Argentina’s Central Bank faced a setback as its inaugural auction to settle importers’ debts with foreign suppliers failed to meet expectations. The central bank reported sales of just $68 million, a fraction of the announced maximum of $750 million in available notes, despite receiving 34 offers from Argentine importers. Importers, who initially purchased the bonds, have the option to resell most of the notes in the secondary market.
In response to the limited success, central bank officials stated their anticipation of increased participation as they continue to clarify subscription processes and required documentation.
This development marks a setback for Milei’s administration, following a successful currency devaluation, a record sale of peso debt, the accumulation of foreign reserves, and a rally in dollar bonds. Clearing the $30 billion debt owed by importers is a crucial step for Milei’s administration to eliminate complex financial controls inherited from the previous government. Additionally, the bonds aim to absorb peso liquidity, a move intended to address inflation, which is already above 160%.
Pedro Siaba Serrate, a senior economist with PP Inversiones in Buenos Aires, highlighted the significance of the instrument for Argentina’s exchange rate unification. He emphasized its role in normalizing importers’ debt and absorbing pesos from the economy, stating that for exchange rate unification to succeed, the process should improve.
The dollar-denominated securities, known as “Bopreal” (bonds for the reconstruction of a free Argentina), offer a 5% annual interest rate. They are designed to enhance predictability in payments related to importers’ commercial debt, according to the central bank.
During the previous government led by President Alberto Fernandez, strict capital controls and a chronic dollar shortage resulted in a backlog of billions in payments, creating financial strain for importers and hindering trade. Resolving importers’ debts is a prerequisite for the central bank to lift Fernandez’s financial controls fully and strengthen its balance sheet.
The issued notes are expected to provide an organized solution to address the crisis arising from importers’ commercial debts reaching unsustainable levels in the short term. Furthermore, the option to purchase the debt in local currency contributes to the central bank’s efforts to absorb excess pesos, thereby mitigating rising inflation.
The central bank plans to conduct two auctions per week until the end of January 2024.
