Bank of America predicts Argentina’s imminent return to global debt markets due to the mid-term elections and a potential IMF agreement. A favorable Congress could facilitate new bond issuances, while economic stabilizations under President Milei are set to positively affect GDP and inflation levels. Nevertheless, concerns about international reserves and rising global interest rates persist.
Bank of America (BofA) anticipates that Argentina could make a significant return to global debt markets due to the upcoming mid-term elections and a possible agreement with the International Monetary Fund (IMF) this October. A more favorable Congress might enable the country to issue new bonds or engage in liability management operations to refinance short-term debts. President Milei is set to renegotiate with the IMF, following a large loan borrowed in 2022.
BofA expresses confidence, stating, “We believe a staff-level agreement between Argentina and the IMF will be announced at any moment.” This agreement could increase IMF exposure to Argentina and enable multilateral financing from organizations such as the Inter-American Development Bank (IADB) and the World Bank, potentially amounting to US$2 billion annually. Such arrangements could decrease the government’s foreign exchange debt maturities significantly over the next three years.
The report identifies that Argentina’s required Eurobond repayments are currently drawn from international reserves, highlighting the necessity of multilateral financing. A successful reentry into global markets is expected to enhance Argentina’s credibility in managing its external debt obligations, thereby reducing perceived credit risks for investors. BofA estimates that yields for ARGENT ’35 bonds could decrease from 11.4% to low-9% following positive election outcomes.
Despite this optimism, BofA underscored concerns regarding Argentina’s low international reserves and potential current account deficits arising from currency appreciation. Increased confidence in the Argentinian economy is also bolstered by an anticipated GDP growth of 5% by 2025, aided by President Milei’s economic stabilization initiatives, which have contributed to a rapid recovery in GDP and a decline in inflation to 2.2% in January, the lowest since 2020.
Furthermore, President Milei’s administration is pursuing a relaxed free-market strategy, including the elimination of export bans and the reduction of tariffs, which may encourage foreign direct investment. However, BofA cautions that rising global interest rates may present challenges for Argentina’s return to global markets, as well as external factors such as potential US economic downturns affecting commodity prices.
In summary, the Bank of America forecasts a promising return for Argentina to the global debt markets, hinging on upcoming political and economic developments, particularly with the IMF. A successful negotiation could revitalize investor confidence and reduce credit risks. However, challenges remain, particularly regarding international reserve levels and external market fluctuations, necessitating careful monitoring going forward.
Original Source: www.fi-desk.com
