Argentina’s False Positive Pivots
Argentine bonds roller-coastered to the top of the EMBI charts as President Kirchner’s thyroid cancer scare proved to be misplaced post-surgery and months of post-reelection capital flight abated with a stiff crackdown on dollar circulation and industrial and consumer imports. Sniffer dogs have been deployed to detect undeclared greenbacks heading across the river to Uruguay during the Southern Hemisphere summer, and the trade blocks are designed to preserve the surplus under literal fire from a prolonged drought savaging corn and soybean crops. The immediate post-crisis 2009 harvest was destroyed by such natural disaster as the administration moved to hike export taxes, angering the ruling Peronist party’s key farmer constituency. The agricultural lobby has since reconciled with the government, which is now under pressure from anti-mining groups to suspend projects for alleged environmental harm. Provincial authorities recently took action against a Canadian-owned gold venture in response to protests, while national ministries have been reluctant to alienate new investors although they advocate a tougher stance against longtime oil giant YPF controlled by Spain’s Repsol. Higher energy prices which will further bite with subsidy removal have drawn popular criticism, especially since they conspicuously affect inflation officially claimed to be at 9 percent versus the 20-25 percent presumed by outside estimates. Statistical credibility was openly challenged by the IMF after technical assistance providers found continued GDP growth and price measurement misalignment with international standards, and placed Buenos Aires on six-month notice to improve data or face consultation cut-off. Private analysts who court fines and criminal investigation for such actions have also begun questioning fiscal accounts amid suspicion that the primary surplus has disappeared. Capital outflows have been reduced to several hundred million dollars monthly as the peso’s imputed value hovers at 4.75 given heavy central bank intervention.
GDP bond warrants will not pay out this year as growth will slide to 2-3 percent, based on consensus projections. This kicker may feature in the Greek swap that is often stacked against Argentina’s precedent, with commercial creditors pointing out that the EU’s Eurostat is a more reliable output monitoring source. However a parallel is also drawn with the official sector’s arbitrary negotiating approach and deal terms which resulted in a decade-old exile from international fixed-income markets. Holdout funds that have gotten billions of dollars in New York and London court judgments but been unable to collect have raised the stakes in Washington by obtaining passage of legislation to withhold multilateral and duty-free aid pending satisfaction. President Kirchner, who announced unemployment at a record low after her brief debilitating bout despite widespread belief it is stuck at double digits, has nonetheless spurned such chinks in the longstanding model.
