Argentina Rolls Over Debt, Giving Government Shot of Confidence

Argentina Rolls Over Debt, Giving Government Shot of Confidence

15/05/18 - 21:09 - Argentina’s central bank on Tuesday rolled over billions of dollar in short-term debt, providing President Mauricio Macri’s government with a shot of confidence after weeks of economic volatility.

In a statement, the central bank said it refinanced all of the $26 billion of peso-denominated securities, known as Lebacs, that are set to expire this week, while auctioning off new debt worth another $200 million. The central bank said the interest rates ranged from 40% for the 36-day Lebac to 38% for the 154-day note.

The auction on Tuesday was closely watched by investors as a sign of market sentiment towards Argentina after weeks of struggling to stem a sharp depreciation of its peso currency. A failure to roll over the debt would have put more pressure on the peso, economists say.

The dollar was down 3.7% against the peso on Tuesday, which rebounded after reaching an all-time low against the greenback on Monday. The dollar is up 29% against the peso year-to-date.

“It was a successful auction,” said Goldman Sachs economist Alberto Ramos. “But of course they had to commit to pay a very high distressed level of interest rates…this is not a sustainable path.”

Argentina, with a long history of economic turbulence, has been on the verge on another crisis as the country’s stocks, currency and bonds have dived since the end of April amid investor concern about the government’s speed in cutting the deficit and reducing double-digit inflation.

Statistics agency Indec said Tuesday that consumer prices rose 2.7% in April, bringing the annual inflation rate to 26% amid higher gas and power costs.

The turmoil comes at the same time as rising U.S. interest rates, which caused an outflow of money from emerging markets.

Argentina’s central bank tried to stem the peso’s depreciation by intervening in the spot market to sell billions of dollars in reserves in recent weeks, while unexpectedly hiking the interest rate to 40%.

The government also announced it would seek financial support from the International Monetary Fund and reduce its target for its fiscal deficit this year to 2.7% of GDP from 3.2%.

On Tuesday, Mr. Macri said Argentina was far from entering another crisis. “We are advancing with firm steps towards this Argentina that we want to live in,” he said. “I want you to feel calm that this is the right path.”

—Julie Wernau contributed to this article es un sitio web oficial del Gobierno Argentino