Argentina's Dollar Debt Plan Collapses Before 2027 Election

Argentina's country risk closed Monday at 628 basis points, its highest level in nearly ten months, after twelve consecutive sessions of deterioration. The figure reveals something deeper than market volatility: Javier Milei's government financing program for 2027 is losing one of its foundational pillars before the electoral year even begins.

The clearest signal came with Monday's debt auction. The Treasury rolled over the entirety of its peso maturities —$8.62 trillion against $8.6 trillion due, a 100.08% rollover rate— but did so while avoiding, for the third consecutive time, the placement of dollar-denominated bonds. Economy Minister Luis Caputo had drawn up a plan that contemplated raising up to USD 5 billion in the local capital market during 2027. With the Bonar 2029 yielding between 11.8% and 13.4% depending on the parity used, and the Global 2035 under New York law reaching 11%, issuing at those rates would mean validating a financing cost the government considers unacceptable. In the words of consultancy 1816, "it is now hard to imagine the sovereign tapping international markets." Consultancy Quantum estimated that between October of this year and December of next, roughly $176 trillion in peso debt comes due —equivalent to about USD 113 billion at the informal exchange rate— with 53% held by private hands, primarily banks. The maturity schedule concentrates particularly high payments in May and June 2027 and in December, the month following the presidential election.

The rise in country risk does not stem from a single factor but from a confluence that is particularly adverse for Argentina. From abroad, the U.S. 10-year Treasury yield reached 5.25% during Monday's session, a level not seen since 2007, driven by persistent American inflation and a hawkish Federal Reserve tone that shows no signs of reversing. That dynamic compresses global liquidity and systematically penalizes emerging markets. But analysts agree that Argentina has suffered considerably more than its regional peers: over the last five sessions, the country's sovereign spreads rose 68 basis points while most of the region saw them compress marginally. The difference is idiosyncratic.

Domestically, the deterioration has built up on three fronts. The first is the sharp slowdown in Central Bank reserve purchases: in September, the BCRA accumulated barely USD 232 million, averaging USD 12.5 million per day compared with USD 2.162 billion purchased in July. Gross reserves broke below USD 48 billion, falling to USD 47.796 billion on Monday, also affected by the 4% plunge in the gold price —which implied more than USD 200 million in accounting losses— and payments to the IDB and the Paris Club totaling around USD 70 million. The second front is the weakness of activity data: July's EMAE recorded a seasonally adjusted monthly drop of 2.9%, the worst since the April 2020 lockdown, prompting JP Morgan to cut its 2026 growth forecast from 2.7% to 1.5% and to project a 4% annualized contraction for the third quarter. Two consecutive quarters of decline would constitute what economists call a technical recession. Manufacturing industry fell 5.7% year-on-year in August according to the UIA, accumulating a 3% contraction year-to-date and remaining 11% below 2022 and 2023 levels. The third front, which several analysts identify as the true driver of the risk premium spike, is political: uncertainty over the 2027 electoral outcome has turned conservative those investors who through July were betting with greater conviction on program continuity. Universidad Di Tella's Government Confidence Index fell 5.9%, marking its lowest level since the start of the Milei administration.

The combination of incipient recession and rising poverty —the indicator climbed to 32.3% of the population in the first half, with child indigence affecting 44.5% of those under 14— feeds market fears of a populist political shift that the president emphatically rules out but which investors cannot dismiss a priori. According to an analysis cited by Infobae, it is precisely doubts about reelection, and not economic data per se, that are the main factor behind the decline in long-dated bonds, the most punished over the past month.

For all that, not everything is deterioration. The external front hitting the financial side simultaneously provides a tailwind for exports. Brent crude trades above USD 100 per barrel, and soybeans touched close to USD 490 per ton in Chicago before retreating Monday to USD 473 on news that China removed tariffs on several U.S. agricultural products but maintained the 10% duty on the oilseed, which in effect favors South American exporters. The Rosario Board of Trade projects the agricultural sector will settle USD 40 billion in 2027, the second-highest reading on record. That outlook sustains the official narrative of a program based on an export-led push. YPF, which is also listed on the NYSE, announced that oil production is on track to surpass one million barrels per day for the first time in history, while the oil company formalized a three-year agreement with the province of Entre Ríos to improve the logistics of silica sands to Vaca Muerta. In that same segment, Chevron is preparing an investment of USD 13.8 billion through 2035 in the El Trapial block under the RIGI framework.

Meanwhile, the government is moving ahead with privatizations that could generate more than USD 800 million: it authorized the sale of Enarsa's stakes in the Manuel Belgrano and José de San Martín thermoelectric plants, which together supply close to 10% of the country's electricity demand, through public tenders of national and international scope. In infrastructure, the government formalized the extension through 2049 of the airport concession of Aeropuertos Argentina —the company belonging to Eduardo Eurnekian's Corporación América group— in exchange for investment commitments of USD 600 million, primarily at Ezeiza airport.

The picture taking shape looking ahead has a central tension: the government needs to demonstrate that its program survives the elections for markets to lower rates, but markets will not lower rates until the program demonstrates that it survives. The IMF mission that has been in Buenos Aires for more than a week negotiating the third review of the EFF program could provide initial relief if it grants the waiver for the first-half primary surplus miss and issues a favorable assessment on reserves. Milei's trip to Paris to headline Argentina Week, with a 400-strong delegation that includes the presidents of YPF, Pampa Energía, Globant and other blue-chip companies, points in the same direction: showing Europe an active investment ecosystem in energy, mining and technology. What remains to be seen is whether that narrative is enough to offset the signal simultaneously emitted by a country risk at ten-month highs, gross reserves at their lowest since July, and an economy inching technically toward recession.