Vultures swoop on Argentina
Holdouts against a settlement of Argentina’s defaulted debt are opening a new front in their campaign for a juicy payout more than a decade after the biggest sovereign default on record.
Lobbyists for some of the investors who hold about $6 billion in Argentine debt are in London to persuade Britain to follow the lead of the United States, which last September decided to vote against new Inter American Development Bank and World Bank loans for Buenos Aires.
Washington believes Argentina, a member of the Group of 20, is not meeting its international obligations on a number of fronts. Apart from the dispute with private bond holders, Argentina has yet to agree with the Paris Club of official creditors on a rescheduling of about $9 billion of debt. It has refused to let the International Monetary Fund conduct a routine health check of the economy. And it has failed to comply with the judgments of a World Bank arbitration panel.
In short, Argentina is not playing by the rules of the international game, says Rob Shapiro, a former U.S. under secretary of commerce, who is now co-chair of the Argentina Task Force America.
According to its website, the group’s aim is to “vigorously pursue” a “just and fair” reconciliation of the Argentine government’s default in December 2001 on some $95 billion of debt.
Its members and supporters include the delightfully named Montana Women Involved in Farm Economics (WIFE). Another is New York hedge fund Elliott Associates, which has bought distressed debt issued by a number of developing countries and sued them for repayment.
In 2000 Peru paid Elliott $56 million to settle a four-year fight after the hedge fund refused to accept the restructuring terms on offer.
from Scott Barber:
Breaking point? Greece vs. Argentina
As the crisis in Greece continues, the comparisons with Argentina’s chaotic bankruptcy a decade ago start to look more justified. In Argentina, a bank deposit freeze was the tipping point, triggering mass violent protests. People took to the streets banging pots and pans to protest against an economic collapse that plunged millions into poverty. The government declared a stage of siege and presidents resigned one after another. Greek unemployment and industrial production numbers out yesterday were dreadful but how to they compare to Argentina in late 2001?
The table and charts below show some key economic series in Argentina in the run up to 2002 and after. Argentinean real GDP fell nearly 20% from its peak in 1998 to 2002 -that compares with around a 12% fall so far in Greece. The unemployment rate in Argentina reached a peak of 24% not far above the 21% Greece reported yesterday. On other metrics Greece looks much worse; the IMF puts public debt at 50.8% of GDP in Argentina compared to an expected 166% in Greece this year.
The IMF published its Lessons of the crisis in Argentina in 2003 (approved by Tim Geithner no less). Looking at the conclusions, the IMF faced many problems now becoming familiar in Greece as this passage shows:
“When the economy slid into recession, the Fund faced a somewhat different and more serious dilemma. In terms of policy advice, fiscal easing in support of growth was not a viable option given the exploding debt dynamics, while tightening would exacerbate the downturn. In hindsight, the most viable option would appear to have been an early debt restructuring involving a significant present value reduction, combined with the abandonment of the currency board. However, the authorities were unwilling even to consider the possibility of an exit: neither the government nor the public were prepared to take such a drastic course until it was forced upon them by events.”
Looking at the data post default Argentina started to recover fairly quickly, however the comparison here looks weaker. Argentina devalued into strong global economic upswing that started in 2003, and had the benefit of being a commodity exporter. While you could argue a swift resolution to the Greek crisis might be the catalyst for a similar rebound, this seems unlikely given the number of other countries with similar (if not as extreme) debt problems.
from Davos Notebook:
Will Goldman’s new BRICwork stand up?
Jim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?
In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.
Hmmm. Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.
Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by banks seeking to pique investors' appetite for higher returns.
Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).
So far, none of them have really caught on. One thing you can bank on: the term BRIC will still score highly in any tally of the millions of words that will issue forth from Davos next week.
Argentina set for wheat windfall
Not everyone is upset about the 50 percent surge in wheat prices over the past month.
Wheat’s rise to 2-year highs was caused first by heavy rains in Canada and now by a Russian export ban that was triggered by its worst drought in decades. There are floods in Pakistan, another major wheat grower. But while the wheat market shenanigans are triggering much hand-wringing across developing nations, Argentina, one of the world’s top seven wheat exporters, may be set for a windfall.
Farmers there are increasing wheat plantings, the Buenos Aires Grains Exchange says. The South American country is expected to export around 8 million tonnes of wheat in the 2010-2011 year. With wheat futures on the Chicago Board of Trade at around $8 a bushel, a very simple calculation shows export revenues are going to very significant.
Investors are taking note.
RBC analysts are advising their clients to buy the Argentine peso against the dollar. The peso is trading at 3.933 at present but currency forwards markets are pricing in a 2.1 percent fall in the peso’s value over the next three months. RBC reckons they could be wrong and sees “very strong grain commodity prices supporting higher FX export inflows.” That it hopes, will keep the peso stable to the dollar. Buying the peso now would mean a 2.1 percent gain over 3 months or almost 9 percent in annual terms.
Nick Chamie, strategist at RBC, now expects Argentina’s economy to grow 6.5 percent this year — more than the 5 percent he originally predicted. He points out the stronger wheat price has had a knock-on effect on other grains – prices for soy and corn, of which Argentina is a top exporter, are up 11-13 percent over past month.
Arentina has a bad reputation with investors — it defaulted on $100 billion in debt in 2002, a record for any sovereign. It only recently finished restructuring defaulted debt and is hoping to come back to bond markets soon. The grain price bonanza could make its job easier. Strong grain export revenues have already boosted central bank coffers to a record $51 billion.
G20 dilemmas amongst the golf balls
Interesting dilemmas facing G20 countries as their finance ministers and central bankers get together on the golf ball strewn Scottish coast ( a meeting in St Andrews we will be Live Blogging on MacroScope, by the way).
First, you have the Brazilians who are worried about hot money and have already slapped a tax on foreign investments in domestic bonds and stocks in order to cool down capital inflows. They want the G20 to take action against what their central bank chief calls “imbalance- and bubble-building”.
Next you have the Americans and other big economies who know that the huge amounts of stimulus they have put into the world economy have to be removed eventually. They are not ready to do it yet, but expect the G20 countries to discuss how they are going to “sequence” the great unwinding.
And then there is Argentina, which is not alone in noticing that talk of unwinding tends to put investors on edge. Its central bank governor wants the big countries to be careful, fearing a rapid reversal of stimulus policies could mean big outflows in emerging market countries such as, er, Argentina.
So a tricky balance, a super-sensitive investor audience, and plenty of domestic politics. Fore!
