There is no doubt that emerging market (EM) investors have cheered up considerably of late. Following a torrid January and February, virtually all asset classes in the EM universe appear – on aggregate at least – to be gaining in value.
The bellwether stock index, the MSCI EM index, is up 9.6 per cent from its low on February 5. EM sovereign bonds are yielding an average of 5.51 per cent, down 0.37 per cent since January 1. Local currency bonds are, in many cases, producing stellar returns sharpened by windfall currency gains. Indeed, some EM currencies are among the world’s best performers, with the Indonesian rupiah rising 7.81 per cent, the Brazilian real gaining 7.3 per cent and the Indian rupee climbing 2.8 per cent so far this year. Continue reading »
When the Pope met Queen Elizabeth on Thursday, there was one thing – doubtless to Argentine President Cristina Fernández’s great dismay – which was not on the agenda: the Falkland Islands (or, as the Argentine Pope might have called them, Las Malvinas).
As if to make up for that omission, Fernández ensured the disputed territory’s continued presence in Argentines’ minds by printing a map of the archipelago on a new 50 peso note (worth just over $6), with a stirring image of a gaucho who rose up against British rule in 1833 on the other side. Continue reading »
That was then
Back in 2008, President Luis Inácio Lula da Silva boasted that the tsunami of the global financial crisis would register barely a ripple, uma marolinha, in Brazil. Bar Mexico, this was true for the rest of the region too. Today, though, Latin America is more vulnerable to a devastating “sudden stop” in international capital flows.
As Agustin Carstens, the head of the Mexican central bank, warned last week, such an event could be triggered by higher US interest rates. Or, more worryingly, it could follow a sudden collapse of commodity prices should China’s economy slow abruptly. But how much more vulnerable is Latin America today? About 20 per cent more, according to the Inter-American Development Bank. Continue reading »
Confused about what’s going on in Argentina? If so, don’t fret – you’re not the only one.
In the space of a day, Argentine debt was upgraded by Bank of America and downgraded by Moody’s. More baffling still, they cited much the same reasons – the level of reserves at the central bank. Continue reading »
What a headache debts can cause. No one knows this better than Cristina Fernández, who after receiving mixed messages related to Argentina’s debt in recent days will have plenty to chew over on her transatlantic flight before she meets the Pope on Monday.
There was good news today when the Paris Club, a group of countries which Argentina owes about $10bn, invited their debtor to begin formal negotiations in May, after economy minister Axel Kicillof presented a repayment plan in January. Resolution of the Paris Club problem is not only a prerequisite for Argentina’s return to the international capital markets, but it could also help to get much-needed foreign investment flowing back into the country. Continue reading »
By Samuel George of the Bertelsmann Foundation
On February 18 the Republic of Argentina submitted a petition to the US Supreme Court requesting a judicial review of a 2012 decision from the New York Second Circuit Court. That ruling found illegal Argentine payments on restructured sovereign debt if the country did not also service investors who had not accepted the haircut on the non-performing bonds.
If the Second Circuit Court ruling stands, it will set a precedent that holdouts could eventually be paid in full. Bondholders may become increasingly reluctant to accept haircuts on sovereign securities, thus complicating the ability of a distressed country to restructure its debt. Continue reading »
Miguel Galuccio has three principal objectives for 2014: “to produce, produce and produce.”
To help achieve that aim, Galuccio, who has run the Argentine energy company YPF since the government expropriated a 51 per cent share from Spain’s Repsol in 2012, is looking for partners. Continue reading »
By Marcelo Etchebarne Mihanovich of Cabanellas Etchebarne Kelly
Two cases pending in US federal courts show how sovereign and sub-sovereign borrowers in distress can get very different treatment.
Detroit, with declared debts of approximately $18bn, filed for bankruptcy in July 2013. On December 3, it was declared eligible for protection under Chapter 9 of the US Bankruptcy Code. Judge Stephen Rhodes of the US Bankruptcy Court noted that Detroit had negotiated in bad faith with its more than 100,000 creditors; however, he also expressed the view that negotiation was impracticable. Continue reading »
Buenos Aires: good old days
Argentina used to be known as a land of silver. About 100 years ago, its citizens were richer than the average Western European. The country’s name comes from Argentum (Ag), Latin for silver. How then did it become a relatively poor tinpot regime?
It’s a question that the Economist put on its front cover recently, with an editorial that fingered poor governance as the main cause. However, Alan Taylor, an economic historian of Argentina, suggests some different answers in an NBER paper published this week. Continue reading »
Is it the beginning of the end for what enthusiasts like to call “the trial of the century” in the world of sovereign debt restructuring?
Well, perhaps, but there could still be an painfully slow ending to a trial that has dragged on for the best part of a decade, after Argentina filed a petition on Tuesday – right on deadline – seeking a US Supreme Court review of an order to pay $1.33bn to “holdout” bondholders who refused to accept restructured debt after Argentina’s 2001 debt default.
There are now three possible scenarios as to how things could go for Argentina at the Supreme Court. Continue reading »
Eat humble pie? Not a crumb. After lying about inflation for seven years, Buenos Aires last night revealed a new and more credible statistical series. This, said Axel Kicillof, the economy minister (pictured), was not because the old inflation numbers were wrong. Rather, it was because they needed to be updated. Why? Because Argentine consumption habits had changed, he explained. The government’s new inflation numbers, he added, provide “an X-ray of another country.” Continue reading »
Far be it from Latin countries to indulge in some pre-World Cup schadenfreude. Nonetheless, different emerging markets have clearly been affected very differently by the recent bout of market turbulence. Take those distant neighbours, Colombia and Argentina. Two years ago, finance ministry officials in Bogotá threw a cat among the pigeons when they declared that the Colombian economy was larger than Argentina’s, making it the third biggest in the region (after Brazil and Mexico). Buenos Aires quickly harrumphed back: “Not so!” For one, that might only be the case if you converted Argentine nominal GDP into US dollars using black market (and thus illegal) exchange rates, rather than the “true” official one. Continue reading »
You’ve heard of the fragile five – well here’s the desperate duo: Argentina, and Ukraine.
Very different circumstances, but both countries are jumping at desperate measures to keep their currencies afloat. But meddling in the FX market doesn’t always work. Continue reading »
Move over Repsol. The government in Buenos Aires is now directing its stinging verbal attacks at Shell.
After Argentina devalued the peso, consumer prices have begun to rise – a logical consequence. Or not – Cristina Fernández, the president, likened retailers and suppliers that have hiked prices to pilferers on Tuesday night.
And her ministers have taken specific aim at Shell, the oil company also accused by Axel Kicillof, the economy minister, of a “speculative attack” on the peso during its preliminary dive on January 22. Continue reading »
The devaluation is done and the peso has stabilised (for now). But can the government in Buenos Aires prevent another storm from brewing? The signs are not good.
Argentina’s forex reserves are still in freefall. The central bank haemorrhaged roughly 9 per cent of reserves in January to leave it with $28bn, according to Bloomberg. Piling on the pressure, the country’s farmers – even with a weaker peso – refuse to liquidate grain stocks for export. Jorge Capitanich, the cabinet chief who has an eagle eye for “speculative attacks” on the currency, is set to twist their arms later on Monday. Continue reading »