News Center

Debt rises US$2.8B in six months even with made-up inflation
Ambito Financiero
August 19, 2008

By Pablo Wende

The adjustment for inflation on indexed bonds generated a rise in Argentine public debt of US$2.804 billion in the first half of the year. Thuse says information released by the Finance Secretary, which recognized a rise in debt in the first half of2008 of US$5.118 billion.

The official statistics allow for inferring beyond a doubt how inflation affects the debt level and to what extent the manipulation of the price index by INDEC diminishes its real impact. According to INDEC, in the first half inflation was only 4.6%, but private observers assure that it was far above 10%.

The bonds in pesos adjusted for inflation added up to US$61.273 billion and represent 40.9% of the total debt (without including the portion that didn't enter the swap). This means that each 10 points of inflation increases the debt by US$6.1 billion. If the government recognized an inflation rate of 30% this year, the amount would rise by no less than US$18.3 billion.

This rise doesn't mean that the payments by the government in the coming years will rise proportionally. On the contrary, the better part of the debt that adjusts to inflation doesn't include capital payments in the coming 20 years.

While the government uses the larger part of the fiscal surplus to pay public debt maturities, this is continuing to increase at an accelerated pace. To September 30th, if you add the bonds that were not restructured, Argentina's debt already hits US$180 billion. Six months ago it was US$173.585 billion, with a rise of US$6.874 billion.

The bonds adjusted for inflation were born in the 2005 swap. At that time, the N stor Kirchner-Roberto Lavagna team presented it as a great triumph, before the process of the de-dollarization of the debt. However, time has show that the indexed bonds were a much heavier burden than those denominated in foreign currency.

But the adjustment for inflation is not the main reason behind this rise. In reality, the larger proportion of the rise is explained by the fall of the dollar against the peso. As nearly 48% of the debt is denominated in local currency, an appreciation of the peso close to 5% raises the value of the debt measured in dollars. For the adjustment in the exchange rate, the debt total rose US$4.065 billion in the first six months of this year. Of course, in this case, if the dollar started going up (for example, on the order of 3.15), it would generate the inverse effect. Also in play was the revaluation of the euro against the dollar, as 10.6% of the debt is denominated in that currency.

Data

These are the other data that came out of the report released by the Economy Ministry:

The debt of the holdouts, which is to say those that didn't show up to the 2005 swap, has already topped US$30 billion. This includes all the unpaid interest and penalties accumulated by the non-payment. The government has not even promised a reopening of the swap, even with a discount.

The US$ 180.559 billion in debt is close to the nominal stock in dollars that existed in 2001, before the default. At that time it was more than US$190 billion.

The rise in debt in the past 12 months is already US$15 billion. While there were net payouts in bonds (above all because the market is virtually closed to Argentina), both the adjustment for inflation and the variations on currency exchange rates more than compensated for the net cancellations of debt.