No Talk In The Dollar Shadows

The company isn’t bankrupt, it just doesn’t have the right currency in its reach to repay debts coming due. YPF is Argentina’s (former) gold mine, in this case the black gold of energy exploitation. State-owned, the business has obviously close ties to the ruling powers-that-be and a privileged place to go along with them. Its formal name, Yacimientos Petrolíferos Fiscales, literally translates as “fiscal oilfields.”

But no matter the primo spot in the Argentinian hierarchy, no government can deliver the dollars they don’t have – and cannot conceivably obtain. It really is that simple at times like these, confusion instead created by the disingenuous interpretations of what particularly the US central bank actually does (moral suasion that seems a lot less moral these days).

According to the IMF, YPF’s government reported to this particularly noteworthy supra-national organization that the country, through its own central bank, Banco Central de la República Argentin (BCRA), holds less than $39 billion in total reserves (as of November 2020). That’s not nearly enough should YPF as well as Argentina Telecom repay Eurobonds (bonds sold in offshore markets which raised US$ funds) expiring this year and next.

This is not normally an issue during normal times because an energy business is typically one which can easily obtain a relatively efficient and sustained flow of US$ liabilities (via offshore banks, the eurodollar system). If necessary, the government can and often does raise dollars, too, and in Argentina’s case it spent much of 2016, all of 2017, and then the first couple months of 2018 doing just that.

The idea is to increase the level of national reserves such that if the eurodollar market turns from best friend to biggest foe, the government and central bank might be able to cover up and smooth out the rough patch.

Argentine officials knew they were toast, however, right from the beginning of Euro$ #4. Just look at the currency’s trading history from that point onward:

The Macri government was already negotiating with the IMF for a dollar-based bailout just two weeks into the peso’s initial descent. What that tells us is that eurodollar conditions, the shadow stuff, goes on often unnoticed even by the currency’s exchange value. In other words, officials in-country knew they were in dollar trouble before it really showed up in the peso.

You could see it working backward underneath that whole time, in the shadows, even as inflation certainty the rest of the world reached its hysterical peak. I wrote in February 2018:

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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