Debt swap will offer only slight relief in Argentina

Significance

The domestic bond market has recently faced massive sell-offs amid increasing doubts over the sustainability of the Extended Fund Facility (EFF) signed with the IMF in March; the country risk premium over US Treasuries rose above 2,500 basis points yesterday. However, the IMF Board has approved the EFF’s first review, permitting a USD4bn disbursement.

Impacts

• Greater reliance on Central Bank transfers would boost inflation and devaluation expectations, raising the risk of a new financial crisis.
• Intra-government disputes will continue to hamper policy-making, reducing the chances of economic stabilisation under this administration.
• A reprofiling of debt cannot be ruled out if the macroeconomic environment worsens.
• The domestic bond market will remain under pressure at least until a new administration takes office in December 2023.