Argentina's Debt Wall Puts Water Utility in Play

Argentina’s government has stopped issuing Bonar dollar bonds at home as borrowing costs have climbed above 12%, weakening one planned way to cover about US$25 billion in hard-currency debt payments due in 2027. It had planned almost US$1 billion in additional local sales this year and US$5 billion in 2027. The government has also announced the privatisation of water utility AySA as it steps up efforts to raise dollars.

Debt Payments and Borrowing Costs

The local bond programme began in February. Yields have risen by more than 500 basis points, while higher borrowing costs in global markets have dashed the government’s remaining hopes of a first-time bond sale abroad. Argentina’s debt maturities run through 2030, leaving the government with obligations beyond the payments due in 2027.

To meet those obligations without relying on global bond markets, the government planned to use Central Bank dollar purchases, privatisations, multilateral financing and local bond issuance. The local issuance option is now weakening. The Central Bank has accelerated greenback purchases, and the government recently announced AySA’s privatisation.

“When authorities had the chance to smooth next year’s financing schedule, they chose not to, arguing that all-in yields were too high,” said Armando Armenta, senior economist at AllianceBernstein. “Now, that decision implies the 2027 election season will be bumpy.”

Economy Minister Luis Caputo said Wednesday that Argentina still expects to issue local bonds in 2027, but could turn to a currency swap with China if it can’t. He spoke after meeting investors on the sidelines of the International Monetary Fund and World Bank meetings in Bangkok.

The Limits of the Alternatives

Caputo pointed to Argentina’s US$19-billion swap line with China’s central bank. About US$5 billion can go toward debt repayment, roughly matching the amount the government plans to raise through local-law dollar bonds in 2027. Previous administrations used some of the swap to meet obligations to multilateral lenders such as the IMF and to pay bondholders.

The swap supplies yuan to Argentina’s Central Bank, not dollars directly to the Treasury, and its terms aren’t fully public. It isn’t a direct replacement for dollar bonds. So the government’s stated alternative doesn’t fill the same role as the local dollar borrowing it planned.

Argentina explored an international bond sale in early 2026 and hired Alejandro Lew as finance secretary to lead the plan. President Javier Milei rejected issuing debt because of the cost, and Lew resigned. Around June, rating upgrades pushed sovereign spreads toward 400 basis points, their lowest in about eight years, and all-in yields below 9%. Caputo again held off, preferring cheaper financing available elsewhere, including the local dollar market.

“It probably would have been a good idea for Argentina to issue internationally back then, and strengthen its reserves,” said Ramiro Blazquez, a Latin America strategist at StoneX. “Now it looks more complicated because I don't see spreads falling meaningfully before the election.”

Election Risk and Investors

Economic growth has stalled, inflation remains stubbornly high and unemployment fears are mounting. Concern that Milei could lose the October 2027 election and see his pro-market policies end is likely to intensify. Local investors have separated bonds maturing before the vote from those maturing afterward. Bloomberg data show the yield gap between those local dollar bonds widened to almost 500 basis points.

Milei said the government had built an arsenal of roughly US$75 billion to defend the peso before the election. That figure includes Central Bank dollar purchases, US$20 billion each in swap lines with the United States and China, and expected additional financing from banks and multilateral lenders. “That's why we've spent this entire year getting ahead of it and preparing a bazooka of dollars,” he said this month in Paris.

Debt investors continue to show interest in Argentina, with double-digit bond yields attracting buyers persuaded by Milei’s economic overhaul. Lamine Bougueroua, EM fund manager at Carmignac and one of the largest holders of Argentine debt, said: “They still need to raise some dollars – but at this point, I think they will be able to do that.”