Argentina eyes market-friendly debt reprofiling as bond repayments rise

Argentina will continue to face tight finances for at least the next year and the government is expected to have to make some kind of adjustment regarding public debt repayments.

"With the new government, conditions have changed dramatically. We no longer foresee a default or a restructuring, but rather a reprofiling or a distressed exchange," Jaime Reusche, senior VP and lead analyst for Argentina’s sovereign credit rating at Moody’s Ratings, said at a press conference in Buenos Aires.

Argentina's credit rating has not been changed since 2019 due to the perceived risk of another default.

Reusche acknowledged that the fiscal adjustment "has been stronger than expected," leading to a rise in bond prices. "There is greater credibility in the country's macroeconomic and fiscal management, but the external adjustment has yet to take place," he said.

It is this lack of external adjustment that is currently limiting Argentina's credit rating.

Moody’s estimates that a reprofiling would be “market-friendly,” with limited losses.

Next year, Argentina faces US$5bn in foreign bond maturities, more than double the US$2bn paid this year.

“The government is exploring mechanisms to cover these payments, including multilateral financing. The World Bank is working to support the government with increased disbursements in the coming years, which could alleviate some of the pressure,” he added.

However, concerns remain over the fiscal and economic adjustment, particularly as an economic recovery could put more pressure on imports, complicating the balance of payments.

According to Reusche, Argentina’s annual foreign currency inflows and outflows both stand at around US$100bn, so an increase in imports could start to strain the accounts.

For Moody’s, "there is uncertainty” and difficulty in predicting future scenarios. "All payment variables are extremely sensitive to assumptions," Reusche underscored.

At present, the country is not seeing significant capital inflows due to ongoing capital and exchange rate controls.

Like other economic analysts, Moody’s believes the exchange rate is lagging, and the government may be forced into a devaluation. “This highlights how volatile the country is. At the beginning of the year, we saw some form of devaluation as inevitable to close the exchange rate gap. Now, as the government anticipated, the gap appears to be narrowing not because the official rate is devaluing, but because the parallel rate is falling, reflecting increased confidence in economic management.”

In addition to the success in slowing inflation – possibly President Javier Milei's greatest political achievement – Reusche also highlighted that accumulation of reserves has exceeded expectations. 

"The level of net reserves seems to have plateaued. It's unlikely to reach positive territory [this year],” he remarked.