Harsh warning from international banks for Argentina’s debt: “The markets have already given up”

Robin Brooks, chief economist at the IIF Alicia Vera/Bloomberg

The Institute of International Finance (IIF, according to its acronym in English) issued a harsh warning about the possibility that Argentina will fall into default again in the short term if there is no political will from the Government to avoid it.

The group of experts of the international banks referred to the delicate Argentine situation in the midst of the complex visit to Washington by the Minister of Economy, Silvina Batakis, to meet with the US Treasury, the International Monetary Fund (IMF), the World Bank and Wall Street investors, with the intention of placating the markets.

The IIF economists led by the banker axel weber They referred to the macroeconomic, financial and exchange crisis in Argentina in a series of messages, in line with the increase in country risk, around 3,000 basis points, an unprecedented level since the 2020 debt swap.

The IIF graph on Argentine debt
The IIF graph on Argentine debt

Referring to the dollar, the chief economist of the IIF, robinbrooks, noted: “Argentina’s parallel exchange rate is a whopping 150% away from the official exchange rate. In 2018, it was the crises in Turkey and Argentina that triggered a huge sell-off in emerging markets that summer. There is no risk of that now. Global markets gave up on both places a long time ago.”

Already in 2001, Wall Street analysts looked at the situation of both countries in parallel, when both maintained a fixed exchange rate scheme; In addition, for the G7 at that time, Argentina was a source of contagion for the rest of the emerging markets and that is why it was decided to “protect” its neighbors with financial assistance packages once convertibility fell. More than 20 years later, in another context, the analogies remain, despite Turkey’s strong strategic weight for both Europe and the United States.

”Already in 2018, the crises in Argentina and Turkey caused a contagion in the rest of the emerging markets. It won’t happen now. Back then, Argentina and Turkey had received huge foreign portfolio inflows before the crisis. They haven’t received anything recently and are basically cut off from global markets,” Brooks said.

In 2018, when the voluntary debt markets were closed, the government of Mauricio Macri resorted to a loan from the International Monetary Fund (IMF) for USD 57,000 million, while Ankara remained on the sidelines despite its strong financial needs.

Meanwhile, one of Brooks’s collaborators, Sergio Lanaustated in tune with Martin Castellano, head of IIF research for Latin America, that “Argentina’s external bond coupons are a small fraction of gross external financing needs between now and next October’s elections. Another sovereign default can be avoided in the short term if the political will exists to do so.

The IIF graph on Argentina, Turkey and other emerging
The IIF graph on Argentina, Turkey and other emerging

Weeks ago, Castellano had expressed that “In Argentina, keeping the IMF program afloat to avoid more adverse scenarios will require more political support. More interventions and controls in the foreign exchange market only exacerbate distortions and imbalances, without measures being taken to contain inflation and anchor expectations”.

Castellano showed in a graph the distorting effects of the strong exchange rate gap that exists in the country, since the official exchange rate appears highly appreciated in real terms, compared to parallel prices, which generates all kinds of distortions for the operation of the economy.

The IIF, which brings together banks from around the world, has stopped publishing reports on Argentina for a long time due to investors’ lack of interest in sovereign assets.


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