Investors warn: CCL dollar intervention “worsens uncertainty” about reserves and bonds, according to Fitch

The President’s Message Javier Milei The government’s announcement that it will pay “whatever it takes” the large foreign currency debt maturities of 2025 fails to erase the market’s concerns, which have increased after the latest measures. The risk rating agency Fitch Ratings warnedin a report for its clients, on the impact of the intervention in the dollar cash settlement (CCL) and the MEP in the availability of reservations.

The measure, announced by Milei and the minister Luis Caputo ten days ago, was ratified by the Central Bank on Tuesday. The monetary authority said that they expect the equivalent of the $2.4 billion issued to buy foreign currency after April 30 to be sterilized from the sale of reserves in the CCL and the MEP. This is equivalent to intervene with around US$1.8 billion to contain pressures on the exchange rate gap.

The report of Fitch Ratings noted that The latest measures “aggravate uncertainties about the country’s ability to accumulate international reserves and regain access to markets.” “global capital markets”.

The concern, which is common to the different market agents, is that the BCRA will allocate foreign currency to contain the gap at a time when Net reserves are negative by more than US$4 billion (some estimate it at around US$6 billion negative) and the most unfavorable period of the year in seasonal terms for the flow of dollars into the country is approaching. The truth is that creditors are looking at the Government’s capacity to repay or refinance.

In this regard, Fitch ratified the sovereign debt rating as CC in June. According to the firm, this shows that “a restructuring or some kind of bond default is likely”according to Bloomberg.

The rating agency recalled that the Government’s plan is to reinforce the monetary squeeze and limit the creation of money to what is derived from an increase in the demand for pesos, within the framework of the second stage of the economic program, prior to the elimination of the exchange rate restriction. “However, The scope of the plan is not clear,” the report stated.

Another warning from Fitch

On the other hand, Fitch puts the spotlight on the new monetary scheme One of its pillars is the conclusion of the transfer of remunerated debt from the BCRA to the Treasury in order to end the issuance for the payment of interest. The strategy has not entirely convinced the company.

“By assuming the debt of the BCRA, the Treasury will accumulate a new stock of short-term debt, which could be a source of additional demand for dollars in a confidence shock,” warns the rating agency. In addition, it points out that this strategy does not completely eliminate the possibilities of issuance: “The BCRA also maintains the right to buy LEFI (the new Treasury bills that replace the Central Bank’s passes), leaving a path open for the creation of pesos.”

Fitch already highlights that the consolidated stock of Central Bank and Treasury securities grew in real terms throughout this year, despite the low-interest rate liquefaction strategy applied by the economic team and the fiscal surplus. However, it points out that an eventual move to positive real rates, which would be necessary to get out of the currency controls, could further increase this volume of consolidated debt. From its perspective, this would require an additional adjustment by the treasury that could further cool the economy.