Argentine foreign debt rose by a record $52 billion in 2017
Data released this week by Argentina's Economy Ministry show that the country's foreign debt rose by a record $52 billion in 2017 to $233 billion, a 28.6% increase and a new high.
Most of the rise resulted from higher government foreign debt, which grew by nearly $40 billion to $161 billion - a one-third increase.
Much of the new debt went to finance a record $30.8 billion current account deficit - the product of an $8.5 billion merchandise trade deficit, as well as $22.3 billion lost by way of invisibles such as foreign travel, shipping and other business expenses, and mounting debt service charges themselves.
The trend was fueled by record trade and budget deficits for Argentina in 2017.
The record trade deficit came despite steep tax cuts worth $4 billion granted by decree to the agricultural and mining sectors by President Mauricio Macri within days of taking office in December 2015.
Despite Macri's own assurances that the costly tax cuts would be an "incentive," export levels remain at their 2015 levels, while imports have surged by 20%. Foreign debt mas meanwhile risen by $80 billion since then.
LEBACs and bicyles
The budget shortfall - $38 billion - was in turn largely financed domestically though short-term, high-interest treasury bills known as LEBACs.
The cost of servicing LEBACs pushed federal interest charges up by 71% last year to $13.6 billion - a figure similar to spending on utility and fare subsidies for consumers, which the Macri officials deem a "distortion" and "wasteful."
The policy of paying outsized yields to speculators, and then taking on debt to finance the transfer of profits overseas - known in Argentina as the "financial bicycle" - has drawn comparisons to the last dictatorship's 1979-81 bubble, which led to a collapse after insiders "bicycled" some $20 billion in profits overseas.
Macri officials and the IMF nevertheless remain optimistic.
Visiting Buenos Aires this week for the G-20 Summit of Finance Ministers and Central Bank Presidents, IMF head Christine Lagarde dismissed concerns that Argentina's foreign debt was rising too quickly.
"Foreign debt reached 35% of GDP," Largarde noted. "It's a level that frankly does not imply too heavy a burden for the economy."
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