Return to debt market bolsters Argentina's recovery forecast

Argentina's recent return to the foreign currency-denominated debt market "has strengthened its outlook for a slight economic recovery in 2015," according to a report published Friday.

The report by private consulting firm Ecolatina welcomed the move, saying "foreign currency not only ratifies exchange stability, but also increases the possibility of relaxing restrictions on imports," which the government imposed to keep U.S. dollars at home.

In the last week of April, and in just three days, the sale of foreign debt raised 3 billion U.S. dollars, boosting the central bank's (BCRA) international reserves to 33.9 billion dollars, and returning it to the same level as a year and a half ago, the report said.

However, "it is still not possible to rule out negative effects (on the economy) from the court conflicts with the holdouts," the firm said.

Argentina's ongoing dispute with expired debt bond holders holding out for more than Argentina has been willing to pay has cut off its access to global financing.

In recent months, the country has also issued more debt in local currency. In 2014, the treasury emitted 24 billion pesos (2.66 million dollars) in bonds, and this year it added at least another 10 billion (1.11 million dollars).

"Debt growth in local currency also props up the economic growth outlook, since it makes it easier to continue a fiscal expansion policy without putting too much pressure on currency emission or the BCRA's capital worth," the report said.

In short, raising money in local and foreign currencies by selling off debt "increases the probability that the coming election months will pass with a steady exchange rate, inflation that's under control and some recovery in consumer spending," the report said, warning however that the debt strategy needs to be short term "or structural imbalances will continue to deepen."

Argentines go to the polls in October to elect a successor to President Cristina Fernandez, who has tried to compensate for the lack of access to Western capital markets by pursuing closer bilateral cooperation with Russia and China.

Financing through debt, according to the report, is essentially a mechanism that passes on costs to coming generations, but can be justified when used to expand the country's productive base, which future generations will also enjoy.