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Argentina is a beautiful country to visit. Sadly, bailout missions rather than holidays are the reason IMF officials have gone there 22 times since 1958. That tally may grow.
Argentina’s newly elected president Javier Milei plans to “chainsaw” government spending and dollarise the economy. Argentina’s precarious fiscal situation needs more than noisy rhetoric to keep creditors at bay.
Replacing the peso with the greenback could help restore short-term confidence. Everyone is tired of the country’s hyperinflation, forecast at 200 per cent annually.
Officially, there are 353 pesos to the dollar. Fair value is closer to 600 pesos, thinks William Jackson at Capital Economics. Black marketeers put it at about 900 pesos.
If Milei’s government does dollarise the economy, peso holders would need to convert their currency before the country’s capital controls are removed. Devaluation would follow. This would have a knock-on effect on such government data as the debt/GDP ratio.
Bond markets already take a dim view of Argentina. Its woes are well-known and priced in. The benchmark US dollar sovereign bond, maturing in 2030 and with a coupon of 0.75 per cent, trades at about 30 cents on the dollar.
These bonds were a third lower about a year ago. With some $16bn of outstanding debt, they are popular, liquid instruments easily trading tens of millions daily, according to emerging market debt specialists at Abrdn.
Argentine US listed companies, such as state oil producer YPF and Grupo Financiero (Banco) Galicia, have performed well over one year, up as much as 70 per cent in dollar terms. Devaluation fears are partly reflected in YPF’s dollar shares. Its depository receipt, which represents one local share, closed at $10.73 on Friday. That reflects a 900 peso/dollar conversion. YPF leapt 24 per cent in premarket New York trading on Monday.
Many investors in Argentina are financial tourists. Milei’s government needs them to stay longer. This will only happen if radicalism is swiftly followed by stability, a tall order for this political firebrand.
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Source: Economy - ft.com
