Several Argentine provinces could need to restructure debt next year because of limited financing from the federal government and possible new restrictions on access to foreign currency, according to Moody’s Investor Service analyst Philipp Toculescu.
“Argentine provinces have been and remain heavily dependent on [federal] government transfers because of their own limited income generation capacity,” Toculescu told BNamericas.
The latest figures, from December 2022, show federal transfers represented 51% of provinces’ income on average.
However, transfers started slowing down last year and the amounts have dropped in recent months as the central administration is trying to meet fiscal goals set in a debt agreement with the IMF.
This could leave many infrastructure projects in limbo, since while these are administered by local governments, the bulk of the funding comes from the federal government.
Some provincial authorities have admitted that works could slow down or even be halted as a result, while local construction firms have warned that jobs will be at risk as payments get delayed.
“Some of them, as in the case of Tierra del Fuego, opted to make transitory advance payments to construction firms to prevent works from stopping completely. The national government would repay these amounts later, at a determined interest rate,” Toculescu said, though he warned that not all provinces have this option available.
Argentina’s infrastructure sector is also dealing with high inflation, which has surpassed 100% in annual terms.
DEBT RESTRUCTURING
Currently Córdoba, Mendoza and Santiago del Estero provinces are asking courts to halt a measure from the central bank that would prevent local administrations from accessing its foreign currency reserves unless they extend the maturity of at least 60% of their foreign currency-denominated debt by two years or more.
So far, a federal judge has ruled in favor of an injunction requested by the Córdoba government regarding the measure but did not rule on whether the central bank move is constitutional.
While the full details of the proposed measure have still not been published, Moody’s estimates that some local governments could face a debt restructuring process next year if it comes into full effect.
Some of the entities cited by the agency as most vulnerable include Córdoba and the province’s likewise named capital city, as well as the provinces of Chaco, Río Negro, Chubut and Tierra del Fuego.
All of these governments have extremely low levels of deposits to meet maturities in 2024, though Toculescu added that in the cases of Chubut and Tierra del Fuego their bonds are backed by royalties from oil production.
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