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Javier Milei’s chainsaw to provincial funds impacts bonds

It is worth remembering that Buenos Aires titles are one of the options more considerable within the provincial panorama and that had not yet been affected by the conflict with Chubut.

The Government’s conflict with the provinces worsens

However, this Monday the Government decided to eliminate the Fund for the Fiscal Strengthening of the Province of Buenos Aires that had been created during the administration of Alberto Fernández, through Decree 192/2024 published this Monday in the Official Gazette.

In this way, the administration of Javier Milei advances with the adjustment to the provinces and deepens the confrontation with the governors, in the midst of the dispute with the president of Chubut, Ignacio Torres, over the retention of funds.

The official document, which bears the signatures of the president, the chief of staff, Nicolás Posse, and the Minister of Economy, Luis Caputo, establishes the elimination of the fund that had been created in times of pandemic by the previous government, with resources obtained from removes it from a point of co-participation to the City of Buenos Aires.

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The administration of Javier Milei advances with the adjustment to the provinces and deepens the confrontation with the governors.

Now, the Milei Government decided to end said fund, arguing in the decree that “the severity of the crisis puts at risk the very subsistence of the social, legal and political organization constitutedaffecting its normal development in pursuit of the common good”.

The Executive considered that “there is no alternative solution to an urgent fiscal adjustment that puts public accounts in order, this being an indispensable condition for the macroeconomic stabilization that our country requires” pointing out that ““The fiscal situation of the Provinces and the City has been less restrictive at the expense of the discretionary transfers made by the National Government.”

Provincial bonds and the Chubut conflict: how it can affect contributions

As all investors know, the fiscal situation of the provinces is a variable to follow closely for provincial bonds because it affects the ability to pay coupons.

Although some of the recent news supports the optimistic outlook for the sovereign debt, some are more pessimistic about it. For example, since Adcap Financial Group, They maintain the need to take profits and “move to defensive positions less exposed to implementation risk.”

That means staying in ARGENT 2038 or 2035 instead of 2030“go from Provincial Bonds and Peso Bonds to Bopreal”, one of the few bonds that we find cheap now due to technical flows.

Thus, the recommendation is to maintain a defensive posture in the face of the expectation of lower federal transfers.

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