Last week, Argentina’s congress approved a restructuring deal for $45 billion in debt owed to the International Monetary Fund (IMF). Following two years of negotiations, President Alberto Fernández urged his parliament to approve the deal prior to a payment of $2.8 billion due on March 22. The agreement ultimately removes the threat of an imminent default on $19 billion of repayments due this year. The terms of the agreement require Argentina to gradually reduce the budget deficit over the next three years while curbing central bank money printing in exchange for a four-and-a-half-year grace period on IMF payments.

The new loan seeks to refinance payments owed to the IMF from its record bailout to the nation in 2018. The intervention ultimately failed to stabilize the economy at the onset of a recession. The restructuring deal will allow Argentina’s government to pursue a pro-growth strategy, providing an opportunity to reduce poverty and gradually decrease inflation caused by the global economic environment.

The uncertainty surrounding the negotiations, paired with the continued devaluation of the peso, have reduced the Blue Chip Swap (BCS) spread by 30% since the beginning of February, when further debt talks were announced.

What do we think will happen?

While capital controls continue to be a prominent structure within Argentina, we expect the value of pesos/USD received through the Blue Chip Swap mechanism will continue to depreciate. For clients with repatriation needs, we recommend proceeding with the transactions to maximize the value on exchange as we expect the spread on the Blue Chip Swap to reach an annual low in the upcoming months.

We will continue to monitor the impact of the debt negotiations on the Blue Chip Swap and how it will affect your Argentine peso exposure.

For more information on how to manage your Argentine peso exposure, call us on +1.604.643.0101.