(Bloomberg) -- Argentina unveiled a $1 billion repurchase agreement with five international lenders that will help replenish foreign reserves at its central bank, a key victory for President Javier Milei as he works to stabilize South America’s second-largest economy.
The deal, commonly known as a repo, will be in place for two years and four months, the monetary authority said Friday in a statement, without naming the banks.
Citigroup Inc. participated in the repo, according to two people with direct knowledge of the matter. JPMorgan Chase & Co., Banco Bilbao Vizcaya Argentaria SA, Banco Santander SA and Industrial and Commercial Bank of China Ltd. were also part of the deal, according to one of the people, who asked not to be named because the information isn’t public.
A Santander spokesperson declined to comment. Press offices for the remaining four banks didn’t immediately respond to requests for comment.
Argentina’s sovereign bonds climbed on Friday’s announcement. Benchmark notes due in 2035 touched a session high before paring gains. They last changed hands at 68.6 cents on the dollar, according to pricing data compiled by Bloomberg.
“The stars are aligning for Argentina,” Aaron Gifford, an emerging markets sovereign analyst at T. Rowe Price in Baltimore, said by email. “While there’s already been a significant rally, I think there’s probably a bit more room to go.”
Argentina’s central bank said it received offers for $2.85 billion, and that it would pay the secure overnight financing rate plus a spread of 4.75% on the repo line.
A senior government official told Bloomberg News earlier Friday that the new financing would be used to pay Argentina’s bondholders in July, given the monetary authority already has the money to make about $4.7 billion of capital and interest payments due this month.
Milei, a libertarian economist, took office just over a year ago and Argentina’s economy is beginning to recover from a harsh recession that was exacerbated by his fiscal austerity. His administration continues to crush inflation and keep the peso relatively stable, helping him remain Argentina’s most popular politician despite the pain inflicted by his policies.
Still, Milei faces a series of challenges, including high levels of poverty and inflation still over 100%. How his government dismantles currency controls while cooling inflation, stabilizing the peso and growing the economy will be closely watched by investors before crucial mid-term elections late this year.
For now, market optimism in Milei is translating into Argentina’s rapidly declining sovereign risk, the difference in yield between its sovereign bonds and benchmark US Treasury notes. The crisis-prone South American nation’s score had plunged to 606 basis points by Thursday, from more than 1,000 in late October.
Repos are commonly used to raise short-term capital. In the US, the Federal Reserve turns to that market as a tool to help implement monetary policy. In Argentina, former President Mauricio Macri’s administration took on repo loans with international banks to raise billions of dollars.
The repo negotiations have run parallel to government’s talks with the International Monetary Fund for a new program to succeed the country’s $44 billion deal. Milei and Economy Minister Luis Caputo have said they expect to reach a deal with the IMF within the first four months of this year and that it could include fresh funding that goes beyond the previous program’s financing.
For Gifford, it all adds up to sustained tailwinds for Milei. “They’re essentially back to market access, they’ve already secured the funds to pay down near-term maturities, and a new IMF program is in the making,” the T. Rowe Price analyst said.
(Updates with response from bank in fourth paragraph.)
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