Argentina tempted wary investors with a dollar-linked bond on Tuesday, issuing around $1.8 billion of the instrument it hopes will help bolster the peso amid a domestic currency crisis, stringent capital controls and tumbling foreign reserves.
The bond is part of a series of measures by the government and the central bank to revive confidence in the peso and encourage local savings. Argentina restructured over $100 billion in foreign-currency debt in recent months.
The restructurings, including $65 billion in foreign-law debt, helped pull the grains-producing nation out of default, but its access to global markets is very restricted. A mission from the International Monetary Fund arrived in the country on Tuesday to start talks for a new deal.
“The government has to show a change of direction quickly,” said Federico Furiase, director of consultancy Eco Go, adding Argentina had “very little gasoline in terms of reserves.”
“The government is trying to buy some time but these are all patches that are unfortunately arriving late.”Argentina has temporarily cut export taxes on industrial, mining and agricultural products to boost sales and international reserves.
The IMF team started meetings in Buenos Aires as the government seeks a new program to replace a failed $57 billion facility struck in 2018. An IMF official described the visit as being in “listening mode.”
“We have been very clear in this crisis that it is important to provide support to firms and more importantly, to workers,” IMF Managing Director Kristalina Georgieva told CNN Spanish in comments later shared by the government.
“So we are not coming with the idea of, ‘oh, well, let’s see how we can further tighten up spending in these times’.”
Bank of America said in a report the new bond was aimed at stimulating peso savings by giving holders some protection against fluctuations in the currency, but it was no miracle cure.
“Dollar-linked securities are imperfect substitutes of USD assets,” it said.
Argentina’s peso was 0.08% weaker at around 77 per dollar. In the black market it fell more steeply to 152 per dollar, widening the gap with the official rate to 97.2%, the highest in years. Over-the-counter bonds dipped an average 1%.
The success of the dollar-linked bond will help gauge confidence in the policies of President Alberto Fernández as his administration looks to take pressure off the peso. The issue, with an annual interest rate of just 0.1%, was well above the initial plans for around $500 million.
The Economy Ministry said the debt, maturing on Nov. 30, 2021, helped expand the government’s financing options, cover short-term repayment needs, soak up excess pesos in the market and widen the local debt market.
Argentina is headed for an economic contraction of about 12% this year, which would be the third straight year of recession.