rise in dollar bonds which are recording increases of up to 7% after the announcement. But it also implies a formalization of the intervention mechanism in the gap”.
“In terms of reducing maturities, the measure would have been more effective a few months ago with lower parities, when bonds were trading at 20 cents. The BCRA will pay the cost in dollars despite low net reserves, and the Treasury, which doesn’t even have pesos, will probably end up placing a non-transferable letter – the effect of which is a worsening of the Central Bank’s balance sheet,” Marini said.
NS
Source: Clarin
