Under the surface of the primary surplus, the capitalization of interests in instruments such as LECAP and BANCAP accumulates a financial burden that transforms the government’s fiscal panorama.
In an economic context where Argentina seeks to consolidate a fiscal surplus as a pillar of its stabilization strategy, the growing dependence on debt instruments that capitalize on interest, such as the letters of the capitalizable treasure (LECAP), the capitalizable bonds (Boncap), the letters of the Treasury at the monetary policy rate (LEFI) and the PR17 bonds, it is transforming the financial result of the treasure. These instruments, designed to postpone the immediate impact of interest on cash flow, hide an increasing challenge: an accumulation of obligations that, by winning, could reverse tax achievements and press the sustainability of public finances.
Capitalization mechanics: a temporary relief with future costs
Interest capitalization is a distinctive characteristic of these instruments. Unlike traditional bonds that pay periodic interest, LECAP, BANCAP, LEFI and PR17 accumulate interest to the initial capital, generating a compound interest that is paid in its entirety at the expiration. This design allows the treasure to avoid immediate disbursements, which improves the fiscal result – defined as income less expenses based on the short term. However, this advantage is accompanied by a cost: accumulated interests exponentially increase debt.
LECAP, short -term letters (generally minor 12 months), accrue a fixed rate that is capitalized monthly. Boncap, with deadlines greater than one year, work in a way. The Lefi, issued in July 2024 to clean up the paid liabilities of the Central Bank of the Argentine Republic (BCRA), capitalize daily to the monetary policy rate. On the other hand, the PR17 bonds, issued in May 2022 with expiration in 2029, capitalize quarterly to the Badlar Rate (interest rate of fixed term deposits of large amounts), and will begin to amortize capital from 2026.
This structure allows government to finance their needs without affecting immediate cash flow. However, the postponement of interest payments moves the burden to the future, creating a challenge for medium -term tax sustainability.
The impact on the financial result: from surplus to deficit
The impact of interest capitalization on the financial result is significant. According to data from the Congress Budget Office (OPC), in April 2025 capitalized interests reached $ 4,762,718 million. This magnitude radically transforms public finances: while the Treasury reported a financial surplus of $ 572,341 million in the same period, the result – which incorporates capitalized interests – would be a deficit of $ 4,190,377 million. This contrast highlights how interest capitalization can mask the true fiscal health of the government.
The growing dependence on these instruments is even more noticeable when their evolution is analyzed. In 2024, capitalized interests represented 2.6% of the gross domestic product (GDP). In the first four months of 2025, this figure climbed 4.8% of GDP, despite a reduction in interest rates during the same period.
Comparison with other debt instruments
Not all treasure debt instruments operate under the same principle. Bonds adjusted by inflation (CER) or by official exchange rate (Dollar-Linked) pay interest periodically, which makes them visible in the financial result from the moment they accrue. On the other hand, the instruments that capitalize on interest, such as LECAP, allow the treasure to renew the debt at maturity without reflecting interest in fiscal accounts until the payment is made. This difference is key: while a traditional bonus impacts the financial deficit immediately, the capitalizable instruments postpone it, creating an illusion of fiscal improvement that can fade when the maturities arrive.
Challenges for fiscal sustainability
The primary surplus achieved by current management, an outstanding achievement in the Argentine context, is overshadowed by the growing burden of financial commitments. The fall in treasure deposits in the BCRA for 2024, used in part to buy dollars and deal with debt maturity, illustrates this pressure. In 2025, the Treasury resorted again to the assistance of the BCRA through the turn of accounting profits, a practice that implies monetary issuance, undermining efforts to stabilize the economy.
The magnitude of the capitalization of interest, its impact on the financial result and the increase in relation to GDP makes them not overlook without at least make a clear mention of them.
Source: Ambito
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