Argentina’s Holdout Holding Patterns
Argentine equities joined bonds in global investor embrace according to a Financial Times survey, as a $5 billion tentative deal with the main litigating funds Elliott and Aurelius was struck after agreements with European retail and other distressed bond holders for 70 percent of untendered amounts. New York settlement was prodded by court lifting of the injunction against paying existing instruments forced into default last year under pari passu clause interpretation, as Judge Griesa ruled that “President Macri’s election changed everything.” The government dispatched negotiators in contrast with the previous one’s refusal and has been on a broader bank and fund manager charm offensive, including keynote presentations to the IIF around the G-20’s late February gathering. It has also followed the IMF’s advice in revamping the economic statistics agency and will invite the first Article IV mission in a decade as recession is forecast this year on 25 percent inflation following the peso float and subsidy cuts to trim the 5 percent of GDP fiscal deficit. Banks are rebuilding dollar deposits on track to reach the $15 billion total before capital control launch, and private credit at just 15 percent of output may jump after a long drought to aid exchange-listed Galicia and Macro. Agriculture and energy firms have already rallied on tariff and tax adjustments, as S&P raised the sovereign rating to “B-“ on new policy direction and access to $6 billion in international commercial loans. Even politics has turned to the President’s benefit as dissident Peronist party members split from the group and backed revision of the “lock law” to allow bond resolution, with provincial governors also in line so they can get support for strained budgets.
Uruguay’s thinly-traded bonds moved up on response, although its other commercial partners Brazil and Venezuela remain in a deep funk and inflation is in double digits. Farm exports have dropped, and pulp mill production will barely sustain 1 percent GDP growth, as financial services and tourism await the Argentina fallout. Unemployment at 7.5 percent poses a challenge to the social welfare net as authorities also try to curb the chronic budget gap. Its experiment in legalizing marijuana could be followed by neighbors if both crime reduction and revenue increases result. Drug strategy is also a key component of the peace accord with FARC rebels in Colombia, as demobilization is linked with investment and training in alternate crop cultivation. President Santos will put the pact to a national referendum later this year, and the effort has caused delays in a tax reform package and revived doubts about BBB rating status. The 6 percent of GDP current account deficit and 7 percent inflation have also triggered alarms. The state oil company was downgraded on poor industry prospects and the central bank raised the benchmark rate twice as El Nino-related drought may further hike food prices. The President and his team marked the anniversary of the ant-narcotics bilateral Plan Colombia in Washington as exchange rate weakness prompted calls for intervention from business executives surrounded by next door’s Venezuela’s collapse and upcoming presidential elections in Peru, where front-runner Fujimori holds out free-market solutions to win Andean competition.
