The Government aims to finalize negotiations with a group of banks in October regarding the possibility of securing a dollar loan to bolster the Central Bank’s reserves. This Monday marked the end of the final foreign exchange accumulation goal agreed upon with the IMF, with the monetary authority reportedly remaining more than USD 2 billion short of that target, despite experiencing a favorable balance in the foreign exchange market during August and September.
According to official sources, the conclusion of an agreement with international entities for a short-term hard currency credit—similar to what the Ministry of Economy secured in 2017 with Luis Caputo as Secretary of Finance—is expected to take place in the coming weeks.
This suggests that the negotiations with banks regarding the conditions for obtaining financing in dollars are still ongoing. Infobae reported last week that the discussions have included an annual interest rate offer of between 13 and 17%, with Bopreales in BCRA dollars as collateral for the transaction.
The BCRA and the Treasury Palace have not confirmed whether the Government is willing to sign an agreement with such a high interest rate. Although the country risk has been at its lowest level since May, it still stands above 1,200 percentage points, suggesting that any financing offered to the country will likely come with an annual interest rate in the double digits, a figure considered expensive for loans in foreign currency.
Under these circumstances, discussions continue, and in the best-case scenario, officials suggest a resolution could be reached closer to the end of the month. One potential strategy is for the Government to allow a more significant reduction in country risk to decrease financing costs.
October is expected to be a critical month for reserves, even though the accumulation goals that have burdened the BCRA since the current agreement with the IMF began in March 2022 will not be met. Increased demand for foreign currency is anticipated this month due to import payments, influenced by how the dollar authorization scheme for such transactions has been structured.
“While there will be certain obstacles for import payments in October (a kind of ‘Rubicón’ due to the sector’s scheduling), we are likely to see a shift among those who previously resorted to cash with liquidation. Given the regime change, they are now likely to align their purchases with the A3500+PAIS (official dollar) to ease demand for the financial dollar, leaving the blend as a seller,” they stated.
Despite being at its lowest levels since May, the country’s risk still remains above 1,200 percentage points, which indicates that any financing to the country will hover around double-digit annual interest rates.
In this context, there is speculation that some importers are shifting away from “cash with liquidation” for financing their overseas purchases and reverting to the administered exchange rate, thereby reducing sellers in the CCL market. Only a schematic 80/20 of export dollars would remain to support supply.
This week, the last target with the IMF, as anticipated, was missed by a considerable margin, potentially exceeding USD 2 billion. This estimate was provided by the private sector until the end of last week as the gap to the required threshold set by the program. Additionally, the drop in reserves at the month’s end, which included payments to international organizations totaling USD 300 million, may have further decreased the level of net reserves.
Dollar deposits continued to rise, and as of last Thursday, according to the latest available data from the Central Bank, they approached USD 30 billion, on track to break the record nominal value of USD 32.5 billion recorded by the monetary authority in August 2019. This represents an increase of USD 11.326 billion since August 15, as compiled by economist Amílcar Collante.
“The impact on net reserves will depend on: what is paid in fines for regularization (we expect to have initial data next week on collection figures for September; note that fines are paid in dollars), the amounts that banks lend in dollars to exporters (which should be settled in the MULC), and the Government’s (Treasury or BCRA) decision to potentially issue local dollar bills to finance part of the 2025 maturities,” a recent report from consulting firm 1816 mentioned.
The prospect of the Treasury issuing short-term bills in dollars has become increasingly discussed among market analysts since last week. “The sharp rise in dollar deposits resulting from laundering could present a new financing source for the government: the issuance of new Letes in dollars. This would create an option to channel funds from laundering, in addition to upcoming placements of ONs,” noted a report from Delphos Investment.
“Though they are not currently part of the Treasury’s financial strategy, it’s reasonable to assume there might be interest among local investors for Letes (Short-term Treasury or BCRA Bills subscribed with and paid in MEP Dollar) at relatively low rates,” stated 1816.
“We believe this is the case due to how the CERA ecosystem operates, as well as the MULC/CCL cross-restriction, which creates a pool of ‘captive’ investors in dollar deposits. However, it’s still unclear whether the market would want to purchase instruments maturing in 2026 (or later), especially when stocks might not be present,” they added, before concluding: “Another alternative would be to issue Letes maturing in 2025, but we suspect that, in this scenario, the market would closely monitor net reserves, factoring in the balance of those instruments.”
Argentina’s Strategy to Reinforce Central Bank Reserves with Dollar Loans
The Argentine Government is actively negotiating with a group of banks to secure a dollar loan in hopes of reinforcing the reserves of the Central Bank. This comes against a backdrop of financial challenges, as the recent deadline for foreign exchange accumulation goals set by the International Monetary Fund (IMF) has passed, revealing a shortfall of more than USD 2 billion in meeting these expectations.
As per official statements, the culmination of an agreement regarding short-term hard currency credit—similar to what was pursued by the Ministry of Economy in 2017 under Secretary of Finance, Luis Caputo—could happen within weeks. Discussions center around an annual interest rate between 13% and 17%, backed by Bopreales in BCRA dollars as collateral. However, both the BCRA and Treasury Palace have yet to confirm if they are willing to accept such rates.
Current Economic Environment in Argentina
Despite a decrease in rates since May, Argentina’s country risk still hovers above 1,200 percentage points, indicating that any dollar financing for the country is likely to involve double-digit interest rates—an expensive proposition in the context of foreign currency loans.
Negotiations are ongoing, with expectations that a resolution could be reached by the end of October. This timing is crucial as the month presents an increased demand for foreign currency, primarily driven by import payments under the newly structured dollar authorization scheme.
Import Payments and Dollar Demand
October is critical for Argentina’s reserves. The demand for foreign currency due to import payments may substantially increase, exacerbated by the changes in the exchange rate framework. Importers who historically relied on ‘cash with liquid’ solutions might now consider using the officially managed exchange rate, thereby easing the demand for the financial dollar.
The recent adjustments imply that fewer sellers will operate in the Cash with Liquidity (CCL) market, shifting the balance towards a reliance on the official dollar rate.
IMF Goals and Reserve Challenges
This past week, it was confirmed that the last goal with the IMF was significantly missed, with the deficit estimated at over USD 2 billion. This outcome underscores the ongoing challenges faced by the Central Bank in maintaining sufficient net reserves, particularly after recent international obligations led to further declines in available funds.
Financial Strategies and Options
Dollar Deposits and Potential Bills
Deposits in dollars have shown a steady increase, nearing USD 30 billion, and could potentially surpass the record of USD 32.5 billion seen in August 2019. However, the rise in deposits hinges on several factors:
- Fines incurred for regularization payments, to be reported in next week’s collections data.
- Dollar lending decisions by banks to exporters, impacting the management of Multi-Lateral Exchange Commitments (MULC).
- Government strategies to issue local dollar-denominated bills to manage financing through 2025.
Market Responses and Financing Options
As discussions regarding potential new dollar instruments advance, there is speculation that the Treasury may issue short-term bills. The conversion of increased dollar deposits could lead to a demand for Letes (short-term Treasury or BCRA Bills), allowing the government to better manage its debt obligations.
Analysts suggest strong investor appetite for such instruments could emerge, provided rates remain relatively low. Market conditions, including the interplay between the MULC and CCL, create a unique environment for captive investors favoring dollar assets.
| Parameter | Current Value | Historical Record |
|---|---|---|
| Country Risk | 1,200+ points | May 2023 (Minimum Levels) |
| Dollar Deposits | USD 30 billion (approx.) | USD 32.5 billion (Aug 2019) |
| Interest Rates for Loans | 13% – 17% | Not Applicable |
Final Thoughts on Argentina’s Economic Path
The intricate negotiations surrounding dollar loans underline the critical balance which Argentina must maintain between its fiscal objectives and the realities of its financial landscape. As the government strives to strengthen its reserves amid fluctuating market conditions and growing economic pressures, the outcomes of these discussions will serve as pivotal indicators of the country’s fiscal health and economic resilience moving forward.
