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Argentina reserves grow by US$20bn

Bnamericas Published: Tuesday, June 06, 2017

Argentina's reserves are about US$20bn bigger than they were when President Mauricio Macri took office in December 2015.

The nation's reserves stood at US$45.1bn on Monday, according to central bank data.

When business-friendly Macri entered the Casa Rosada, the nation's reserves stood at US$25.6bn.

His predecessor, Cristina Fernández de Kirchner, was criticized for depleting the country's reserves during her term in office, from 2007-15.

Around October 2015, rating agency Moody's had warned there was a chance Argentina's reserves might only last until December of that year. This followed a scheduled payment of US$5.9bn of the locally issued, but US-dollar denominated, Boden 2015 bond.

The Kirchner administration could not access foreign capital markets because of ongoing litigation with the group of debt-holders known as the holdouts.

But in April 2016, Argentina returned to international capital markets and sold US$16.5bn in debt.

Moody's sovereign analyst Gabriel Torres told BNamericas that this lifting of external borrowing restrictions is a major factor behind growth in the size of the nation's reserves.

"A big chunk of it is that they are now borrowing abroad," Torres said. "This government, unlike the prior government, has access to the international capital markets and has been borrowing. It's not just the government; some private companies have been borrowing as well. Some of the local governments, like the provinces, have been borrowing also.

"So when they borrow, they usually bring dollars into the country, sell them to the central bank who gives them pesos and they spend those pesos in the country, so that raises the reserves the central bank has."

Argentina aims to bring reserves up to around 15% of GDP from about 10% currently.

Torres believes reserves will keep growing. "On the one hand the money is coming in; on the other the central bank has made clear they may be buying more dollars," he said.

But he highlighted the issue of borrowing.

"There's the good side and the bad side. The bad side, if you will, is a lot of it is coming from debt. But on the other hand, there is no doubt that the confidence has increased in the central bank and the confidence in having dollars in Argentina has increased.

"If you look at dollar deposits in the banking system, they have jumped pretty dramatically. That's a pretty big signal of confidence because you have to put your dollars in a bank in Argentina and wonder whether somehow they'll take it away from you."

Torres said the agency sees the increase in reserves as a clear net positive.

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  • Company: Unidad de Información Financiera  (UIF)
  • The Unidad de Información Financiera (UIF) is the financial analysis unit of the Argentine Republic, which works on reports, financial intelligence, issues regulations, controls...
  • Company: Asociación de Bancos de la Argentina  (ABA)
  • Argentine banking association Asociación de Bancos de la Argentina (ABA) was founded with the objective to foster the steady development of Argentina's banking sector. The assoc...
  • Company: Moody's Argentina
  • Moody's Argentina is international rating agency Moody's Argentine office. The firm provides credit ratings, research and risk analysis firm that publishes credit opinions, rese...