Argentina to pay bondholders $4.3 billion for key test of Javier Mile.

Open the editor’s digest for free

FT editor Rula Khalaf picks her favorite stories in this weekly newsletter.

Argentina’s government has made its biggest payment since the 2020 debt restructuring, $4.3 billion, in a crucial step to restore confidence in the libertarian president, Javier Mille.

The payment, confirmed by Finance Secretary Pablo Quirno on Thursday, includes $3.7 billion to private bondholders, with the rest going to government entities holding Argentina’s debt. The government bought the dollar to make the payments using the massive austerity package it spent last year.

The fee is the hallmark. MercyWhen elected in late 2023, after many investors doubted that Argentina would escape another debt restructuring this year, given the size of its debt due in 2025. The notoriously unstable economy has defaulted or defaulted on its sovereign debt three times this century.

Miley’s free-market reform initiatives and growing hopes that he will pay off the debt have sparked massive rallies in Argentina. sovereign bond Prices in recent months.

The premium, or spread, that investors demand over US Treasuries to hold Argentina’s debt fell to 572 from more than 1,500 in August. Yields move inversely with bond prices.

However, Thursday’s payment marks the start of a very demanding debt calendar for Argentina. The same amount will now be paid twice a year until Miley’s term ends in 2027, adding pressure to the program. Argentina’s central bank’s hard currency reserves, excluding liabilities, are about $6 billion in the red, according to private economists.

“After paying relatively small fees in recent years, things have gotten tougher,” said Salvador Vitelli, head of research at financial advisory Romano Group.

Fernando Marul, head of Buenos Aires-based economic consultancy FMyA, said the government “practically covered” the $4.3bn payment due in July with reserves and a $1bn purchase agreement.

“After that, they have to go back to the market or negotiate purchase agreements or financial reforms,” ​​he said. “And falling[risk premiums]has opened a window to do that.”

When investor confidence increased The end of the fall of Argentinaa sharp drop in monthly inflation and strong approval ratings from Miley, a number of key challenges loom this year.

These include mid-term elections in late 2025, when Millay hopes to convince Argentines to stick with his orthodox program for the long term.

It also hopes to lift Argentina’s tight currency and capital controls later this year and secure a new loan from the IMF, if Argentina already owes $43 billion, to replenish scarce central bank reserves.

The government may face pressure from the opposition in Congress in the coming months to strike down a presidential decree that would allow the economy ministry more flexibility to renegotiate sovereign debt.

“That provision would have freed Miley from a strict commitment to the government’s debt management, and, if voted down, would make it very difficult to roll over the debt,” Vitelli said.

Argentina’s bonds have delivered a total return of more than 100 percent to investors through 2024 and were bested in emerging markets only by a rally in Lebanon’s most troubled debt-ridden penny against the dollar.

One hedge fund manager who owns the bond but has reduced his holdings this year said: “We’ve had an unusual year on the long side in Argentina (but overall the real rebound is behind us). “I will definitely not be short Argentina – there is good news to come. But the real return lift was in 2024.