Argentina’s Rechristened Populist Pomp
Argentina’s pre-election bond and stock rally paused as the candidate slates began to line up, with the ruling Peronists still ahead in early opinion with presidential allies filling the ranks. Their standard-bearer Governor Scioli, picked a current cabinet minister as running mate despite hints from his economic advisers that post-October debt and spending policies will change. The second place opposition representative Macri with around 25 percent approval also completed his ticket and their platform calls for a clear break from populist approaches, but his personal reputation has been dented by a history of sexist remarks. The third main aspirant Massa left the Fernandez administration in a previous dispute over farm taxes and his supporters would overwhelmingly back Scioli in a runoff. The President’s current favorable number has rebounded to 50 percent as the recession has eased with a 1.5 percent May contraction, and real inflation runs at 25 percent with relative exchange rate stability. The fiscal deficit will probably finish at 3 percent of GDP after an election binge and a good soy harvest with lower oil imports should maintain a $5 billion trade surplus. Foreign reserves are back up to almost $35 billon after a Chinese currency swap line and local-dollar bond issue under scrutiny from litigating holdout creditors for evading a New York judgment.
Other funds and individuals recently joined the original action and these “me-too” claimants lifting the total demanded to over $10 billion. Under the court ruling assets may be seized under a discovery process aimed at state banks and companies considered sovereign “alter egos,” but the government has stymied the effort. Buenos Aires province and oil monopoly YPG have issued external dollar bonds amid the battling, as the latter turns to developing the Vaca Muerta shale deposits with Chevron in a $1 billion venture. The sovereign debt saga added a new twist with the revelation that Cuba still owes $11 billion in unpaid obligations that Argentine lawmakers refused to write off as the US moves otherwise to normalize economic relations after the decades-long embargo.
Venezuela’s stock market, which was dropped from benchmark investable indexes in the 2000s, experienced a 70 percent surge in May into bank and real estate listings in particular as a remaining outlet for savings preservation as the black market peso rate hit 400/dollar. Ratings agencies put default risk close to par with Ukraine as reported reserves dipped to $16 billion in June, despite Chinese loan and Petrocaribe buyback infusions. The actual cash portion may only be $1 billion as deals were struck with investment banks to monetize gold and SDRs were converted from the country’s IMF account. Another concessional oil facility operation with Jamaica for $3 billion in face value debt is in course, and dialogue with Washington has quietly recommenced toward a possible bilateral commercial thaw. The travel currency allowance was slashed three-quarters to $700 per person, and official office hours were changed to cope with chronic power outages. The minimum wage was hiked before elections set for December, but will severely lag 150 percent projected hyperinflation accompanying President Maduro’s rhetorical hyperbole.
