Reform is a pressing need across emerging markets, especially as global demand remains weak and rising US interest rates threaten to increase funding costs. For countries to revive growth, they will need to create a more favourable environment for business. Politicians in many countries acknowledge this and have put structural economic reforms at the heart of their governing agenda.
But everywhere the outlook for reform is heavily dependent on political leadership and the larger political economy: where leadership and popular support for reform is strong – as in India – the outlook is positive; but where politicians are more interested in power than leadership – such as in Turkey and South Africa – the prospects for positive change are dim. Read more
Investors seem to think that President Mauricio Macri will soon resolve Argentina’s long-standing debt crisis. Yet the task may prove a lot more difficult than expected by those who have not been following the case closely.
Except for former president Cristina Fernández and the chairman of the central bank, few people really know how much President Macri found in the bank’s reserves when he took office on December 10. More importantly, the economy may not kick start, even with Mr Macri’s dream team, without tapping international capital markets in January. Read more
By Arturo C. Porzecanski, American University
During the past dozen years, Argentina has been a destabilizing economic force within South America. While the governments of Néstor (2003-07) and Cristina Kirchner (2007-15) have not meddled in the internal affairs of other countries in the way that Venezuela did under the late Hugo Chávez, their highly populist and nationalistic policies have had adverse repercussions on Argentina’s neighbours.
For example, a decade ago Argentina defaulted on a 1995 commitment to export natural gas to Chile, and did so in order to keep its domestic market amply supplied and thus at lower gas prices. As a result, Chile had to scramble to find alternative energy providers, and the country had to increase its dependence on then-expensive imported oil. Read more
By Paul Segal and Ingrid Bleynat, King’s College London
Argentina’s macro-economic policy has been accused of being incoherent, inconsistent, and out of control. Analysts blame ‘populist handouts’ for President Cristina Fernández de Kirchner’s popularity. Yet that cannot explain approval ratings around 50 per cent after nearly 8 years in power. There is a logic, and a history, behind Argentina’s policy that observers are overlooking.
Consider the challenge facing the government. They were elected to support domestic industry, and to redistribute income in favour of middle and lower class workers. What to do? Enter the economic theory of the second best, also known as (heavily) constrained optimisation. Read more
To many South American leaders, Chinese Premier Li Keqiang’s visit this week couldn’t come at a better time, and from a better country. China has been busy with Latin America, surpassing the United States as South America’s leading export destination outside of the region, according to the China-Latin America Economic Bulletin.
What is more, the ink is barely dry on big loan agreements to Venezuela and Ecuador, or a major China-Latin America cooperation plan signed in January that pledges to increase trade by $500bn and investment by $250bn and to cooperate on science and technology, trade, and environmental protection. Read more
By Arturo Porzecanski of American University
Recent moves, countermoves and judicial decisions have brought the government of Argentina perilously close to a checkmate situation. As a result, the endgame in the litigation saga pitting holdout investors against a “uniquely recalcitrant debtor” is now within sight. If the authorities in Buenos Aires were to set aside their confrontational rhetoric and do what is best for their own political survival, they would agree to a negotiated settlement sooner rather than later. Read more
It has not exactly been the January that some investors were hoping for in Argentina.
The notorious “Rufo” clause (for rights upon future offers) in restructured debt contracts appears to have been the red herring that many had warned it was when the government cited it as an excuse for not cutting a deal with the holdouts last year, triggering Argentina’s default in July. Read more
By Russ Dallen, Caracas Capital Markets
Trying to predict what will happen in South America’s wildest emerging markets in 2015 has the degree of difficulty of trying to compute pi to the 100th digit in your head.
With Venezuela, in particular, the range of options of what could happen next year is almost as infinite – ranging from more of the same and muddling through, to default, violence, coup, civil war and international brigades. On the economic front, whether Venezuela survives 2015 will depend almost purely on the price of oil, however. Read more
Last week, Cleary Gottlieb – the US law firm representing Argentina in its debt negotiations – held a packed closed-door session on Venezuela. The question of the day was: what if Venezuela defaults? This week, the US Senate passed a bill that seeks to sanction Venezuelan officials for alleged human rights violations. Although these two events are not obviously related — and the sanctions bill still has to be approved by Congress, and signed into law by Barack Obama — they could become so. They both also illuminate the horrible mess that Venezuela could be heading into. Read more
Argentina's economy minister Axel Kicillof
If there’s anything certain about investing in Argentina at the moment, it’s that there is an unusually high degree of uncertainty over the outcome an investment.
As a result, investors were delighted when the economy minister Axel Kicillof said on Thursday that he wanted to “put an end to all speculation” and provide “certainty” about whether the government will be able to pay its bondholders next year.
The government will give holders of the $6.7bn Boden 2015 bond the option next week to collect their payment early, swap the local-law dollar-denominated bond for another one (the Bonar) that matures in 2024, or simply wait until the Boden bond matures next year. Read more
Argentines who can remember their last bout of hyperinflation in the late 1980s might have been bemused had they witnessed what was happening this week on Florida street in downtown Buenos Aires.
Despite inflation of around 40 per cent, the value of the dollar on the unofficial market (known as the “blue” dollar) was falling so fast on Monday that beyondbrics came across one currency exchange that refused to tell customers queuing to buy pesos what the price was, as it might have changed by the time they reached the counter.
The drop in the “blue” dollar on Monday was the biggest in months, however, it had been falling steadily ever since Alejandro Vanoli took over the central bank six weeks ago, when the dollar fetched nearly 16 pesos. On Monday it was selling at 12 pesos on Florida street – compared with the official rate of 8.5, which has remained fairly stable.
Who ever said that Argentina’s battle with the holdouts was getting boring? It may have been dragging on for an awfully long time now, but American Task Force Argentina (ATFA) is doing its bit to keep things spicy.
Today ATFA, which lobbies on behalf of what Argentina calls the “vulture funds”, released a limited edition of virtual player cards, each one dedicated to “individuals that have been reported as facilitating corruption and illicit money laundering in Argentina”. Read more
By Marcos Buscaglia of BofA Merrill Lynch Global Research
In a recent article in Project Syndicate titled Should Venezuela Default?, Ricardo Hausmann of Harvard University argued Venezuela’s government is facing a difficult trade-off between providing basic goods to its people and paying Wall Street. So far, Venezuela has opted for the latter. My BofA Merrill Lynch Global Research colleague Francisco Rodriguez argued in an FT beyondbrics column that this is a false dichotomy, as there is another policy solution to Venezuela’s dilemma: fix relative prices.
We argue that Argentina’s situation is analogous to that of Venezuela’s. Its government has also faced a dilemma, between preserving international reserves to service local law public debt, particularly the Boden 2015, or giving them to importers. Like Venezuela, Argentina has decided in favour of Wall Street thus far, at the expense of its population. This is also a false dilemma, in our view. We believe Argentina needs instead to implement a sustainable macroeconomic adjustment and act to reopen capital markets. Read more
Argentina’s energy sector is a constant headache for the government – the fact that there are tankers charging hefty daily fees as they queue up offshore to unload liquefied natural gas because there is nowhere to store it is just the most recent example.
But YPF, Argentina’s biggest energy company, has been a beacon of light in the gloom, with the country’s energy deficit being the single biggest reason why it is running out of dollars.
YPF has notched up a string of achievements since the state took back a majority stake in 2012, most recently announcing on Wednesday a $170m deal with Ecuador’s Petroamazonas to optimise production in the mature Yuralpa oilfield. Read more
By Arturo Porzecanski of American University
José Antonio Ocampo, a former United Nations official and co-president with Prof. Joseph Stiglitz of Columbia University’s Initiative for Policy Dialogue, which promotes the adoption of heterodox economic policies in developing countries, recently wrote a guest post welcoming a UN General Assembly resolution calling for the launch of negotiations on a multilateral framework for sovereign debt restructuring. The resolution was Argentina’s initiative and it passed with the backing of a coalition of developing countries (the so-called G-77 plus China) in the wake of, as Ocampo put it, “the absurd decisions of a New York judge on Argentine debt.” Read more
By José Antonio Ocampo of Columbia University
On September 9, the United Nations General Assembly approved a resolution to launch negotiations on a multilateral framework for sovereign debt restructuring. The vote was overwhelmingly in favour of the resolution: 124 in favour vs 11 against with 41 abstentions. But it was a deeply divided one. It was essentially approved with the votes of developing countries, but the no votes included the US, Japan, Germany and the UK; the remaining European Union members abstained.
This is, of course, a continuation of the saga of the absurd decisions of a New York judge on Argentine debt: the decision to force the country to pay on the original terms to holders of bonds not tendered at the 2005 and 2010 renegotiations, the ratification of this verdict by the New York Court of Appeals, and the decision of the US Supreme Court not to consider an appeal by Argentina against the latter decision. Read more
The bust-up between Argentina and its holdout creditors is getting uglier by the day. As the “vulture funds” do their best to prove that there is corruption at the highest levels of government, President Cristina Fernandez responded yesterday by accusing them of engaging in terrorism.
The increasingly dirty fight comes as the holdouts disdainfully reject the possibility that a deal with the private sector might materialise, so rescuing Argentina from its default situation. Aurelius Capital Management said on Wednesday that none of the offers presented by a group of Wall Street banks were even “remotely acceptable.” Read more
Argentina’s debt default at the end of last month might have been expected to plunge emerging markets into a new paroxysm of panic. But the saga has for the most part been brushed off by fixed income fund managers.
True, prices of Argentine bonds have fallen, but not by very much. An issue due in 2033 actually gained slightly last week to close on Friday at 84 cents on the dollar, down from 96 cents two weeks ago but well above its 2014 low of 65 cents, let alone the 20-30 cents in the dollar level to where defaulted Latin American paper might have been expected to sink.
What’s more, demand for new high yield Latin American paper continues to surge. Read more
By Mark Stefanini of Mayer Brown
While global markets watched the clock tick down on Argentina’s default this week, the holdout creditors’ camp would have already started considering redoubling their efforts to extract payment from Argentina. The potential for NML to target Argentina’s overseas assets could provide the next twist in the tale – and set a precedent for exposing previously hidden transactions and assets in other emerging markets and worldwide. Read more
Argentina’s national motto is En unión y libertad (In Union and Liberty). Should it, perhaps, consider changing it to Sui Generis?
Having found a variety of ways throughout its history to break new ground in macroeconomic and sovereign debt mismanagement, Buenos Aires this week may be forced into a new one.