Latin Finance - March 2008 - 60

argentina financing outlook Running on Empty by James Crombie rgentina should be able to muddle through and cover its funding commitments for this year using Chávez’s oil windfall and captive domestic markets. But crunch time is coming in 2009, according to a LatinFinance panel on Argentina’s economic and political future held late January. “The financial needs of the government are going to be higher next year and that will cause the government to tap the international markets,” says Martin Krause, professor of economics at ESEADE Graduate School and the University of Buenos Aires. “In order to be able to go to the markets next year, they need to start solving the problems now, which is basically the Paris Club and the holdouts,” he adds. According to ESEADE, Argentina pays 11.0% to Venezuela for funds and 10.3% on 10-year bonds issued in 2007. Similar Brazilian bonds cost just 5.6%. Meanwhile, the sovereign prepaid cheap IMF debt and defaulted on Paris Club obligations that only paid 5.3%. ESEADE adds that the overall debt burden has risen since the 2005 restructuring. A fiscal surplus will provide around $8 billion to pay interest and a small amount of principal. But Argentina will need to find the rest. Debt obligations are $14.55 billion in 2008, $13.59 billion next year and $11.63 billion in 2010, says ESEADE. Meanwhile, ESEADE notes that Argentina fails to attract the FDI it used to. It was fifth in the region in 2006, with $4.8 billion, far short of Mexico and Brazil, which both saw almost $19.0 billion in investment. The average in the 2002-2005 period was $2.98 billion, almost 60% lower than what the country averaged in 1970-2005. ESEADE goes on to note that Argentina may be growing faster than Asia, but investment is much lower. For 2003-2006, annual GDP A Despite initial optimism, the new Argentine administration offers scant hope for holdouts. The sovereign may coast through this year, but its problems will not disappear. Cristina wows the voters, but Argentina’s troubles linger growth was 8.9% in Argentina and 8.7% in Asia, while investment as a percentage of GDP was 22.5% in Argentina versus 36.9% in Asia. “Dollar for dollar I think our management would say that we get a much better return in India or Korea or places where we have more substantial operations, than trying to restart something in Argentina,” says Douglas Smith, chief economist for the Americas at Standard Chartered. He adds that is partly due to the fact that his bank is much more focused on Asia overall. “Chávez and Argentina gives us plenty of reasons to be comfortable with our decision not to invest more in these places,” adds Smith. Claudio Loser, senior fellow at the Inter-American Dialogue, calls the Argentina situation “totally unsustainable.” But the sovereign looks set to muddle through. “Luck is still on the side of Argentina for now and for the foreseeable future,” says Pablo Morra, economist at Goldman Sachs. Squeezed from Both Sides Externally, Argentina is menaced by $6.60 billion in Paris Club debt, $28.09 billion in holdouts from the restructuring and claims for over $20.00 billion at the World Bank’s ICSID arbitration panel. Internally, it is troubled by bribery scandals and inflation tampering. ESEADE also highlights issues with export taxes, price controls, rates and subsidies, as well as a need to reconstruct capital markets. Delegates at the Argentina panel said 60 LATINFINANCE March 2008

Latin Finance - March 2008

Table of Contents for the Digital Edition of Latin Finance - March 2008