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the sword of Damocles and the key to 2025

the sword of Damocles and the key to 2025

The Government has reaped several auspicious results since it devalued, adjusted spending and began to rearrange the BCRA’s balance sheet and relative prices, among other things. However, the consensus has reservations about sustainability and 2025 will be a great test with strong maturities in dollars.

Courtesy: https://windykacja-info.pl/

Since the summer, with the impacts of the first economic measures, the million-dollar question posed by the market consensus was to see how long the population would endure the tenor of such an adjustment. But, month after month, the good numbers that surveys and opinion polls showed in favor of the Government, and in particular the figure of Javier Milei, forced a rethinking given the unavoidable support of the majority of the people. Thus, the debate between opinion analysts and political scientists aimed, in a certain way, at knowing what would be the last straw that would break the back of people’s patience, that is, a final blow in the hope they had in the Government’s ability to resolve the issues. issues. Would the culprit be a rebound in inflation, an abrupt jump in the dollar, or massive layoffs, among other issues? Who knows, the trigger could be anyone, but the truth is that in order to project how the libertarian economic program could continue, Economists seem to set as a “deadline” the reduction of country risk to levels that allow Argentina to return to voluntary debt markets. Because? Simply because next year there are strong debt maturities in dollarsand still neither the Central Bank (BCRA) nor the Treasury have guarantees that they will continue to accumulate reserves, returning to levels of positive net reserves, a key input for any dream of making the exchange rate more flexible.

Then yes In 2025 there are maturities of approximately US$17,000 millionaccording to private estimates, and the BCRA still has an insufficient stock of net reserves, yes or yes, Argentina’s return to the international capital market is imperative in order to refinance the obligations, that is, achieve the ““roll over” of next year’s commitments. Even, If the BCRA continued to accumulate reserves, they would not be sufficient for all possible destinations in addition to facing debt maturities..

The schedule that manages, for example, the Ferreres consultant shows that already boot, In January more than US$5,000 million mature and in July another more than US$5,000 million mature, of which about US$6,000 million correspond to capital and the rest to interest (they do not include IMF or non-transferable bills). That is, they are the busiest months, But in every month there are smaller maturities, from between US$200 to 300 million up to US$1,000 million.

For his part, the Broda Studio projects a schedule of debt maturities in dollars, which includes capital and interest, the IMF, the 2010 Treasury Exchange Bonds and the BCRA Bopreal, and that Of the little more than US$6,000 million estimated for this year, they jump to US$13,500 million in 2025, where the bonds from the 2010 exchange add up to more than US$9,500 million, about US$2,300 million of the IMF and the rest Bopreal. The Broda Study indicates that these commitments would rise to US$17.5 billion including maturities with other international credit organizations and the provinces in 2025. Regarding the issue of organizations, Macroview estimates that next year almost US$2.6 billion in interest will expire with the IMF, plus another US$4.9 billion with other international financial organizations, of which US$3 billion correspond to capital.

Debt: in 2024 there are also maturities to attend

This is what’s coming next year, but still in 2024 There are mainly concentrated maturities in July for more than US$3,000 million. To this we must add the still unresolved issue of expiration of the US$4.8 billion that was used for the currency swap with China and according to the economist Ricardo Arriazu If it is not renewed, it would have an intermediate solution.

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The country risk objective, if you want to re-place debt and thus renew the maturities, has to be less than 800 points.

The country risk objective, if you want to re-place debt and thus renew the maturities, has to be less than 800 points.

But it is clear that the highlight is 2025. Hence the importance of the country risk premium which unfortunately climbed back above 1,500 basis points. It is worth remembering that before the runoff they had been falling from 2,700 points to just over 2,400 points and after the change of government It closed 2023 below 2,000 after touching almost 1,830 points in mid-December. This year had a strong adjustment with the bonanza of dollar bonds and the incessant arrivals of foreign funds and investors to evaluate the Argentine case and decide if they were betting on the rally that later brought the country risk premium to around 1,100 points. It has now fallen back to the levels seen at the end of last March. These are risk levels that block any official aspiration to access the voluntary debt market.

In March, foreign investors were wondering if the risk could be cut by about 300 points, and it did, even the rally exceeded expectations. But the political ups and downs and the doubts that analysts and investors still have about the economic program explain the country’s risk levels. The objective, if you want to place debt again and thus renew the maturities, has to be less than 800 points. The ideal would be 600 points but today it looks like a very ambitious goal. But it must begin to approach the levels of the countries in the region. Furthermore, now the electoral results in several emerging countries are complicating the picture.

The roadmap that the market needs

But in addition to this, the Government, which has already achieved some successes in reorganizing the inherited macro imbalances, must continue to do well and, above all, show and explain how the economic plan will follow to clear up the market’s main doubts. For now, it has managed to lower inflation after devaluing almost 120%, it made an aggressive but disorderly fiscal adjustment of 5 points of GDP, the BCRA did not issue to finance the Treasury, it went with a chainsaw and liquefaction purifying the Central balance, it significantly lowered the exchange gap and strongly recovered the stock of Central reserves, bringing them to neutral territory and faced a realignment of relative prices. In this way, hyperinflation and default were avoided. But this is not enough to make the market fall in love, some were seduced by the strong potential profits, but to place new debt and have a “roll over” next year, the market wants to know for sure what the new monetary and exchange rate regime will be, how it will make the fiscal adjustment sustainable, how and when it will exit the exchange rate traphow it will maintain the competitiveness of the exchange rate and what the structural reforms necessary to guarantee the sustainability of the stabilization attempt will be and how they will be implemented, among other things.

In summary, what is the economic plan to grow again, what is the roadmap and who are the drivers. As the economist Miguel Broda says, the emergencies of the macro imbalances were pragmatically solved by maintaining the stocks, the patient who entered intensive care in critical condition was saved and was taken down to a common room of the hospital, but he was left with consequences. That is why he warns that the measures taken in the emergency also had their negative consequences: initial inflationary jump, fall in the purchasing power of salaries and deepening of the recession. The sword of Damocles of the bulky 2025 maturity schedule has the key to access to the markets in the reduction of country risk, but to do so the Government must show how it will sustain the fiscal surplus, the recovery of reserves, etc., show governability, and not have any political crisis, because this will affect confidence and negatively impact the country risk.

Source: Ambito

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