September 6, 2018 / 7:19 PM / a month ago

How Argentina plans to pay its debt

BUENOS AIRES (Reuters) - Argentina has slashed its 2019 fiscal deficit target after a slide in the peso currency and a looming recession sparked a crisis of confidence in the government’s ability to pay its international debts next year.

FILE PHOTO: A woman looks at her cellphone as she stands in front of a currency exchange board in Buenos Aires' financial district in Argentina September 5, 2018. REUTERS/Marcos Brindicci

A rising dollar and higher U.S. interest rates have added to the pressures on Latin America’s third-largest economy, and to stress in other fragile emerging market economies around the world.

But most economists say a repeat of Argentina’s historic debt default in 2001-2002 is unlikely, and contagion fears unjustified, in part because the government’s fiscal program uses conservative estimates of how much the country needs to service its debts.

The plan is “far more than needed to handle even the most pessimistic debt renewal scenarios,” independent Argentine economist Federico Thomson told Reuters, adding that Argentina could handle “any unpleasant surprises in the financial markets next year.”

President Mauricio Macri’s fiscal tightening faced resistance in the streets of Buenos Aires on Thursday, as thousands aligned with unions and leftist groups protested public utility hikes, last December’s pension reform, and the government’s inability to rein in inflation.

“If this austerity continues, families are not going to have square meals on their tables,” Veronica Mosto, a 36-year-old unemployed teacher said. “The government is supporting a situation that no family will be able to live with.”

Macri has asked the International Monetary Fund to accelerate planned disbursements under a $50 billion standby loan agreement reached in June. The following is a summary of the Argentina government’s debt financing and repayment plan.

WHAT ARE ARGENTINA’S FINANCING NEEDS THIS YEAR?

Argentina needs a total of $17 billion between September and December of this year to finance its primary deficits and bond payments. The government said it has a total of $20.9 billion in financing sources, including $7.8 billion in cash on hand, $5.8 billion from the IMF, $3.7 billion from a repurchase deal with banks and funds from other multilateral lenders.

Separately, the country also has $9 billion in Treasury notes held by private investors maturing this year. Given that it has $3.9 billion more in financing sources than it needs, it says it can afford to get away with rolling over only 60 percent of those maturities.

WHAT ARE ARGENTINA’S FINANCING NEEDS NEXT YEAR?

Next year, Argentina expects its financing needs excluding Treasury notes to be $28.3 billion if it manages to balance its budget. Under the current IMF program, it said it could meet these with $11.7 billion from the fund, $6.4 billion from the domestic market, and $2.8 billion from rolling over international debt. It also expects $4.6 billion from other institutions and $2.9 billion from a repurchase agreement with banks.

The country has $11.1 billion in Treasury notes maturing next year, including $9.1 billion in dollars and $2.1 billion in pesos.

WHAT BOND MATURITIES DOES ARGENTINA FACE?

Argentina still has $4.1 billion in debt it has to pay this year, including $3.4 billion in U.S. dollar-denominated bonds maturing in November and $700 million in peso-denominated bonds that will mature this month, the government said.

The government also expects a total $13.3 billion in bonds maturing in 2019, including $5.9 billion in dollar-denominated bonds. Around $2.8 billion of those dollar bonds will mature in April. Dollar-denominated debt would become more costly in peso terms if the currency continues to depreciate.

Argentina expects it will need to pay $7.4 billion in peso-denominated debt in 2019.

NEW SPENDING, REVENUE TARGETS

Argentina plans to minimize its financing needs by balancing its 2019 primary fiscal accounts - before adjusting for debt servicing payments - via a combination of spending cuts and revenue increases.

The government was previously targeting a fiscal deficit of 1.3 percent of gross domestic product next year.

About half of Argentina’s 2019 deficit reduction will come from government spending cuts, including fewer subsidies and public works projects, Macri said.

The government plans to increase revenue though a four peso per dollar tax on primary exports like wheat, corn, soybeans and some value added products like soy oil and soymeal, in addition to a three peso per dollar tax on other exports, Economy Minister Nicolas Dujovne said.

Despite plans to close the primary deficit next year, Argentina still expects an overall 2019 budget deficit of 3.2 percent of GDP.

Reporting by Scott Squires; Additional reporting by Gabriel Burin; Editing by Tom Brown

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