BofA Foresees Argentina’s Imminent Return to Global Debt Markets

Bank of America anticipates Argentina’s return to global debt markets, supported by mid-term elections and an IMF agreement, projecting manageable debt repayments and improved market confidence despite existing challenges such as low international reserves and potential global interest rate increases.

Bank of America (BofA) has forecasted Argentina’s potential return to global debt markets, driven by upcoming mid-term elections and an agreement with the International Monetary Fund (IMF) this October. A Congress with a more market-friendly stance could pave the way for a new debt issuance or management strategy to refinance short-term debts, according to BofA. Moreover, President Milei will be negotiating a new IMF agreement later this year following a US$44 billion borrowing undertaken on a 30-month term in 2022.

BofA anticipates a forthcoming staff-level agreement between Argentina and the IMF, which would increase Argentina’s exposure to the IMF and facilitate additional multilateral financing from organizations like the Inter-American Development Bank (IADB) and the World Bank, amounting to up to US$2 billion yearly. This arrangement could substantially reduce the country’s foreign exchange (FX) debt repayments to 1.7% of GDP per annum over the next three years, making it a manageable obligation as long as market-friendly fiscal policies are sustained and supported by capital inflows.

Currently, Argentina is required to settle Eurobond repayments through international reserves, heavily relying on multilateral assistance. A return to the global markets would enhance Argentina’s credibility in fulfilling external debt obligations, alleviating investor concerns and fostering increased market participation. BofA projects that a positive outcome from the mid-term elections could push the yield targets for ARGENT ‘35s from the current 11.4% down to the low-9% range.

Despite the optimistic outlook, BofA warns of challenges posed by Argentina’s limited international reserves in light of looming debt responsibilities, advising that further currency appreciation may lead to a current account deficit. Factors supporting confidence in the Argentinian economy include anticipated GDP growth of 5% in 2025 and economic stabilization measures introduced by President Milei, resulting in a stronger-than-expected GDP recovery in the latter half of 2024.

Additionally, inflation has decreased to 2.2% in January 2024, marking a significant drop from the previous December’s 25% and facilitating USD inflows. President Milei advocates a more liberalized market environment, involving the removal of export restrictions and reduction of import tariffs, potentially stimulating growth.

Nevertheless, BofA expresses caution, indicating that rising global interest rates may pose obstacles to Argentina’s endeavors to re-enter global debt markets. Other adverse factors include potential shocks from external markets, such as a U.S. recession, which could negatively impact the prices of exported commodities.

In summary, Bank of America projects that Argentina may soon re-enter global debt markets due to forthcoming political changes and an IMF agreement. While there are significant positive indicators such as GDP growth and decreasing inflation, challenges related to international reserves and global interest rates remain. Attention will need to be paid to external market conditions that could impact Argentina’s economic recovery and financial stability.

Original Source: www.fi-desk.com