The government is preparing a debt swap to reduce payments by $6.5 trillion

These are defining times for the economic team with several open fronts at the same time: falling reserves, high inflation, an agreement with the IMF and, of course, maturing peso debt. It’s a big question how the government will refinance the payments after the presidential election.

Sources from the financial market assure that the banks have agreed to renew the maturities. “The total strength of the system subjects is close to 15%”, convinced executive director of a financial institution. The public sector, including the Central Bank, holds more than 50% of paper denominated in pesos. The rest of the debt is held by institutional investors, such as insurance companies, mutual funds and depositors.

Banks do not have many alternatives, given the regulations that concern them and the restrictions regarding the destination of the funds in question. In guided negotiations, the entities ask that the debt maturities after the elections should not be concentrated in one or two months, but spread over more. The fundamental problem remains the same: with the existing exchange rate gap and the sure exchange rate equalization that will happen with the inauguration of a new government, debt in anything CER or linked dollar will have a very high financial cost, always considering the initial devaluation.

Now, the alternative being considered in the initial economic teams of the opposition is that, if they win the election, lThe unification of exchange was not implemented immediately on December 11 and instead progressed in the unfolding of exchange – commercial and financial dollars – to then continue unification over the months.

What happened in 2015 is a relevant precedent, but with the difference that the problem was the future sales of Alejandro Vanoli’s dollars. Then his successor Federico Sturzenegger decided to unify and burden the other party and sell the future currency, which ended in lawsuits against ROFEX.

Second quarter peso debt maturities are $6.5 trillion. If those from the third quarter are added, that’s an additional $6.1 trillion, most of which is indexed by the CER. “The idea we have is to do something big”a member of the economic team told El Cronista.

Lisandro Cleri, Sergio Massa’s right-hand man in finance, is active in the negotiations. What the economic team has done with the swaps so far is to launch them so that official banks, the Central Bank and some private owners can join them. Thus, only maturities with the private sector remained “clean” in the quarter. This has actually happened in the current quarter with offer renewals every two weeks. In the end, there is additional participation of the public sector, especially the BCRA, as it buys in the secondary market by issuing pesos, which is indirect financing of the treasury, thus bypassing the restrictions imposed by the IMF.

Apart from this ongoing operation, there are still doubts regarding the high amounts of debt held by other members of the private sector. It is not difficult to imagine what could happen: BCRA will continue to buy the debt with the issue, and will go from a financing problem to another with higher inflation. Between “reprofiling” and higher inflation (a rise in the dollar included), the government seems to be choosing higher inflation, even though the current levels are very high.

March promises to be a month of transcendental financial definitions.