Mid-term elections and an IMF agreement in Argentina this October could prompt the country’s return to global debt markets, Bank of America has predicted.
A more market-friendly Congress could produce a new issue or liability management operation to refinance short-term amortisations, BofA suggested. Additionally, President Milei is due to renegotiate a deal with the International Monetary Fund (IMF) later this year after US$44 billion was borrowed on a 30-month basis in 2022.
“We believe a staff-level agreement between Argentina and the IMF will be announced at any moment,” BofA affirmed.
This would slightly increase IMF exposure to Argentina, and would facilitate multilateral financing from bodies such as the Inter-American Development Bank (IADB), Latin American development bank CAF and the World Bank of up to US$2 billion a year. If carried out, this could halve FX debt maturities for the government to 1.7% of GDP annually over the next three years.
“This debt service is quite manageable in a scenario of continuation of market-friendly policies (our base case) amid a primary fiscal surplus and capital inflows, despite low initial level of FX reserves,” the BofA report stated.
Currently, Argentina’s outstanding Eurobond repayments must be paid from international reserves and the country is reliant on multilateral financing. Reentering global markets would in turn improve Argentina’s reputation as having the capacity to pay on external debt maturities, the bank added.
This reduces investor exposure to credit, encouraging participation in the market. BofA predicts a near-term high-9% yield target for ARGENT ‘35s, which are currently at 11.4%. With positive mid-term election results, this figure could fall to the low-9% space, it added.
While BofA is optimistic here, it noted that low international reserves in the face of Argentina’s debt payment obligations are also a concern, the bank said, adding that further currency appreciation could cause a current account deficit.
Other factors boosting confidence in the Argentinian market include GDP growth, which BofA sets at 5% in 2025. Milei has also introduced economic stabilisation plans last year, already resulting in a stronger GDP recovery than expected in H2 2024.
The initiative also brought inflation down to 2.2% in January, the lowest it has been since 2020 – and a sharp decline from December 2023’s 25%. This will encourage USD inflows, BofA said, although it noted that there is still space to grow in USD deposits.
While the US is in the spotlight for deregulation efforts, Argentina’s President Milei is pushing for a more relaxed free-market approach south of the border. This includes removing export bans, reducing import taxes and tariffs and allowing companies to set their own prices.
Although BofA is positive on Argentina, it warned that the potential of higher global interest rates could limit the country’s ability to return to global debt markets. Other factors that could hinder growth include shocks in other markets, such as a US recession, and the knock-on effect on exported commodity prices.
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