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August 19, 2017
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Argentina becomes largest debtor among emerging markets

UMET University’s Observatory of Foreign Debt presenting  report on debt.
UMET University’s Observatory of Foreign Debt presenting report on debt.
UMET University’s Observatory of Foreign Debt presenting report on debt.

President Mauricio Macri’s administration has issued US$46 billion since 2015, 263 percent higher than the second-biggest debtor, Saudi Arabia

No emerging market has issued more debt than Argentina since 2015, with over US$46 billion in bonds and treasury notes issued in the past year-and-a-half since President Mauricio Macri’s administration took office. The total is 263 percent higher than the second-biggest debtor, Saudi Arabia, which issued US$17.5 billion of debt over the same period, according to UMET University’s Observatory of Foreign Debt.

If peso-issued debt by provinces and companies is added to this sum, the amount increases to US$81.9 billion.

“Argentina this year became the emerging market that issued the most amount of bonds, in terms of volume in the last 20 years ... raising the debt to GDP ratio from 43.5 to 54.8 percent in only one year,” said the Observatory director Arnaldo Bocco. And a recent executive decree published in the Official Gazette on May 12 could worsen the debt load. This is because Decree 334/2017 permits Finance Minister Luis Caputo to issue US$20 billion in sovereign bonds under US and British law.

In the midst of speculation over whether the increasing burden in the country’s finances is manageable, the Finance Minister tried to allay fears investors may have in a speech given to the Argentine Institute of Financial Executives last Wednesday. While he recognised that the sustainability of continuing to take on more debt is an issue, he assured that the situation would gradually improve.

“Once we achieve the goal of balancing our budget, our GDP-debt ratio will be the lowest in the region,” said Caputo at the Institute on Wednesday.

The minister explained that 75 percent of the debt they had issued was to cancel upcoming debt payments, allowing them to replace bonds with eight percent coupon rates at 4.5 percent — costing an estimated US$1 billion in annual interest payments.

Debt makeup

In 2016, the government issued US$22.4 billion in debt, but in the first five months of 2017 it has already surpassed that sum by issuing US$23.6 billion. Meanwhile government securities issued last year were 22 billion pesos and 11 billion pesos in the first five months of the year — totalling 33 billion pesos.

In terms of treasury bills based on US dollars, US$300 million were sold last year and US$12.6 million so far this year. In addition to the total US$46 billion in bills and securities sold, US$17.3 billion worth of peso-denominated debt was also issued by the national government, US$10.4 billion by different provincial governments (guaranteed by the federal government) and US$8.4 billion worth by private companies. When adding this all together, it totals US$82 billion.

So far in 2017, provinces have issued US$3.4-billion worth of debt under US and British law and a total of US$10.4 billion since the beginning of President Mauricio Macri’s administration. The list of new debtors include Neuquén, Mendoza, Chubut, Córdoba, Salta, Chaco, Santa Fe, Entre Ríos, Buenos Aires, Tierra del Fuego, La Rioja and Buenos Aires City. With regard to the business sector, 13 companies issued US$2.7 billion worth of debt in the first five months this year. The most recent businesses to issue debt on the local market are Los Grobo Agropecuaria, Capex and Electronic System.

The UMET report warns that the amount of debt the country is taking on is unsustainable, especially if the economy continues to stagnate, in combination with the reduction in the country’s tax base due to the cuts in agriculture and mining export duties, and income tax.

“The Let’s Change economic model in terms of foreign debt is, if this model continues, not sustainable ... Debt is now the back of this economic model and it’s not clear whether the policy-makers understand the true dimension of this problem and its effects,” said Nicolás Trotta, the dean of UMET.

—Herald Staff

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