Argentina’s Mooted Mainstream Macri-Fundamentals
Argentina’s stocks and bonds extended double-digit rallies with opposition candidate Macri’s 51-49 percent win over President Fernandez’s chosen Peronist successor Scioli, as a tense Casa Rosada meeting on the transition hinted at the rough economic overhaul path ahead without his party’s legislative and governorship control. The incoming president’s team has already suggested a phased timetable for lifting exchange restrictions in contrast with the campaign’s immediate removal promise, and negotiation delays with holdout bond creditors as it untangles the past decade’s reserve position and payment record. In the near term agricultural export taxes may be suspended, Mercosur free trade relations restored with Brazil, and statistics reporting revised in line with IMF recommendations for more accurate growth, inflation and fiscal deficit figures. Currency devaluation is a precondition for exchange rate unification, but an outright float could decimate the central bank balance sheet as a new governor prepares to take charge amid allegations of illegal official dealing. It could also dent domestic consumption while barely supporting dollar-denominated commodity exports, with recession return likely on stubborn 20-percent plus inflation with the weaker peso pass-through. The budget gap will persist at 4 percent of GDP without further subsidy cuts on momentum from pre-election spending and the true public debt ratio remains unknown with hidden accounts but may exceed 50 percent. With these adjustments and more investor-friendly policies, the sovereign rating is due for an upgrade, which will facilitate external corporate access by state oil firm YPF and other names prior to sovereign re-entry.
In next-door Bolivia President Morales will hold a referendum soon on re-election after a decade in power, with hydrocarbon-driven growth sliding to 3.5 percent and spawning unaccustomed fiscal and trade deficits. A $50 billion 5-year public investment program is designed to cushion the downturn, but is often tied to energy projects with scant private capital scope despite new commercial and arbitration laws to address the expropriation tendency. The gas pipeline to Brazil will wane without fresh finds by end-decade, and the central bank continues to lend to state enterprises as foreign reserves dipped below $15 billion. The currency has been stable at 6.9 per dollar but may drift to 7.5 particularly with depreciation of neighboring regional units. Although another sovereign bond is in the works, Chinese loans remain the preferred external route with another $7 billion pledge in October.
Ecuador’s President Correa announced he will not stand in the next 2017 contest, with the oil economy in recession and trying to plug a 3 percent of GDP budget hole. Next year’s plan predicts a $35/barrel price and spending retrenchment, with additional arrears accumulation to contractors, but excludes a $1 billion arbitration award to Occidental Petroleum. The 2015 external bond matures soon and the government intends another $1 billion issue, as investors are wary over the President’s unabated criticism of the dollar regime although he has backed away from electronic money as an alternative. Domestic banks have suffered deposit outflows in the same concern and may have to tap a $2.5 billion liquidity fund. In Venezuela the opposition should triumph in December parliamentary polls despite President Maduro’s jailing of leaders. The economy is in near-depression and hyper-inflation despite the absence of official statistics, and state oil monopoly PDVSA is considering a bond swap for $10 billion owed in 2016-17 as all parties scramble for default position.
