Argentina Prepares Another Bond Issue

Encouraged by its successfulbondsalein June,Argentina is planning another bond offer. But some experts are cautious ahead ofOctober'smidterm election.

After eight defaults in its history—the last in 2014—and many years of litigation with its creditors, Argentina successfully returned to the international market in June when it sold $2.75 billion of a hot-demand 100-year bond denominated in US dollars with a 7.9% yield. Despite some warnings that this move was premature for a country whose market-oriented reforms and political stabilization are not yet consolidated, the Argentine Ministry of Finance is preparing another bond issue before the October legislative election: a $2.6 billion bond sale in euros, yen or Swiss francs. “Such an issuance was possible now that Argentina has recovered the world’s credibility and trust in the future of its economy,” says Finance minister Luis Caputo, who argues that the June operation was carefully executed and achieved its goals. “We are taking advantage of a moment of very low rates worldwide. It is important, then, to get more balanced terms of debt.”

The success of the Argentine initiative was not enough to move the country into the MSCI market classification. According to Eduardo Velho, chief economist and director of funds for INVX Global, the MSCI’s caution was based primarily on concern that the October midterm election would signal the resurgence of former president Cristina Kirchner. The populist Kirchner is seen as a potential candidate for the Casa Rosada in 2019 elections, benefitting from current sentiment that blames president Mauricio Macri for the still-high inflation rate and the escalating poverty rate.

For Velho, if Macri wins the October election, Argentina will be in a better position to move forward with its economic reforms and to be upgraded to an emerging market. Since 2015, Macri has been dealing with the effects of Kirchner’s macroeconomic management, achieving some good results with his market-oriented economic policy. After three quarters in recession, Argentina celebrated positive 0.3% GDP growth in the first quarter, a better trade balance and a drop in its risk premium. The June bond sale was a way to improve the country’s budget financing with long-term, low-rate debt. Recommends Velho: “Argentina must enjoy the confidence of the markets now and continue with its bond issuance.”