In the midst of the 1,000 M reserve fall, the Government comes out to pay debt

Tomorrow he has to pay the interest on the Par bond, both local and foreign law, for around $ 250 million. But the strategy to use reserves is exhausted

This beginning week will be key for the international reserves of the central bank that, as a consequence of the crisis, they are falling. It happens that the National Treasury will pay this Tuesday about US $ 120 million for interest on Par bonds (local and foreign law).

And the Bookings held by the BCRA, US $ 1,053 million have fallen so far this month, going from US $ 44,788 million to the current US $ 43,735 million. Be that as it may, for now, the debt will be paid: the government published the “payment notice” on March 27 on the corresponding platforms so that investors wait for the coupons to be accredited.

But forward, as the minister already warned Martín Guzmán, the payment of the debt in dollars will be under discussion.

The official during his presentation a few weeks ago slipped: “The country has continued paying interest in foreign currency with reserves of central bank until the formal start of the restructuring process with an exchange offer. This shows Argentina’s commitment to have a path towards sustainable debt and its preference to do so in an orderly manner. But we have already reached a limit of the use of reserves to pay debt in foreign currency. We can’t keep doing it

In February, the interventions in the exchange market by the Central were negative. He had to sell around u $ s260 million while so far in March (official information until 20) he has 150 million as a selling balance.

In other words, not only do they have to sell reserves to pay the debt, but they also loose (few) dollars to supply the foreign exchange market that operates with an ultra stocks. Of course, it does so by raising the price to, at least, generate a rise in the exchange rate in the midst of the avalanche of devaluations that is happening in the world (and that the peso knows little and nothing about the mega controls).

The Government knows that if a quick debt settlement does not come, it will not be able to continue “raffling” dollars in the market that has less and less. In fact, Guzmán’s strategy with reserves is that of “hoarding.”

In his power point presented to creditors, he also warned that there will be no relaxation of capital controls (stocks) until the Central Bank reserves reach $ 65 billion..

That is the number “target” that Guzmán has for the coming years (until 2024), something that would give the country an exchange cushion and the ability to repay the debt. He believes that he can accumulate dollars to have $ 77 billion in ten years.

In the short term, stopping paying the debt is key so that the reserves do not continue to fall (which in the era of the stocks is almost the only way they fall). That argument was also endorsed by the International Monetary Fund (IMF) that in its debt sustainability analysis said that “there is no room for dollar payments to bondholders in all of 2020-2024”.

But, as the consultant 1816 warned, the Fund reaches that conclusion assuming something that will not happen: that Argentina will pay International Organizations US $ 66,000 million in the same period.

Beyond punctual payment this week, forward there are maturities that will take much more and will surely no longer be paid. In the market, the date to be monitored is May 07, the day on which the principal and interest of the AY24 for an approximate amount of u $ s3,000 million.

“The minister’s statements about not using international reserves for debt maturities added to the current crisis that is becoming increasingly acute makes the re-profiling of the aforementioned payment of AY24 seem to be the most likely option,” says the consultancy Delphos Investment.

Personal Investment Portfolio (PPI) noted that the restructuring of debt enters a key week (or takes shape, or is postponed). “While the government is practically 100% focused on advancing the coronavirus in the country, and economic measures for the sectors most affected by the decreed isolation (which could be extended), Guzman would be talking to investors,” they say.

PPI notes that the schedule announced earlier this year is broken, but an unofficial one pointed to a restructuring proposal next week.

The intention clearly is to avoid a default, to which bond prices point. However, the pressure if there is no aid (from the IMF as mentioned), is put by the maturity schedule that in April begins to accelerate with payments in dollars of a little more than US $ 775 million, with the payment of interest from the AA26 as the most relevant (31%); and it is much heavier in May “, they detail.

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