Argentine bond prices fell on Thursday and the country risk soared to levels not seen since 2005 after the government announced plans to extend maturities on an estimated US$ 100bn in debt, raising fear of a full-blown financial crisis.
The central bank spent US$ 367 million of its reserves in foreign exchange market interventions on Wednesday and US$ 223 million on Thursday in its effort to defend the local peso.
Investors fear a return of populism to power in Argentina could herald a new era of heavy government intervention in Latin America's third-largest economy.
By the time Finance minister Hernan Lacunza said on Wednesday the government wanted to extend maturities of short-term debt, and would negotiate new time periods for loans to be paid back to the International Monetary Fund, a debt revamp was already widely expected.
Argentine spreads over safe-haven US Treasury bonds, a measure of the perceived risk of default, nonetheless shot 204 basis points higher to 2276 on Thursday, according to JP Morgan's Emerging Markets Bond Index Plus.
Developing markets investment house Tellimer calculates that US$ 7 billion of short-term debt, US$ 50 billion in long-term debt and US$ 44 billion of IMF debt may be earmarked for an overhaul.
Lacunza labeled the debt-extension operation a re-profiling of obligations that will affect institutional rather than individual investors.
The bond market gave the plan a collective thumb down.
Argentina's century bond traded at a record low of 40.222 cents on the dollar before inching up a couple of cents according to MarketAxess data. The January 2028 benchmark briefly dropped under 40 cents for the first time ever before edging up to trade at 40.3.
Closer on the maturity curve, the April 2021 issue dropped under 50 cents for the first time, while the January 2022 issue also hit a record low price
Minister Lacunza said he would send a bill to Congress to approve changes to bonds governed by local law. Talks with holders were expected to start soon, but would likely be concluded by the government that wins the October general election and takes office in December.
Alberta Fernandez, whose running mate is former president Cristina Fernandez de Kirchner, is now the clear front-runner. Populist icon Kirchner is loved by millions of Argentines who remember generous welfare spending during her 2007-2015 administration.
Restructurings are a traumatic subject for Argentine voters who remember the country's 2001 default, part of an economic meltdown that tossed millions of middle-class Argentines into poverty. Subsequent mini-defaults kept the country locked out of global capital markets for years.
Macri prided himself on getting the country out of default early in his administration and promised to reintegrate Argentina with the global markets. But he overestimated his ability to attract the foreign direct investment needed to provide Argentina with sustained economic growth.
On Thursday the Peso reacted positively, recovering from steep early-day losses to close 0.35 per cent higher at 57.9 per US dollar. But the currency is down 21.7% since Macri's primary vote debacle all but erased his chances of being re-elected in October.
The high cost of controlling the peso's slide remained a concern for the market.
The re-profiling will first apply to short-dated debt denominated in pesos as well as dollars but issued under local law, Lacunza said. That would require approval from Congress.
The Macri administration would need support from Alberto Fernandez and opposition lawmakers to get the re-profiling through the legislature.