Informe de Pagos de Deuda Externa Financiera del Sector Privado 2020-2022

This publication describes the process of debt restructuring of the private sector carried out within the framework of foreign exchange regulations and, in particular, communication A7106 of this Central Bank, which allowed foreign exchange savings of 26,635 million dollars since 2020 while avoiding a generalized crisis of defaults.

The private sector debt restructuring process carried out within the framework of foreign exchange regulations and in particular the BCRA’s communication A7106 allowed foreign exchange savings of 26,635 million dollars since 2020 while avoiding a generalized crisis of defaults.

Between the end of 2015 and 2019, companies increased their external financial debt by 83%, by more than 21,000 million dollars, to reach an overall volume of 45,045 million dollars, accompanying the scheme of deregulation policies and high domestic interest rates, characteristic of that period, to the detriment of the development of the local capital market.

Since the end of 2019, the high burden of maturities of private external debt forced the BCRA to establish a set of regulations that limit access to the foreign exchange market for this reason, in order to avoid a demand that could be disruptive to the functioning of the foreign exchange market.

In particular, the following regulations stand out:

• The payment of debt from one company to another related company (whether it is of the same group, its controlled or controlling company) is restricted.

• Companies are obliged to use their own dollars (liquid foreign assets deposited abroad) before they can buy foreign currency to pay financial or commercial debts (for imports).

• They can only access the market to pay debt that is declared and documented and, as of 2020, that was settled in the foreign exchange market.

• Firms are required to refinance at least 60% of debt maturities with a minimum average term of two years (debts of less than USD 2 million are excluded from the obligation so as not to hinder the operation of SMEs).

• Companies cannot advance the payment of maturities more than 3 business days in advance.

• In the event that companies want to anticipate the refinancing process under the guidelines established by the BCRA, the refinancing requirement is increased to at least 70%.

It is worth mentioning that there have been errors in the interpretation of the statistical information. The information on the exchange balance reflected between January 2020 and April 2022 net outflows for the concept “Financial loans, debt securities and credit lines” for a total of 14,405 million dollars. However, net payments in foreign currency made by companies were considerably lower, reaching 5,367 million dollars.

This is so because in the concept “Financial loans…” Debts for credit card payments abroad, cancellations of financial loans in foreign currency granted by local financial institutions and payments of foreign loans and debt securities of the provinces are also counted. This figure of payments also differs for conceptual reasons with the Balance of Payments that differentiates the actors between residents and non-residents.

Since 2020, foreign exchange regulations have prevented debt payments with an impact on the foreign exchange market of USD 26,635 million, USD 12,756 million for all debt with related companies and USD 13,889 million for debt restructuring with unrelated companies. Of a total of USD 32,000 million in obligations due in the period, USD 5,367 million were paid, 17% of the total.

Communication A7106 and complementary ones, established the mechanisms to access the foreign exchange market for debts contracted with unrelated counterparties, for only 40% of the maturity of the principal and the rest refinanced with a new external debt with an average life of not less than 2 years.

Finally, the effect on the balance sheets of companies of having closed access to the official foreign exchange market would have led them in some cases to a situation of bankruptcy, making it impossible to access credit for refinancing and exposing them to hostile purchases, mainly affecting the food and energy sectors, with the effect on domestic prices and the level of employment.