Guarded optimism about Argentina's financial future

There are 4 replies in this Thread. The last Post () by Splinter.

  • I deleted after reading, and now they are paywalling me too. I'll find somebody who hasn't opened their one article this month, and ask for help --

  • I cannot access it, too.

    While I was happy about the latest status change to emergent country, some leftist friends of mine wrote on Facebook that it means a further 'go ahead' to ransack the country to giant foreign corporations and companies. This very friend is always very negative and hostile to the current government, but has a solid economy foundation (which I don't).

    I cannot fathom so big negativity when before we had Cristina. I am not a Macri fan but what is the alternative? If it was what we all know, nothing can be worse than that.

  • A revamped central bank, the recovery of Argentina’s status as an emerging market and the arrival of a financial rescue package from the International Monetary Fund this week staunched a run on one of the world’s worst performing currencies.

    The peso appreciated 2 per cent this week, after losing more than a third of its value against the dollar this year as one of the emerging markets that was worst hit by a strengthening dollar and rising interest rates in the US.

    Whether or not this is a turning point for the peso is far from clear. Global conditions remain challenging for emerging markets, with a trade war brewing between the US and China, and few signs of the dollar rally ending in the short term.

    “We’re not out of the woods yet,” says Jorge Mariscal, chief investment officer for emerging markets at UBS Global Wealth Management. “There are a number of things that are specific to Argentina that are going well, but whether that is enough [to ensure stability] depends on a bit of luck and the external environment.”

    The IMF’s disbursement of $15bn for Argentina on Wednesday is expected to take pressure off the peso, while the country’s promotion on the same day from frontier to emerging market by the benchmark MSCI stock index is due to attract fresh inflows of at least $2.5bn into Argentine equities.

    Meanwhile, markets welcomed the appointment of Luis Caputo, a former trader who became finance minister last year, as the new head of the central bank, after his predecessor Federico Sturzenegger admitted to losing credibility among investors in his resignation letter to the president. “Having Caputo manage the [peso] is a very smart move,” says Diego Ferro, portfolio manager at Greylock Capital.

    Argentina’s response to the rout of the peso — which included jacking up interest rates to 40 per cent and seeking help from the IMF — so far seems to be helping to restore investors’ confidence that the centre-right President Mauricio Macri’s economic reform programme is back on track, after some were beginning to fear he was losing his way.

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    “If you look at Argentina compared to other emerging markets like Turkey, Brazil or Mexico, of that bunch it has been the most proactive, and has had the most aggressive policy response,” says Brett Diment, head of emerging market debt at Aberdeen Standard Investments, who argues that interest rates need to remain high for a while.

    In addition, Argentine equity and debt markets have been some of the worst performing in the world so far this year, leading some to argue that a lot of the bad news is already priced in. “If there are large price moves and a good policy response, it’s an opportunity to take some risk,” adds Mr Diment.

    For Graham Stock, head of emerging markets research at BlueBay Asset Management, restoring confidence is the cure for the peso’s recent turbulence. “If the IMF package is successful in stabilising confidence then the peso will stabilise too,” he says, arguing that the key is whether Argentine households and corporates — more than foreign investors — feel that the peso is a reasonable store of value. “At 40 per cent interest rates it should be, but only if they are confident that the IMF programme will stick.”

    The jumpiness of local investors is understandable. It would not be the first time that attempts by the IMF have failed to turn Argentina’s economy around. Many still recall the disastrous end to the multilateral lender’s last efforts to rescue Argentina’s economy with the 2001-02 financial crisis.

    “It’s learned behaviour, and who can blame them? But I think this time is different, because you have a better economic team with the right prescription,” says Mr Stock.