Argentina approves dollar borrowing amid multilateral loan talks

Argentina's government authorised up to US$5 billion in new dollar-denominated borrowing as the country looks to secure funding backed by multilateral institutions ahead of upcoming debt payments.

The decree, signed by President Javier Milei and Cabinet members, establishes a legal framework for future financing transactions, with contracts governed by New York law and subject to the jurisdiction of US courts.

The Monday decree sets a maximum size for the debt operation Argentina is seeking to secure with the backing of multilateral institutions such as the World Bank and the Inter-American Development Bank.

The objective is to “reduce the financing costs of the National Treasury” through dollar-denominated loans granted by internationally recognised financial institutions and backed by partial guarantees from multilateral lenders, it reads.

Securing funding is critical for Argentina as it faces bond payments in the coming years, the most immediate being almost US$4.5 billion next month. The country’s foreign currency debt service is expected to exceed US$20 billion annually next year.

“The priority is to minimise funding costs,” said Daniel Chodos, partner at Dhalmore Capital. “By arranging financing through international banks with partial backing from multilateral institutions, the government can access funding at a significantly lower rate” than if it were to tap markets, he added.

Milei’s government has shunned international bond markets, deeming the costs as too high and not in line with Argentina’s macroeconomic improvements.

Obtaining alternative and cheaper sources of financing has been a key goal for Caputo. The government has so far relied on alternative sources such as local dollar-denominated bonds, foreign-currency purchases by the central bank and the planned multilateral-backed financing operation.

by David Feliba & Ignacio Olivera Doll, Bloomberg