Argentina’s Return to International Credit Markets

By- Monica V

After 15 years of exile from the international credit markets, on 19th April, Argentina made a bond issue of $16.5bn, the largest ever for an emerging-market nation. Out of $16.5bn, $9.4 billion of the proceeds were used to pay off the holdout bondholders on 22nd April, and the remaining $7.1 billion has been earmarked for infrastructure development.

Moody’s Investors Service (“Moody’s”) has upgraded the rating of the sovereign bond issue to B3. The bonds were issued with maturities of 3 to 30 years, at yields ranging from 6.25 percent to 8 percent, much below average for similarly rated countries. This could be attributed to the positive outlook for Argentina, as a result of President Macri’s business friendly administration, which has pushed through several economic reforms, such as floating the peso to make exports more competitive, and cutting back subsidies of electricity, water, gas and transport.

Hence, there has been a robust demand for Argentina’s bonds, despite its economic woes, with inflation at 35%, unemployment at 12%, its largest trading partner, Brazil, being in deep recession, and its troubled history as a borrower, having defaulted 8 times since independence. The issue had a blockbuster reception, attracting orders of $69bn for its $16.5bn bond sale. Furthermore, the robust demand pushed down the yield allowing investors to make $597 million in profit in just two days. US investors took 66% of the sale, Europeans 25%, the Middle Easterners 5%, and Latin Americans 4%.

Argentina’s return to international credit markets will curtail reliance on central bank finances, thus, helping to reduce inflation and boost growth. Furthermore, the bonds may be included in the influential JPMorgan index of emerging market bonds. While, Macri has said that it could take time to reap the benefits, the Minister of the Economy, Alfonso, explains that this step will establish the base for more jobs, and the road to zero poverty in Argentina.

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