Argentina’s Benumbed Bumped Heads
Argentina stocks and bonds sustained index pre-eminence as President Fernandez returned to office after a month of concussion recuperation and mid-term election losses, with her Peronist party wing receiving only one-third of the parliamentary vote while keeping majorities in both houses. The result quashed the prospect of amending the constitution with a two-thirds margin to allow a third term amid rumors the incumbent’s uncertain health may force early departure. Internal more business-friendly rivals have emerged and the opposition has managed gains despite continued splintering. Despite strict capital controls usable reserves are down to around $25 billion, as the parallel peso rate is 60 percent above the official one. GDP growth may not reach the almost 4 percent needed to trigger bond warrants, on 25-percent range inflation by private estimates as authorities reluctantly work with the IMF to revise the methodology after previous censure for unreliable data. The pre-election period saw other overtures to bilateral and multilateral lenders as Paris Club negotiations were conducted on global meeting sidelines and a discounted $500 million settlement was offered for arbitration awards through the World Bank’s direct investment dispute panel. Rising energy import costs have already driven a softer FDI line with Chevron’s fracking deal, and with agricultural exports also in a slump the government may alter buying and tax policies to quell farmer outrage and attract additional interest from multinational grain houses. The decade-long clash with bond holdouts experienced another twist as the New York appeals court stay was preserved pending a repeat US Supreme Court filing, and restructured participants led by Gramercy Management proposed to forgo 20 percent of interest coupons to cover $1.3 billion in outstanding fund claims from their own pocket on the assumption closure would boost underlying value. The main plaintiffs rejected the outline, although it was hailed as innovative by media and industry observers looking for judicial and diplomatic alternatives. European individual holders have pursued the latter route for five years, and their efforts have met with Buenos Aires resistance and been swamped by the Eurozone’s own debt crisis.
On the EMBI through November, the top performer has been neighboring Ecuador, following its Fitch ratings upgrade from quasi-default level, as over $8 billion in Chinese loan for oil facilities are tapped equal to 15 percent of GDP. President Correa, who repudiated obligations on entering office has hinted at global bond market return and sent officials on a road show to major capitals to promote trade and financial links. He also intends to merge the two small securities exchanges in Quito and Guayaquil and introduce stricter disclosure and protection rules while insisting that they serve “popular” ends. Petroleum production has stagnated as rainforest was recently opened for drilling at Chinese urging .The case against Chevron for alleged pollution drags on with the local community’s chief New York attorney accused of fraud and racketeering in the dizzying drama.
