Importers’ Debt Excess Is Less than Half as Much as Estimated
Implications of the Registry of Importers’ Commercial Debt for an Economic Diagnosis
Implications of the Registry of Importers’ Commercial Debt for an Economic Diagnosis
The stock of commercial debt held by importers of goods and services amounted to USD53.36 billion as of September 30, 2023 as informed in the Private Sector External Debt Report that the BCRA released today. Such figure is based on the BCRA’s Survey on External Assets and Liabilities (Relevamiento de Activos y Pasivos Externos, RAyPE).
Moreover, importers’ debt reached USD57.8 billion as of December 12 if the difference between the amount imported and that paid in the forex market until that date is added up. Importers’ stock of debt thus increased by USD27.4 billion from December 31, 2021 to December 12, 2023.
On January 25, 2024, the Ministry of Economy and the BCRA released a joint statement on the implications of the Registry of Commercial Debt from Imports Owed to Foreign Suppliers. According to the registry, the net debt totaled USD42.6 billion—after subtracting nearly USD8.5 billion corresponding to payments made without having access to the forex market. The figures reflect debts declared as of December 12, 2023, before the new national administration took office.
Transparent and updated information provided by the Secretariat of Trade on the amount of importers’ commercial external debt is good news in itself. It also makes it possible to assess the current economic challenges and give economic policy responses.
• Comparing debt estimations based on the BCRA’s records (USD57.8 billion as of December 12, 2023), the amount of commercial debt recorded in the Secretariat of Trade’s registry (USD42.6 billion as of December 12, 2023) indicates that the current financial burden derived from the debt for imports of goods and services is USD15.2 billion less than estimated based on the sources previously available.
• In turn, it should be noted that the commercial debt for imports usually amounts to around USD29 billion (2017-2021 average), according to the BCRA’s report. Therefore, the updated information provided by the Secretariat of Trade’s registry (USD42.6 billion) suggests that the commercial debt owed by importers in excess of the amount usually owed is about USD13.6 billion.
• This means that the demand for foreign currency to bring the burden of importers’ commercial debt to normalcy is less than half (47%) as much as that estimated (around USD28.8 billion) based on the sources available before the creation of the registry. Moving forward, normalizing that debt will heavily affect the balance of payments. However, this new estimation is good news all the same.
The Problem of Increased Commercial External Debt in 2022-23 and its Solution in the Future
The unprecedented USD27.4 billion increase in commercial debt in 2022 and 2023 up to December 12, as reported by the BCRA, represents a rise of 90% in less than two years. The pace of debt rise was brought about by misaligned incentives in the foreign exchange regime that were then in place, which consisted in selling international reserves to preserve an overt lag in the exchange rate in real terms. Given the excessive demand for foreign currency by private sector importers, the BCRA imposed increasing restrictions to access the free exchange market, thus triggering an increase in commercial debt.
Such commercial debt means a potential extraordinary demand for foreign currency in the future and, therefore, poses extraordinary challenges to the BCRA’s current objectives. This, in turn, presents a threat to the stability of external and domestic payments in Argentina. Considering the shortage of foreign currency, the BCRA has placed a high priority on the auction of new instruments, known as BOPREAL bonds. They allow importers, amid such shortage of international reserves, to conduct an exchange transaction at the current exchange rate for the amount of the debt owed to foreign suppliers. The importers included in the registry of commercial debt may participate in the auctions.
Implications of the Registry of Commercial Debt for Interpreting the Statistical Data Contained in the Quarterly Private Sector External Debt Report (BCRA)
As for the debt for imports, the total amounts surveyed and published by both registries differ, even when both seek to collect information about the same external transaction. The BCRA deems it appropriate to provide some clarification in this respect, particularly, given the significant decrease in the stock of commercial debt that results from comparing the records from the Secretariat of Trade (USD42.6 billion) and the update data reported on a quarterly basis through the RAyPE (USD53.36 billion):
Technical and methodological aspects
1- Different cutoff dates: the report published by the BCRA today presents estimations of the private sector external debt at the end of the third quarter (September 30, 2023), while the cutoff date for the debt declared in the Registry of Commercial Debt from Imports Owed to Foreign Suppliers for imports of goods or services is December 12, 2023.
2- Differences in the dates on which debts were incurred: as for goods, the registry kept by the Secretariat of Trade includes transactions formalized before December 13, 2023, that is, transactions corresponding to goods with customs registration before that date. In the report prepared by the BCRA, the external debt arises on the date on which the purchase condition agreed upon with the supplier or the institution financing the import gets fulfilled, which generally occurs prior to customs clearance.
3- Different types of debt: the registry managed by the Secretariat of Trade only includes debt owed to foreign suppliers. The term “commercial debt” used in the BCRA’s report includes both the debt owed to foreign suppliers and any other type of financing of imports of goods or services provided by a third party (such as a financial institution abroad or an international organization).
4- Estimation of undeclared debt: the BCRA’s report treats omissions in a specific manner. Debt that fails to be reported is estimated based on the latest data available for that importer and other variables related to the type of debt. This means that debt is not removed if a company fails to declare it. Instead, such debt is estimated using a specific methodology (in the case of debts for imports of goods, the percentage of the estimated amount is about 5% of the total debt of this type).
5- Differences in monitoring: as for the estimations made by the BCRA, debts are followed up on a quarterly basis to correct anything, if appropriate, along the latest six years based on previous surveys. This entails a larger group of reporting parties than those which registered (for the first and only time) their commercial debt in the Secretariat of Trade’s registry—specifically created to deal with the current stock of debt. It is noteworthy that close to 15,000 companies reported data to the Secretariat’s registry.
6- Different data cross-checking: The Secretariat of Trade’s registry is based on the information reported by importers. By contrast, the BCRA’s estimations draw on information reported by companies and, complementarily, this information is cross-checked with other sources. For example, data are validated with the National Institute of Statistics and Censuses (Instituto Nacional de Estadísticas y Censos, INDEC) based on customs information and with the Exchange Transaction Reporting System. Moreover, the consistency of the estimations on external debt for imports of goods is compared to that derived from the BCRA’s monitoring system for the payment of imports of goods (Seguimiento de Pagos de Importaciones de Bienes, SEPAIMPO).
Economic and foreign exchange aspects
1- Differences resulting from incentives to report debt amounts: Probably, importers’ incentive to report the amount of their debt was associated with an expectation to benefit from a low exchange rate until the new administration took office by mid-December.
a. Afterwards, the official exchange rate was adjusted. The ensuing decrease in the gap between the official exchange rate and the other exchange rates has discouraged companies from reporting their debts for imports. This may explain the fact that companies that had already reported their debts to the BCRA refrained from recording them in the Secretariat of Trade's registry.
b. The extraordinary appreciation of the exchange rate for a long time, as it occurred before the new government took office, may be an incentive to boost imports, which may in turn lead to an increase in the debt reported. These incentives are not expected where the exchange rate is consistent with economic fundamentals, and imports may be under-invoiced to pay less taxes and charges.
2- Differences resulting from incentives to report debt settlement: The increasing restrictions on the payment of imports of goods through the official forex market that were in place in the past few years, along with the importers’ need to settle their debt to prevent any disruptions in the chain of supply may have led them to repay their debt out of their own funds. These settlements may have been channeled through the securities market or otherwise, especially between October and November 2023, when the forex market was more stressed. Importers may have failed to report having settled their debt to the BCRA or may report so in the next statement as of December 31, 2023. Thus, unreported settlements may reduce the stock of debt estimated by the BCRA. Probably, importers’ grounds for not reporting the settlement of their debt may be associated with their expectation to derive benefit from a low exchange rate until the new administration took office by mid-December.
3- Differences from debt-equity conversion: Some companies may have converted debt into equity; hence, they failed to record the debt in the Secretariat of Trade’s registry while such conversion remained unreported to the BCRA.
4- Differences from liquidity/illiquidity for subscribing BOPREAL bonds: It should be noted that debt should be recorded in the Secretariat of Trade’s registry for importers to be eligible to subscribe BOPREAL bonds. However, they may not be liquid enough to subscribe such bonds. Thus, the incentive to report the debt would be lower.
It is worth pointing out that the quarterly statistics of the BCRA’s Private Sector External Debt Report will continue to be released in line with international standards, seeking to continuously improve processes and methodologies. Consequently, this new source of information—the Secretariat of Trade’s registry—will be used for a more efficient data cross-checking, as done so far with all the other available sources. The goal is to improve the quality of Argentina’s external sector statistics.
Finally, the BCRA holds that a simple, transparent and distortion-free foreign exchange regime in itself helps to correct the incentives that have brought about the current extraordinary commercial debt. A foreign exchange regime with no distortions is the best way to discourage private sector companies from taking excess borrowing, thus compromising the future macroeconomic balance and stability in domestic and external payments. As long as the economic policy actions of the current authorities lead to a recovery in stability, the BCRA will adopt measures to put the economy on the right track.
Footnotes
1. The BCRA estimates commercial private sector debt based on the affidavits of borrowers in the RAyPE, set out in Communication A6401, as supplemented. The estimation methodology was agreed upon and developed with the INDEC, following international standards, such as the sixth edition of the Balance of Payments Manual of the International Monetary Fund (IMF), and the G20 Data Gaps Initiative, where the world’s main economies acknowledged gaps in information which should be bridged.
2. The Statistical System for Imports (Sistema Estadístico de Importaciones, SEDI) was launched by the end of December 2023 by Joint General Resolution 5466/2023 issued by the AFIP and the Secretariat of Trade. It included the creation of the Registry of Commercial Debt from Imports Owed to Foreign Suppliers (Importers’ Affidavit on Debt (Declaración Jurada de Deuda de Importadores, DJDI)), to have updated information on importers’ commercial debt owed to foreign suppliers. It was aimed at collecting updated information on the private sector commercial debt owed to foreign suppliers, and addressing the issue accordingly.
3. See the methodology for estimating private sector external debt, as released in every report.
January 26, 2024
