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Wed Dec 18, 2019, 01:00 AM

Argentine bond markets rally on currency policy announcements

Last edited Wed Dec 18, 2019, 09:07 AM - Edit history (1)

Argentine bond markets rallied today on announcements by Economy Minister Martín Guzmán of policy changes designed to limit capital flight.

The nation's most commonly subscribed sovereign bond, Bonar 24, rose 7.4% - and peso-denominated issues rose as much as 13.5%.

JP Morgan’s Emerging Markets Bond Index (EMBI+) country risk for Argentina - the interest premium paid over U.S. Treasuries - fell 146 basis points to 1968, the lowest in two months.

The rally took place after Guzmán announced a 30% surcharge would be applied to dollar purchases as well as on the purchase of services charged in dollars.

"What we're doing is protecting the few reserves we have, to prioritize production - which requires imported supplies," Guzmán noted.

Twin crises

Argentine bond prices have risen steadily since Guzmán and President Alberto Fernández took office on December 10, with the popular Bonar 24 issue up 17.5%.

They inherited twin economic and debt crises from the right-wing Mauricio Macri administration - including a $45 billion IMF debt, 52% inflation, and a sharp recession.

Most other currency restrictions - notably a $200 monthly dollar purchase limit - had already been enacted in September and October by Macri in a dramatic policy about-face.

Macri had lifted most currency regulations four years earlier - prompting a doubling in the public foreign debt to over $200 billion as capital flight soared.

Debt obligations over the next four years total over $148 billion, with the country's projected $15 billion trade surplus for 2019 dwarfed by nearly $20 billion in foreign debt interest.

"We need a good-faith conversation on the country's ability to service its debts," Guzmán concluded.

At: https://translate.google.com/translate?hl=en&tab=wT&sl=es&tl=en&u=https%3A%2F%2Fwww.ambito.com%2Ffinanzas%2Fsp-merval%2Ftras-los-anuncios-guzman-volaron-135-los-bonos-y-el-riesgo-pais-perforo-los-2000-puntos-n5071746

Argentine Economy Minister Martín Guzmán in today's press conference, in which he outlined measures to limit capital flight and to increase pensions (which have lost 20% of their real value since 2017).

Guzmán faces twin debt and economic crises inherited from Mauricio Macri's 2015-19 tenure, and bond markets have reacted positively to his efforts on debt sustainability.

"The country was ran into debt brutally over the past four years - but the debt was not used to increase productive capacity that would have sustained high dollar outlays," the Columbia University academic noted.

"That's the reality, and everyone recognizes it."

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Reply Argentine bond markets rally on currency policy announcements (Original post)
sandensea Dec 18 OP
Judi Lynn Dec 18 #1
sandensea Dec 18 #2
Judi Lynn Dec 18 #3

Response to sandensea (Original post)

Wed Dec 18, 2019, 01:55 AM

1. Thank you for this article. Guzmn explains things so well for readers, as you do.

How unusual it is to see people in there who are actually taking the economy facing the taxpayers to heart, not to manipulate for personal profit, like Macri and cohorts.

Hope there's a great Wednesday ahead for all of us.

The trolls will have to go pound sand!

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Response to Judi Lynn (Reply #1)

Wed Dec 18, 2019, 10:08 AM

2. Sure. He's negotiating with bondholders - and they need to see he's serious about guarding dollars

Argentina has around $44 billion in foreign exchange reserves (mainly dollars) - but only $10 billion of that is freely available to pay foreign debts.

And some $25 billion is due in 2020, without a restructuring.

Bondholders have shown a willingness to accept deferred payment - and even take a 20% haircut - but they need to see Argentina is making efforts to hold on to its dollar reserves.

Rather than let them fritter away through capital flight, and then borrowing to put them back - which is how they got into this debt crisis under Macri.

Such are the limitations for a country that can't print its own dollars, and doesn't have outsized amounts of some valuable resource like copper or oil.

Soy helps - but it won't cut it.

So much soy; so few dollars.

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Response to sandensea (Reply #2)

Wed Dec 18, 2019, 12:42 PM

3. Never have seen the product or the plants identified! It's good to finally know how that crop looks!

It looks beautiful while it's growing! Very tasteful!

Interesting learning the concessions which have been considered as alternative methods of repayment.

It's such a shame this wouldn't be an issue now had Macri not slithered into office and highjacked the economy.

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