BUENOS AIRES (MNI) – Argentina may issue bonds next year to cover debt repayments of more than $13.2 billion, a strategy analysts say could prove costly.
The government plans to cover debt services with the primary surplus and by borrowing from multilateral lenders, the central bank and state agencies as well as with «new debt issuances in the market,» according to a Sept. 30 filing with the U.S. Securities and Exchange Commission.
That would mark the country’s first return to global credit markets after a $100 billion debt default in 2001, and it could ease pressure on the hard-currency reserves that have become a key source of financing for paying the national debt since 2010.
The financing strategy is still uncertain for next year, economic analysts said. The Economy Ministry did not return phone calls for comment.
The government said in the 2012 draft budget it will use $5.7 billion in central bank reserves to pay debt, compared with $9.6 billion this year and $6.6 billion in 2010.
This means the government faces a $5 to $6 billion financing gap next year, said Javier Salvucci, head of research at Silver Cloud Advisors, a financial consulting firm in Buenos Aires.
«It could get all of the financing locally or it could go abroad,» depending on market conditions, he said.
Salvucci said he expects that despite Argentina’s credit history — including the default and two debt restructuring that paid about two-thirds of the face value of the original bonds — there will be demand for Argentine bonds once the international crisis has blown over.
Argentine bonds are paying higher interest than other emerging markets, making them more attractive for investors with appetites for risk, he said.
If Argentina were to sell a 10-year bond today, it would pay twice the interest as Brazil, he said.
A return to global markets would come as a positive sign for international investors, leading to a rise in financial investment in the country, he added.
But there still are hurdles. Argentina must reach a settlement agreement on about $9 billion of defaulted debt owed to the Paris Club of creditor nations including Germany and the U.S. It also owes a smaller amount to investors who held out of the two restructurings and are seeking legal channels to recover full repayment.
The government also must accept oversight of its accounts by the International Monetary Fund as a membership requirement, which also is working with the government to design a more credible national inflation index.
The government has been accused of fiddling with the inflation numbers to keep the figure low. Official figures show annual inflation of 9.8% while most private estimates and those of the provinces put it above 20%.
Luis Palma Cane, an economist in Buenos Aires, said, «Argentina has to pay a premium for all of these problems.»
He estimates that if the country were to return to bond markets now it would pay an annual 14-15%.
«If the government resolves these problems it will be easier to sell debt and at a lower cost,» he said.
Another challenge is political. President Cristina Fernandez de Kirchner has been promoting debt reduction as a national policy. It stands at about $164 billion, or 45% of GDP.
Even so, the president is thought to easily win a second four-year term at the Oct. 23 election, after which there could be policy changes including a shift towards debt rather than draining foreign reserves and widening the fiscal deficit at a time when the world financial crisis is starting to hit Argentina.
The trade surplus is narrowing on rising energy imports and falling prices of soybeans, its biggest export. Soybean prices have fallen by about 20% since August. The depreciation of Brazil’s currency is reducing the sale of Argentine goods to that country, its biggest trading partner.
Evelin Dorsch, an economist at Joaquin Ledesma & Asociados in Buenos Aires said these are signs the country is starting to suffer the impact of the global crisis.
Investors are wary. Argentine stocks plunged nearly 7% Monday, one of the largest drops of any stock index in the world, and capital flight rose to an estimated $3 billion a month in August compared with $1.5 billion a month at the start of the year.
«Argentina is still castigated as a frontier country,» Dorsch said. «Its assets are risky and speculative.»
Source: Market News International