Economy Minister Luis Caputo has indicated that Argentina will seek to avoid issuing debt under New York law in January, aiming to reduce the nation’s “dependence on US Market. We will try to ensure that there isn’t” any new debt under New York law next month, Caputo stated, responding to an inquiry from a user. “The objective is to systematically reduce the nation’s reliance on Wall Street,” he stated, noting that the administration anticipates the U.S. financial markets will evolve into merely a “marginal financing source” for Argentina. “Will we be able to achieve this?” We hold this view. Caputo’s remark followed a bond auction conducted two weeks prior, which exhibited a higher yield alongside demand that was more subdued than anticipated.
The country has issued a new four-year bond amounting to US$1 billion, which features a coupon rate of 6.5%. The yield at the cut-off price stood at 9.26% annually. Argentina’s country risk has decreased under Milei’s administration; however, the current value of 575 basis points, as indicated by JP Morgan’s Emerging Markets Bond Index, remains insufficient for the country to re-enter the international voluntary debt market. In an interview on December 16, Caputo stated that Argentina currently carries market debt equivalent to 25 points of its Gross Domestic Product. At market prices, debt in Wall Street constitutes less than “four or five points,” he stated.
“Argentina needs to adopt a more conventional approach in this regard. “No other country depends so much on Wall Street,” he continued. “A small window opens, and the provinces and companies rush in.” Caputo stated that the administration’s proposed labor reform encompasses a “labor assistance fund” designed to finance severance packages, which will additionally support a new capital market valued at US$4 billion annually. “The optimal scenario for the nation is for businesses and individuals to begin obtaining credit from Argentines themselves,” he stated. “It ought to be rational and beneficial for all parties involved.”
Caputo stated that Argentines save in U.S. dollar bills as part of the “economic and psychological cost” associated with the Kirchnerist administrations (2003-2015, 2019-2023). Nonetheless, this is a tradition that has its origins prior to the Kirchner presidencies. Most analysts ascribe it to the economic management of the military dictatorship from 1976 to 1983. The trend of safeguarding savings through conversion into dollars saw significant growth starting in 1975, driven by a hyperinflation crisis that stemmed from the military dictatorship’s ongoing devaluations. A paper published by the Central Bank of Argentina indicates that the dollarization of investment portfolios increased from 34% during the period of 1964 to 1974 to 65% from 1975 to 1988.