Argentina pays bondholders $4.3bn in key test for Javier Milei

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Argentina’s government has paid $4.3bn to holders of its sovereign bonds, its largest repayment since a 2020 debt restructuring, in a crucial step for libertarian President Javier Milei’s bid to restore confidence in the serial defaulter.

The payment, confirmed by finance secretary Pablo Quirno on Thursday, included $3.7bn to private bondholders, with the rest going to public bodies that hold Argentine debt. The government bought the dollars to make the payment using the fiscal surplus it eked out last year via a severe austerity package.

The payment is a landmark for Milei’s government after many investors doubted when he was elected in late 2023 that Argentina would escape another debt restructuring this year given the size of debts coming due in 2025. The notoriously unstable economy has defaulted on or restructured its sovereign debts three times this century.

Milei’s free-market reform drive and growing expectation that he will repay debts have powered a big rally in Argentina’s sovereign bond prices in recent months.

The premium or yield that investors demand over US Treasuries to hold Argentine debt has tumbled from more than 1,500 basis points in August to 572 now. Yields move inversely proportional to bond prices.

Yet Thursday’s repayment marks the start of a more demanding debt calendar for Argentina, with similar amounts now due twice a year until the end of Milei’s term in 2027, increasing pressure on his programme. Argentina’s central bank hard currency reserves, excluding liabilities, are roughly $6bn in the red, according to private economists.

“Things become more onerous here on out after making relatively small payments in recent years,” said Salvador Vitelli, head of research at the Romano Group financial consultancy.

The government has already “practically covered” a $4.3bn repayment due in July with earmarked reserves and a $1bn repurchase agreement with international banks, said Fernando Marull, head of Buenos Aires-based economic consultancy FMyA.

“After that, they will need to return to the market, or negotiate repurchase agreements or refinance maturities,” he added. “And the falling [risk premium] has opened a window to do that.”

While investor confidence has been boosted by the end of Argentina’s recession, a steep drop in the monthly inflation rate, and Milei’s robust approval ratings, several key challenges loom this year.

These include midterm elections in late 2025 when Milei will hope to persuade Argentines to continue his orthodox programme long-term.

He also hopes to lift Argentina’s strict currency and capital controls later this year and secure a fresh loan from the IMF, to which Argentina already owes $43bn, to replenish scarce central bank reserves.

The government may also face a push by the opposition in congress in the coming months to strike down a presidential decree that allows the economy ministry more flexibility in renegotiating sovereign debts.

“That decree had liberated Milei [from a law that puts] a strict corset on the government’s debt management, and if it is voted down, it could make debt rollovers quite difficult,” Vitelli said.

Argentina’s bonds produced a total return of more than 100 per cent for investors in 2024, bested in emerging markets only by a rally in Lebanon’s highly distressed debt, which trades for cents on the dollar.

“We had an extraordinary year on the long side in Argentina [but], by and large, the real return is behind us,” said one hedge fund manager who owned the bonds but has reduced holdings this year. “I certainly would not be short Argentina — there is good news to come. But the real heavy lifting of returns was in 2024.”