Thursday, April 28, 2016

Gov’t to seek US$8B via new bonds

Finance Secretary Luis Caputo (left) and Deputy Minister Pedro Lacoste face the press yesterday.

Officials confirm move will take place ‘very soon’ with US$24B needed to cover deficit

Argentina will issue a fresh round of dollar-denominated debt notes worth an estimated US$8 billion in the next few days, top officials from the Finance Ministry confirmed yesterday.

The government will “very soon” issue a new Treasury note to capture dollars that are being stored “under the matress” in a process that will kick off today with a meeting with bankers, Finance Secretary Luis Caputo said yesterday. The government hopes to bring in US$5 billion through the issuance.

In addition, a further US$3 billion — at a later date — will be sold in bonds to larger funds willing to invest in the country, while a re-financing process will address an existing US$5 billion which has to be repaid this year.

The plan says that US$37 billion in total is needed this year in order to finance a combination of the government’s anticipated deficit, an estimated US$24.2 billion, and an additional US$12.4 billion in outstanding foreign debt payments.

The moves are part of the government’s “financial programme” for this calendar year, which Caputo and Deputy Minister Pedro Lacoste unveiled yesterday.

“We are in line to comply with our targets and we are very comfortable with our goals for the year, which amount to a fiscal deficit of 4.8 percent of the country’s gross domestic product (GDP),” Lacoste told members of the press. “We have congressional authorization to pay the holdout funds and the rest of the money we raised is in line with the 2016 budget.”

Sources for the money

According to the officials, the government already holds in excess of US$7 billion from the US$16.5-billion global bond sale last week, from which less than US$10 billion was used to pay off the holdouts. That leaves a US$30-billion deficit and debt payments remaining and needing to be covered. That money, officials said, will come from a multitude of sources.

Central Bank money printing will provide a third of it, 160 billion pesos in total, which equates currently to roughly US$11 billion.

The ANSES social security agency and “other government agencies” will chip in a further US$2.7 billion, while multilateral credit institutions and billateral loans are expected to raise US$3 billion.

An additional US$3 billion from bond sales, US$5 billion in re-financed bond maturities and another US$5 billion from the dollar-denominated LETES Treasury notes auction will plug the remaining gap, the officials said.

That means that money-printing will continue throughout this year, although at a much smaller pace than in 2015, when analysts believe it soared by up to 50 percent. That would help the government reduce inflationary pressure in the second half of the year, although doubts remain over whether that will be enough for the government to reach this year’s growth and inflation targets.

What will increase, instead, is foreign debt, as the cash payments that had been the norm during the Kirchnerite administration will no longer take place, with re-financing the preferred alternative.

President Mauricio Macri’s administration hopes that future debt roll-overs will be carried out at smaller interest rates than seen this year, in which the country offered higher rates than most of its neighbours in order to stoke interest.

No to IMF, yes to World Bank

Although the sources of incoming finances will be multiple and plentiful, the International Monetary Fund (IMF) will not be one of the sources, officials declared.

“The thought of asking for IMF loans is not even crossing our minds,” Lacoste told journalists yesterday at the Finance Ministry. “It is not our plan A, B, C, D or E.”

The deputy minister said that the government would accept the IMF’s regular audits, laid out in the Article IV of the fund’s charter, as the only intervention, which he said were likely to take place in September. Those audits were controversially suspended under Néstor Kirchner’s administration.

Loans from the World Bank, however, may be on the cards. The government is on the verge of securing a US$50-million dollar loan for small- and medium-sized companies, along with another US$600-million loan to cover the expansion of the Universal Child Benefit programme.

Overall, the World Bank may chip in with more than US$2 billion, focused on different development programmes.

Finance Minister Alfonso Prat-Gay will attend a meeting with World Bank officials today in Uruguay, with talks over these potential loans on the agenda.

Herald with DyN, Télam