Argentina’s Divine Intervention Dalliance
Argentine shares were unmoved in the MSCI frontier index cellar despite euphoria over the Buenos Aires archbishop’s election as pope, and signs that a compromise holdout formula may be offered to New York courts on debt repayment by an end-March deadline and that the US and Europe may be less adamant in blocking IDB funding following annual meeting exchanges in Panama. Twenty years after the Falkland battle with Great Britain islanders however dealt a setback to territorial claims in voting overwhelmingly to maintain colonial ties which could jeopardize offshore oil exploration as the industry still reels from YPF’s takeover and the freezing of Chevron assets pending the outcome of an environmental damage case in Ecuador. Appeals judges after learning the Finance Minister was prepared to disobey a sweeping vulture fund reward in view of domestic law restrictions, ordered his suggestion of a pro-rata alternative to be delivered but left open the question of access to trustee accounts to enforce judgment. The response will clarify whether the 2010 lock law could be amended for basic terms and also add past due interest. The sovereign could continue petitions to higher tribunals with an unfavorable ruling, and also shift to local jurisdiction through another swap with current bondholders to evade attachment. Corporate and provincial issuers remain unperturbed by the standoff, with Buenos Aires Province continuing to emphasize debt service capability at one-tenth of revenue despite a B-minus rating and negative outlook, declining federal transfers, and rising wage bill. GDP growth overall has been flat entering the main agricultural export season, as the government’s primary budget surplus disappeared. President Fernandez announced a 15 percent rise in public pensions, about half of real inflation according to trackers, but indexed-adjustments accumulating from the past decade have been granted by the Supreme Court as further thus far unrecognized obligations. The money would come from the social security pool which absorbed the private system, as the executive and judiciary clash over decisions in numerous realms, including the media. The web of capital controls and bank interference was also extended recently with a proposal for an exclusive state-bank issued credit card to be used in major supermarkets.
On Brazil’s sputtering stock exchange international officials such as the head of the World Bank’s IFC have delivered a message of “self-inflicted” damage from curbs and preferences, as portfolio inflows plummeted to just over $15 billion in 2012 and were only $2 billion through March. GDP growth was below 1 percent and inflation is outside the target as the central bank intervenes to halt real depreciation and reverts to tightening mode. A new oil royalty bill has sparked a legislative and provincial backlash as President Rousseff contemplates re-election. In Mexico securities allocation was 5 times Brazil’s total last year, and the bourse and peso have rallied with a 50 basis point benchmark rate reduction and President Pena Nieto’s move against the telecom sector’s long-sacred protection.
