Debt Moves to Move Forward?

The agreement with the International Monetary Fund (IMF) is at the center of the stage, and its fate is critical. With a bankrupt Central Bank, rebuilding its equity is essential for an orderly exit from exchange controls. The real economy also needs this, though not immediately, as weekly data shows a country in full growth.

Dear ArgenGrowther,

Every week, we present the key data from the past week and delve into various aspects of our beloved Argentina to assess their impact, understand what's happening, and make better decisions. The newsletter is divided into four main sections:

1. Brief Reflection

2. Data

3. Understanding What's Happening in Detail

4. Actionable Items

Brief Reflection: Argentina’s Economic Paradox

Finally, the news is just that—news. It is neither good nor bad for now, as we lack the fine print of the IMF agreement. However, the sealed deal seems to have pleased the market, which bought into Argentina. All assets had a good week, and we’ll continue to see full volatility in sync with the IMF.

Revenue increasing by 12% in real annual terms signals a strong fiscal surplus. If the government continues with spending cuts, this could lead to potential tax reductions. Lowering Argentina’s cost structure is essential—prices, competitiveness, and the country itself demand it. The government’s proposed path continues full steam ahead, and what we saw in 2024 will intensify this year.

Global volatility is higher than last year, and the world is closely watching developments in the war in Europe. How will markets respond to interest rate moves? There’s a lot of action in Japan and Germany, while the focus remains on the United States, which is navigating the turbulence of Trump’s tariff policies.

The financial market keeps an eye on news and political developments but, for now, isn’t looking too closely at the real economy, which continues full speed ahead, reaffirming the country’s new direction. Will Argentina become a business-friendly hub and show the world it has changed? Are we getting closer? Today, we once again string together a yes.

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Is Argentina's Economic Shift Positive or Negative?

Spoiler alert: Positive. A great week for Argentine assets after the February beating. Fresh air is welcome, and the drop in the risk of falling in the country is even more so. On top of that, the revenue and economic activity in the Peso are soaring. The peso recovered some value, and the Central Bank continued buying foreign currency.

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Dollar and the Strong Peso

The week after the IMF agreement, everyone’s lips were on the Strong Peso, which recovered after a complicated February. However, despite everything, the government clarifies regarding certain conditions of the agreement (there would be no devaluation jump), the market still doesn’t fully trust that the deal will go through without devaluation, and coverage in Rofex increases.

In this short first week of March, the Central Bank had two days of very strong purchases and one of very strong sales, resulting in a positive balance for the first week of March of USD 190M.

At the same time, we see the world playing a bit in favor and easing the headwinds that had been present in previous months. The DXY, showing a weaker dollar, favors commodities and emerging markets, which implies less pressure on the Strong Peso, given that regional currencies have also appreciated in recent weeks.

Rebuilding Public Accounts
At a time when everyone is talking about debt, we’ll present the same information but with different data and add a brief analysis of the agreement with the IMF.

On one hand, let’s first shed some light on the State’s debt. When adding Treasury + Central Bank, we see that under Milei’s government, total gross debt has been reduced. This makes sense since the government mainly used its fiscal surplus for debt repayment.

What will the government do with the money received from the IMF? Pay itself. What? Yes, this is Argentina, and anything is possible. The Treasury will pay off a debt it owes to the Central Bank. What’s the point of this? Let’s start with the simple one: rebuilding the BCRA’s balance sheet.

Years ago, under another administration, the Central Bank gave money to the Treasury (taken from reserves or through issuance) to pay off the debt the Treasury owed its creditors, including the IMF. As a compensation mechanism, the Treasury gave the Central Bank Non-Transferable Notes (LI), which, let’s call it, an IOU. That IOU remained on the BCRA’s Balance Sheet as a credit where the debtor is the Treasury. Uncollectible debt if there ever was. Until now. Why until now? Part of the money the Treasury receives from the IMF will be used to pay that debt. What seemed like an uncollectible debt for the BCRA will be collected, which will improve the BCRA’s balance sheet.

Indisputably, improving the BCRA’s balance sheet is positive, but what’s the point if it is intra-State debt? On the one hand, it strengthens reserves, and on the other, it shows better numbers. Since there was a discrepancy between the valuations of the Non-Transferable Notes, we could say that debt would be reduced.

Let’s start with very simple explanatory numbers and then continue. The LI represents USD 69.344 billion for the Treasury, and the BCRA values those same LI at USD 22.931 billion. If the Treasury bought the LI from the BCRA for USD 22.931 billion, it would reduce its debt by USD 69.344 billion. The magic of accounting plays in favor of the narrative.

This is Argentina, and intra-public Sector debt is a mountain of money. Sometimes, it’s difficult to say how much real debt there is with so many little papers crossed from one side to the other. Ultimately, we used reserves to pay the IMat one point F and gave the Central Bank an IOU in return. Now, we have a new agreement with the IMF, and we are giving money to the BCRA so that it can return the IOU. Argentina is unique.

Logically, it’s not the same as owing the IMF as it is to owe the Central Bank. The change of creditor modifies the equation, and logically, one would think that enforceable debt matters, and that one does increase. Why could the agreement benefit the country despite this increase in enforceable debt? Because if the money is used to rebuild public accounts and the BCRA’s equity, eventually this will result in a reduction of country risk, which will allow the country to borrow at lower rates, push payments forward, and enable the private sector to finance itself more cheaply, making projects that were previously unprofitable now viable. We could go on for a long time.

In summary, it’s wild to think that taking on debt does not increase gross debt, but accounting and markets can do anything.

As the President explained in one of his opinion pieces, buying debt below par with fresh funds can reduce gross debt, and lowering interest rates can also do so. Let’s go to an example case (approximate numbers) with the flagship bonds (we do not use the LI because that would be too crude), Bonares and Global 2030, which trade at 65 cents on the dollar, representing a 75% parity and a cost today (debt interest) of 12%. If I take on new debt at 5% to be paid in 5 years, and with that money, I repurchase the Bonares and Globals that trade in the market, my obligations (that is, total debt) are reduced, because what previously represented 112 (100 in capital + 12 in interest) to be paid (we continue being crude), now I pay 105 (100 in capital + 5 in interest). That 7-point difference is a debt reduction due to improved financing conditions.

Please take it to your finances. If you had taken out a loan with the bank at 150% peso rates and now they offer you a new one at 70%, you would take the latest credit, pay the old one, and lower your debt. It’s not science fiction; it’s mathematics.

The Minister of Economy, Luis Caputo, took it upon himself to further explain why the IMF agreement is so important. First, he described the importance of anchors and then the virtuous circle that this agreement would represent:

“Fiscal Anchor + Monetary Anchor + BCRA Capitalization = Greater Peso Strengthening (equilibrium with lower inflation). The agreement with the IMF, by accelerating the capitalization of the BCRA in a macro that already has the fiscal and monetary anchor consolidated, will result in a greater downward trend in country risk (which we are already beginning to see), which in turn will allow refinancing in the market at reasonable rates for foreign currency capital maturities (which during 2024-2025 were paid with the fiscal surplus, net peso placements in the local market, and net purchases by the BCRA in the MULC). This dynamic reinforces the Peso’s scarcity about the BCRA’s reserves, consolidating the endogenous Peso lengthening the Peso and the sustained decline in inflation.”

Stretching out payment deadlines will give Argentina a less challenging horizon to meet its obligations. If the BCRA has higher reserves, what markets will discount is that the country is in a better position to meet its obligations; thus, the country's risk will drop. Lower country risk has multiple benefits, including the possibility of refinancing debt more cheaply, or bringing it to the business sphere, discounting future cash flows at a lower rate (lower WACC) will make many projects that today are unprofitable become profitable, in addition to many other additional factors we have been mentioning.

National Public Sector
A great revenue figure and the fiscal anchor continues to set the course. Without the PAIS tax, national revenue would not slow down and would have grown 12% yearly in February. If we exclude those taxes related to foreign trade, the real year-on-year variation would be +21.6%. Growth drives revenue, and with the spending cuts in place, the fiscal surplus seems to be more than anchored. Will another tax cut be coming soon? If this continues, we’ll talk about Laffer for a long time—despite the tax cuts, the government is collecting more.

Since the PAIS tax is gone, the only tax that fell was Personal Assets, which would have declined 47% real year-on-year. On the other hand, Liquid Fuels revenue surged 302.6% year-on-year, leading the way, followed by income tax at +43.5% and social security at +31.3%. The temporary reduction of export duty rates caused export duties (DEX) to increase 15.5% year-on-year.

On the other hand, the national public administration workforce, including state-owned companies and enterprises, was 299,576 people in January 2025, and there are already 34,000 fewer people than in the State.

Cen compared to last yeartral Bank of the Republic of Argentina - BCRA
Let’s start with words from President Javier Milei, written this Saturday in the newspaper La Nación:

"However, one more step is still needed, and this is where the new agreement with the IMF comes into play. Thus, the money received from the IMF will be used by the Treasury to cancel part of its debt with the Central Bank, so that gross debt does not increase, and if the funds are used to buy back bonds trading below par, debt will decrease. Therefore, the agreement with the IMF aims to restore the BCRA's equity, ensuring that inflation becomes only a distant memory of the past.

At the same time, one could argue that while gross debt does not increase, there is a change in the creditor. However, this argument implies accepting that politicians would want to continue defrauding Argentines through inflation, which is appalling for its negative impact on growth and because it hits the most vulnerable segments of the population. It could also be argued that we are swapping explicit taxes for an unlegislated implicit tax, but this is false because gross debt does not increase. And if more fiscal results are needed, we will achieve them by cutting spending. In short, nothing will stop us in our mission to eradicate inflation and make Argentina great again.”

What we mentioned in the Public Accounts Recomposition section is fundamental for the country's sustained growth path—a Central Bank that is not bankrupt. We’re not asking for much. With reserves still negative and monetary issuance halted, an agreement with the IMF would greatly boost the recovery of the BCRA’s balance sheet. This could mean a positive shock for the market and the real economy.

Economic Activity
One less cost for businesses. With the enactment of Decree 149/2025, published this Wednesday in the Boletín Oficial, companies can no longer be forced to contribute money to business chambers. The measure, which eliminates the contribution to the Argentine Institute for Trade Training, represents a relief of more than $70 billion per year for the commercial sector. “This contribution only increases labor costs because it offers no benefit to either the worker or the employer if they decide not to participate in training,” business owners argue.

On another note, importing electric and hybrid vehicles without tariffs has been regulated. Up to 50,000 units per year will be allocated for five years to promote the presence of these new technologies in the local market at lower prices.

January’s numbers are coming in, and high year-over-year comparisons begin, as the base being measured against is very low. It will be important to analyze month-over-month variations as well. For example, in industry, January saw a +7.1% year-over-year increase, but a -1.3% drop compared to December. In construction, one of the hardest-hit sectors last year, the year-over-year figure came in at -1.3%, while the monthly drop was -1%. Retail sales? Through the roof, +24% year-over-year in February.

For long-term impact, this week, the government signed an agreement on critical minerals with Canada’s Ministry of Natural Resources to boost activity and attract investment to the country.

The foreign exchange balance in the petroleum sector is reaching record highs, a healthy trend will likely continue in the coming months/years.

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Actionables

In the waiting room. The details of the IMF agreement will drive market movements in the coming weeks, such as how much rollover, fresh money, deadlines, rates, etc. In the meantime, country risk compressed sharply, and both bonds and the Merval had another positive week. February is gone, and so is the red.

For peso investors, after the dollar's rise in February and the increase in short-term rates in recent weeks, carrying trade at these levels may be more than interesting for savvy investors who believe the government can implement its economic program. We’re in Argentina, where currency risk is always present, so conservative investors should stay away. The possibility of continuing to secure positive real interest rates with CER bonds remains very much alive, and we can now obtain annual real returns of over 8%.

For sovereign debt, we still believe yields above 10% in dollars are worth taking for investors with aggressive profiles and the patience to wait for the public accounts to improve and for the PAIS tax to be reduced. This week, in particular, showed the opposite of what had been happening: a bad week for emerging market bonds, but a good one for Argentina.

We repeat ourselves: we’re still watching the developments with the Fund, and whatever happens there could be a catalyst for positive news for the country and Argentine assets. We remain invested because we have strong hearts. Our beloved country is Argentina, and it is not for the faint-hearted (conservative investors should stay away).

If you’ve enjoyed this analysis, please share your thoughts, comments, and feedback. Let’s keep the conversation about Argentina’s transformation alive.

Nau Bernués
Founder, ArgenGrowth

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