Argentina’s Corrosive Currency Blues

Argentine bonds and equities remained global laggards as the informal “blue” peso rate hit 6 to the greenback despite dollar bond selling by the state pension fund as traveler capital control reporting was stiffened and the real estate market froze in the absence of foreign currency. Spain’s Repsol suspended natural gas supplies after the 51 percent acquisition of local operations which corporate executives and diplomats vow to fight through courts and arbitration. With President Fernandez getting a popularity bump with the action and electricity distributors on their backs without tariff adjustment, they may be next to fall under government control as the primary fiscal position heads for deficit for the first time in a decade. GDP growth will likely not reach the 3.25 percent needed to trigger debt warrants as inflation by private reckoning exceeds 20 percent as the IMF has ended attempts to find a common methodology. Corn and soy exports have been good after experiencing drought, but grain producing provinces seek to raise taxes to reduce reliance on federal transfers. In Washington lobbyists and lawmakers continue to exert pressure to sever bilateral ties. At the latest G-20 gathering the Argentine delegation was snubbed for compromising investor protection and not honoring World Bank compensation decisions. In New York an appeals hearing is due on definition of the pari-passu clause as it applies to existing external bond installments that plaintiffs won the right to seize under an earlier ruling. Paris Club negotiations have not resumed as Vice President Boudou who spearheaded outreach is now under investigation for corruption during his tenure as finance minister. In the region a trade war has erupted with Brazil over mutual duty imposition which may indefinitely defer Mercosur pact revival. A spat with Colombia also surfaced with discovery of a bomb planted at a site visited by former president Uribe during a Buenos Aires stay as security measures were questioned.

A well-known oil executive was appointed to head YPF, but the Economy vice-minister who along with the President’s son is sympathetic to Marxist approaches is on the board. Labor unions that fell out with the administration before winning a 30 percent wage increase just prior to last year’s elections are gearing up for a similar settlement this round. Relations with the UK are at a nadir on the anniversary of the Falklands battle after the government tried to garner support for its enduring island claims at the recent Americas summit. It has also alienated the so-called domestic oligarchs as illustrated by YPF’s takeover fallout for the Eskanazis and their Peterson flagship. They purchased a major stake with a loan to be reimbursed by dividends at the urging of President Kirchner, whose tragic heart attack may now be reflected on the clan.