Bank of America predicts Argentina might soon return to global debt markets, buoyed by upcoming mid-term elections and a potential IMF agreement. A market-friendly Congress could facilitate new debt issuance. While there are positive growth indicators, concerns over low reserves and global interest rates persist.
Bank of America (BofA) forecasts that Argentina could soon re-enter global debt markets, supported by October’s mid-term elections and an anticipated agreement with the International Monetary Fund (IMF). A more favorable congressional environment may lead to new bond issues or liability management operations to address short-term refinancing needs. New negotiations with the IMF are scheduled, following the country’s $44 billion borrowing in 2022.
BofA asserts that a staff-level agreement between Argentina and the IMF is expected imminently, which could enhance IMF exposure to the nation. This would enable multilateral financing from institutions such as the Inter-American Development Bank (IADB), CAF, and the World Bank, potentially securing up to $2 billion yearly, and reduce foreign exchange (FX) debt maturities to 1.7% of GDP over the next three years.
The report suggests that this manageable debt service scenario relies on ongoing market-friendly policies, primary fiscal surpluses, and capital inflows, despite Argentina’s currently low FX reserves. The nation must presently utilize its international reserves for Eurobond repayments, making re-engagement with global markets essential for enhancing its debt repayment reputation and mitigating investor risk.
BofA predicts that yields for ARGENT ’35s could drop from their present level of 11.4% to near 9% if mid-term election outcomes are favorable. While the bank expresses optimism, it raises concerns regarding Argentina’s low international reserves in relation to its debt obligations and warns of potential current account deficits stemming from further currency appreciation.
Furthermore, strengths such as predicted GDP growth of 5% by 2025 and proactive economic stabilization measures by President Milei, which already show a stronger recovery in GDP in H2 2024, lend further confidence. Notably, inflation decreased to 2.2% in January, down from December’s high of 25%, supporting potential USD inflows.
Additionally, President Milei is advocating for a free-market economic approach, intending to lift export bans, cut import taxes and tariffs, and grant companies more pricing autonomy. However, BofA cautions that rising global interest rates could impede Argentina’s re-entry to global debt markets, along with external shocks such as a potential US recession affecting commodity prices.
In conclusion, Bank of America projects a likely return of Argentina to global debt markets, contingent upon a mid-term electoral shift and successful IMF negotiations. While this re-entry may improve Argentina’s financial positioning and investor confidence, challenges related to international reserves and external economic conditions remain critical concerns. Overall, favorable growth prospects and proactive policy changes could set the stage for Argentina’s economic recovery and stability.
Original Source: www.fi-desk.com
