Argentina will pay $4.3 billion to bondholders, meeting the crucial deadline

Argentina’s government has paid $4.3 billion to holders of its government bonds, an Economy Ministry source said on Friday. This met the January 9 deadline in a move aimed at restoring investor confidence and regaining access to international capital markets. The payment, which covered both principal and interest, was made by the central bank despite some concerns about the country’s depleted foreign reserves.

Still, investors had largely expected Argentina to meet the obligation, and bonds traded quietly this week in a sign of market confidence.

President Javier Milei’s government is keen to send a strong signal to the markets as repayments to bondholders and multilateral lenders rise sharply this year. The next significant payment, of about $850 million to the International Monetary Fund, will be made in February.

To help cover debt, authorities this week signed a one-year repurchase agreement (repo) with six international banks at an interest rate of 7.4%. The central bank said it was using dollar-denominated local bonds due 2035 and 2038 (Bonares) as collateral. Analysts say proceeds from the privatization of four hydroelectric power stations in December also contributed.

Argentina, a country with a long history of defaults that last missed payments in 2020, is facing pressure from markets and the IMF to rebuild reserves as a condition for regaining market access. While country risk remains high, it has fallen sharply to around 560 basis points. Investors are now watching closely to see whether January’s commitments will further depress risk premia, potentially opening the door for Argentina’s return to international markets.

“Now the focus is shifting to the reaction of investors once the money is credited,” said economist Gustavo Ber, adding that a potential “reinvestment effect” could come into play. In December, the central bank launched a program to make reserve building more predictable, buying dollars only when peso demand was strong. This week it made its first dollar purchase in nine months, raising more than $100 million in the foreign exchange market.