He risk country plummets, from 2,700 bps in October 2023, to almost 1,200 bps in the most recent measurements. He bond price rises, from US$30 per AL30 in the same month, to almost US$60 currently. Although the problems that have been going on for many years are by no means resolved, it is very good news, since it represents the thermometer of the Government’s credibility in meeting its commitments.
In my reading, much of Argentine economic problems derive mainly from the difficulty in accessing external credit and therefore renewing their debt maturities., a product of mistrust and fiscal behavior, and therefore working on the causes allows alleviating the symptoms or effects. Because in reality the Argentine economy does not have a serious debt problem, but rather credibility and stability.
All governments use the resource of debt to cover excess spending over income (taxes and emissions). Taking data from https://worldpopulationreview.com/, the average debt of governments with respect to the gross product (GDP) of their economy amounts to 61%, with a sample of more than 180 countries for 2022, and within that dispersion we can find cases like Japan, with 264% debt over GDP, Italy 142%, the United States 130% and Brazil approximately 80%.
The Argentine case when trying to measure it in USD is distorted by the exchange gapbut it could be estimated between 80 and 90% with a debt according to the latest debt report (https://www.argentina.gob.ar/economia/finanzas) as of February 2024 of USD 384 billion (as an example and As an extreme case, if Argentina had the debt of Japan, the debt would amount to one trillion USD).
However, the most relevant point is that sovereign debts are generally not paid, but rather the maturities are eventually renewed with voluntary placements, which is what normal countries do when there is stability and confidence in macroeconomic and mainly political aspects.
And I mention that Argentina does not have a serious debt problembecause when we start to review the numbers, beyond the estimate of debt relative to GDP, its composition also shows certain relevant aspects.
As I already mentioned, the debt reported as of February 2024 amounts to USD 384 billion, of which 67% is nominated in foreign currency, and 33% in local currency (of which 19% is with CER adjustment. That is to say, approximately 85% of the debt has some degree of adjustment, which is obviously not good information, but it is what the investor asks for in order to lend to the Treasury.
If we review in more detail, we see that the debt with bilateral organizations amounts to USD 75 billion, which includes USD 43 billion from the IMF. On the other hand, in the debt in USD there are almost USD 70 billion that the Treasury owes to the Central Bank in the concept of Non-Transferable Bills, which brings us to the most relevant fact, that, of the total debt, 45% is held by the Government itself through official agencies (Anses, BCRA, etc.), while 20% is owed to multilateral organizations (including the IMF).
The interest maturities in foreign currency of debt held by the private sector amounts to approximately USD 2.3 billion per year over the next five years.
All of this data tells us that, although much of Argentina’s economic problems come from its inability to obtain financing in USD, the level of debt is not significant or substantially different from that of other similar economies. It also influences that Argentina does not export significantly (the ratio of exports to GDP is between 15 and 20%, while the world average is 30%), this being the main way to generate USD genuinely, along with direct investment.
Therefore, in my point of view, the great challenge that the national government has is to be able to access credit in USD again, in such a way as to renew debt maturities, return the IMF credit, and eventually clean up the finances of the Central Bank. with the rescue of the Nontransferable Letters.
Director of the Master’s Degree in Finance, UCEMA.
Source: Ambito
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