Argentina’s Blue Mood Muster
Argentina shares were throttled in their Latin America and frontier market-leading 30 percent advance as of Q3 as central bank head Fabrega was accused of allowing the blue-chip swap combining local bourse and New York ADR transactions to circumvent currency controls and subsequently resigned as the “blue” informal peso rate tumbled to 16 or double the official devaluation against the dollar. The institutional maneuver may soon be blocked as the individual salary threshold was hiked for legal monthly $2000 access. The securities regulator, an outspoken presidential ally, took the monetary post as Finance Minister Kiciloff consolidated his interventionist hold and continued at the IMF annual meeting with a tough line against US court contempt judgment in the landmark holdout case. Judge Griesa did not impose fines with the initial decision but they may be aimed against the main state bank’s New York operation for the unauthorized acceptance of trustee responsibility. No bondholder has agreed to external payment through Buenos Aires despite the cabinet chief’s assertion of willingness to shift jurisdiction as well as lend new money. The end-September $150 million par bond installment was deposited domestically with reserves reported at $28 billion or over four months of import cover. Officials took issue with the Fund forecast of recession this year and next as its statistics show flat activity versus outside estimates of 2 percent shrinkage. The government acknowledges unchecked industrial output decline but has not released annualized inflation which private analysts put in the 40 percent range. The weak peso reinforces the trajectory as capital goods imports are off one-third and agricultural exports waver as farmers horde production as a store of value. Internal consumption has also suffered with retail sales off 20 percent in August, and uncertainty was compounded with the passage of new laws giving extraordinary powers now to set profit margins and confiscate assets and redenominate hard currency obligations in pesos in the future. The car war with Brazil worsened further as local assembly lines face parts shortages and President Fernandez blamed unfair competition and “selfish” automakers for attempted gouging.
Brazil’s presidential contest went into the final round with challenger Neves with a slim voter intention margin after eliminated candidate Silva endorsed him as a change agent despite reservations about free-market economic policies. Securities and currency markets pared losses on the opposition swing as presumptive Finance Minister Fraga entered a television debate with incumbent Mantega to present the center-right party’s contrast. The former offered technocratic alternatives to the past decade’s state lending and consumption model as the latter denied recession and fiscal policy erosion. Public sector net debt/GDP is over 35 percent and 6.5 percent inflation is above target and corporate foreign obligations are $7.5 billion in 2015. One-third of the $1.25 trillion in local government paper is inflation-linked and non-resident ownership is almost one-fifth and potential junk status downgrade may tip the somber balance.
