ARGENTINE UPDATE – May 12, 2016


THURSDAY, MAY 12, 2016

1. ARGENTINA REKINDLES ITS RELATIONSHIP WITH WALL STREET (Financial Times)

2. BREVAN HOWARD CLOSES ARGENTINA FUND (Financial Times)

3. BREVAN HOWARD SAID TO LIQUIDATE ARGENTINA FUND AFTER 18% RETURN (Bloomberg News)

4. FITCH UPGRADES ARGENTINA TO STABLE (Reuters News)

5. ARGENTINA OPPOSITION LAWMAKERS READY JOBS BILL (Reuters News)

6. FEDERAL GRANT: COUNTRY PROJECTS TO PROMOTE WORKPLACE-BASED TRAINING FOR VULNERABLE YOUTH IN ARGENTINA, COSTA RICA, AND KENYA (US Fed News)

7. ARGENTINA’S MINING INDUSTRY EYEING US$20BN IN INVESTMENT (Business News Americas)

8. MOODY’S TAKES RATING ACTION ON ARGENTINE STRUCTURED FINANCE TRANSACTIONS, RECALIBRATES ARGENTINA’S NATIONAL RATING SCALE AND REPOSITIONS NATIONAL SCALE RATINGS (Moody’s Investors Service Press Release)

9. ARGENTINA YPF LOOKS TO BOOST SHALE OUTPUT BY 15% IN 2016 (Platts Commodity News)

10. ANIMAL AND PLANT HEALTH INSPECTION SERVICE ISSUES PROPOSED RULE ABOUT IMPORTATION OF LEMONS FROM NORTHWEST ARGENTINA (US Fed News)

11. CROWN POINT FORECASTS US$61/B ARGENTINA OIL PRICE (Business News Americas)

12. ARGENTINA DOMINATES BRAZIL CORN IMPORTS, U.S. STILL ABSENT (Reuters News)

13. PRESS RELEASE: HUNT MINING CLOSES PURCHASE OF MARTHA MINE, SANTA CRUZ PROVINCE, ARGENTINA (Dow Jones Institutional News)

14. MACRI’S FIGHT AGAINST CORRUPTION IN ARGENTINA TAKES A HIT (World Politics Review)

1. ARGENTINA REKINDLES ITS RELATIONSHIP WITH WALL STREET (Financial Times)
By Benedict Mander in Buenos Aires
May 12, 2016

When Argentina splashed back into the international capital markets last month with the largest emerging market bond sale ever, Jamie Dimon, chief executive of JPMorgan, made a point of personally congratulating his staff on a job well done.

But in Buenos Aires the $16.5bn debt issue, led by JPMorgan and three other global banks, conjured up more mixed feelings — especially as Argentina has long had a turbulent relationship with Wall Street that is now being rekindled after a series of high-profile appointments in the new government of Mauricio Macri.

No bank is better represented than JPMorgan, with former employees including Alfonso Prat-Gay, the finance minister; Luis Caputo, the finance secretary; and Miguel Gutiérrez, the chairman of YPF, the state-controlled energy company. Others like Deutsche Bank, Goldman Sachs, Barclays and Morgan Stanley all boast former employees in high places in Mr Macri’s government, in stark contrast to an openly hostile attitude towards global finance under the previous populist administration of Cristina Fernández de Kirchner.

“It feels a bit like an old boy’s club here right now. There are a lot of Wall Street alumni running around,” said Walter Molano, chief economist at BCP Securities, an emerging markets broker, during a recent visit to Buenos Aires.

The proliferation of financially savvy officials in Mr Macri’s government lends it more credibility with bankers, a vital element in luring money back into an economy starved of investment after a decade of interventionist policies. For Mr Macri, investment is the key to unlocking the potential in Argentina’s economy, which is expected to contract this year.

“The market has been giving us a lot of credibility,” says one senior official in Mr Macri’s administration. “Everyone knows us, we are already a part of the community. So they listen to you, and understand you — many even agree with you. They couldn’t even understand the guys who came before us,” he said.

Wall Street became the nexus of an Argentine diaspora after the country became the most active emerging market in the capital markets during the 1990s. Other Argentines moved abroad after investment banks shut local offices following the country’s financial crash in 2001. Many went on to develop successful careers at banks such as JPMorgan, where several Argentines today hold key positions, such as Daniel Pinto, the head of its investment banking arm who is tipped as a possible successor to Mr Dimon.

“A lot of Argentines working abroad have decided to come back to do their bit to support this moment of change,” said an official who worked for a big US bank for many years.

It feels a bit like an old boy’s club here right now. There are a lot of Wall Street alumni running around

– Walter Molano, chief economist at BCP Securities

Like many of their peers in Latin America and beyond who have returned to work in booming home countries, Argentina’s incipient economic recovery has prompted many to come back to participate in the turnround of their country that was long branded as a pariah — just as the previous administration viewed “savage capitalism” with deep suspicion.

Indeed, writing earlier this year in Página 12, a newspaper that supported the previous government, Alfredo Zaiat ridiculed comparisons of Mr Macri’s cabinet with the all-star players of Spain’s Barcelona football club, in contrast with what many saw as a dearth of competent officials in the outgoing administration.

“Rather than Barcelona, they are demonstrating themselves to be a bunch of amateur players whose knowledge of financial affairs only serves the interests of their former employers,” Mr Zaiat wrote in a column entitled “JP to power”, referring to the US bank.

“You could write a book about Argentina’s relationship with Wall Street,” said Agustin Honig, managing director at AdCap, an investment bank in Buenos Aires. He recalls the 2001 crisis that brought down the government of Fernando de la Rúa, who was forced to flee the presidential palace by helicopter in the days before what was then the biggest sovereign debt default in history.

“De la Rúa’s government did whatever Wall Street told them to do and the country blew up. Over the last five years, they didn’t do anything that Wall Street recommended, but investors have been piling into Argentine assets,” he added.

The animosity between Argentina’s government and Wall Street may have subsided, but some observers worry that Mr Macri’s banker-heavy cabinet may not be so well equipped to cope with some of the real-world problems he faces. That includes unruly trade unions fighting to defend Argentines fearful of losing their jobs and struggling to pay their monthly bills as double-digit inflation bites.

“Markets are more rational and have been rooting for Argentina,” says Diego Ferro, an Argentine portfolio manager at Greylock Capital Management in New York. “So far things have been working out for the government, but they have been dealing with issues that come within their area of expertise — the financial markets. The real challenge starts now,” he says.

2. BREVAN HOWARD CLOSES ARGENTINA FUND (Financial Times)
By Hudson Lockett
May 12, 2016

Brevan Howard is shutting its Argentina-focused fund and returning money to investors after returning about 18 per cent since its inception at the start of last year.

The fund’s bets on Argentina’s political future have ended since the South American nation settled a long-running legal battle and paid its holdout creditors $9.3bn last month over a sovereign debt triggered by the country’s 2001 default.

“We launched the fund as a limited-life SPV to position in front of the Argentine elections in order to take advantage of anticipated political change and a subsequent resolution of the bond hold-out dispute,” said a spokesman for Brevan Howard, which manages about $20bn across all of its funds.

“Events unfolded as we had expected. Consequently we are winding down the fund and returning capital, as we had promised, to investors.”

3. BREVAN HOWARD SAID TO LIQUIDATE ARGENTINA FUND AFTER 18% RETURN (Bloomberg News)
By Katia Porzecanski
May 11, 2016

* Fund was started in 2014, had more than $500 million assets
* Fund winding down after Argentina resolved creditor dispute

Brevan Howard Asset Management LLP is closing down its dedicated Argentina fund after the country resolved a legal dispute with creditors that had pushed the nation into default.

The Argentina Master Fund produced net returns of 18 percent since it was opened to outside investors in January 2015, when the nation was in the midst of its second default in less than two decades, according to people with knowledge of the matter. The fund was designed to profit from a political transition and close once Argentina implemented market-friendly policies including allowing its currency to float and curing the default, said one of the people, who asked not to be named because the matter is private.

A spokesman for Brevan Howard declined to comment.

Brevan Howard, which oversaw about $18 billion in assets as of the end of March, was among a slew of hedge fund firms that bet Argentina would eventually overcome its dispute with creditors and return to international bond markets. Their hopes were realized after President Mauricio Macri came to power late last year and immediately began to unwind his predecessor’s policies. The nation struck a deal with the holdout creditors in February, returned to global bond markets in April, and cured the latest default this month.

Brevan Howard’s fund had more than $500 million in assets including Argentine stocks, bonds, and warrants tied to economic growth. It was run Brevan Howard partner Ben Melkman, said one of the people.

Brevan Howard will finish returning cash to investors in coming weeks.

The fund’s returns are a bright spot for the firm, whose flagship fund is down 1.8 percent for the year after losing 2 percent last year, according to people familiar with the matter.

Argentina’s holdout creditors, led by Paul Singer’s Elliott Management, held bonds left over from the nation’s $95 billion default in 2001 and persuaded U.S. courts to block payments on debt issued in the nation’s two debt restructurings until their notes were repaid. Macri struck a deal to pay the holdouts in February for $4.65 billion, allowing for the nation to resume making bond payments.

4. FITCH UPGRADES ARGENTINA TO STABLE (Reuters News)
By Dion Rabouin
May 11, 2016

May 11 Argentina’s credit rating has been upgraded to a ‘B’ or stable, Fitch announced on Wednesday, due in part to the country’s resumption of debt payments to restructured bondholders.

Fitch upgraded the country’s long-term and short-term foreign currency issuer default rating to ‘B’/stable from ‘restricted default’ or ‘RD.’

The country last month held a $16.5 billion bond auction, the largest emerging markets bond deal ever, to end its long-running legal battle with creditors.
With its first bond deal in 15 years, Argentina raised enough to pay the $9.3 billion owed to holdout investors with additional funds left over.
“In addition, Argentina’s ratings reflect the improved consistency and sustainability of Argentina’s policy framework, reduced external vulnerability, and the easing of external and fiscal financing constraints,” Fitch said in a statement.

“The Stable Outlook balances these improvements against risks related to relatively weak external liquidity, continued macroeconomic underperformance compared with peers, and deterioration of public finances in recent years.”

Argentine officials have said the country will stay out of the international markets for the rest of this year and fully fund the targeted 2016 deficit of 4.8 percent of gross domestic product.

5. ARGENTINA OPPOSITION LAWMAKERS READY JOBS BILL (Reuters News)
11 May 2016

BUENOS AIRES, May 11 (Reuters) – Opposition lawmakers in Argentina could start debating as soon as Thursday a bill that would put a moratorium on job cuts for 180 days and guarantee generous redundancy payments for workers that are laid off, likely setting up a confrontation with President Mauricio Macri.

Free-markets proponent Macri has pushed through a string of painful reforms since taking the reins of Latin America’s third largest economy in December, aiming to close a gaping fiscal deficit and revive a stagnant economy, but fueling the ire of public sector unions. Macri has warned that he could veto the bill.

“We don’t have to wait for the problem to keep growing … If it’s not tomorrow, it’ll be Monday or Tuesday that the bill is sent to the floor (for debating and a vote),” said Marco Lavagna, lawmaker of the Frente Renovador opposition party.

Peronist opposition lawmakers, including former President Cristina Fernandez’s Frente para la Victoria party, have put forward different proposals that are being debated so that a unified bill can be voted on.

Bill proposals include plans to put a halt to private and public sector job cuts for six months and double redundancy payments for those workers that are actually laid off, a copy of the one of the bills seen by Reuters showed.

“I’m confident that we’re going to bring a bill to the floor (for voting) and are going to generate a consensus that results in a comprehensive bill,” said Lavagna.

As of mid-April, Macri’s efforts to trim government payrolls had closed a net 10,000 public sector jobs, while the private sector had also lost around 15,000 informal jobs and about 30,000 formal jobs.

Opposition lawmakers have warned that up to 150,000 jobs could be lost this year.

Macri asked business and union leaders on Monday to avoid layoffs for 90 days, as the center-right leader faces heat for thousands of jobs lost under his watch.

6. FEDERAL GRANT: COUNTRY PROJECTS TO PROMOTE WORKPLACE-BASED TRAINING FOR VULNERABLE YOUTH IN ARGENTINA, COSTA RICA, AND KENYA (US Fed News)
12 May 2016

WASHINGTON, May 12 — U.S. Department of Labor-Employment and Training Administration-ILAB issues a grants notice (NOI-ILAB-16-04) titled “Country Projects to Promote Workplace-Based Training for Vulnerable Youth in Argentina, Costa Rica, and Kenya” on May 11.

Award Ceiling: $3,000,000

Original Closing Date for Applications: June 30

Opportunity Category: Discretionary

Funding Instrument Type: Cooperative Agreement

Expected Number of Awards: 3

Category of Funding Activity: Other (see text field entitled “Explanation of Other Category of Funding Activity” for clarification)

Eligible Applicants: Others

Funding Opportunity Description: NOTE: This is a Notice of Intent. There is not an announcement related to this notice. We are not accepting applications at this time. Subject to the availability of funds, USDOL’s Bureau of International Labor Affairs (ILAB) intends to award, through a competitive process, up to three cooperative agreements of up to $3 million each to organizations to improve country capacity to provide workplace-based training programs with a focus on vulnerable and marginalized youth, in particular adolescents at or above the legal working age who are engaged in or at risk of engaging in the worst forms of child labor. One cooperative agreement will fund a technical assistance project in Argentina, one cooperative agreement will fund a technical assistance project in Costa Rica, and one cooperative agreement will fund a technical assistance project in Kenya. In each country, the objective of the project is to improve the capacity of government, employers, workers’ organizations, and civil society to establish and expand such workplace-based training. Project outcomes include: 1) laws or policies supporting quality workplace-based training opportunities for youth, including vulnerable and marginalized youth, are improved and/or implemented by key stakeholders; 2) employers, workers’ organizations, and other stakeholders implement best practices related to workplace-based training for youth, with a focus on vulnerable and marginalized youth; and 3) the quality of existing public and private programs that provide vulnerable and marginalized youth with prerequisite skills to enter workplace-based training programs is improved. The Employment and Training Administration (ETA)’s Office of Grants Management anticipates publishing the Funding Opportunity Announcement (FOA) before the end of June 2016 (this date is subject to change). Please refer to: http://www.dol.gov/ilab/grants/ and http://www.dol.gov/ilab/grants/SGAguidelines.htm for general guidelines and examples of previous cooperative agreement applications. This NOI does not include an FOA or any attachments. It only constitutes a notice of USDOL’s intent to publish an FOA at a later date. Interested applicants are encouraged to monitor http://www.grants.gov for the FOA because this is the method by which it will be made available to the public. No email or paper copies will be provided.

7. ARGENTINA’S MINING INDUSTRY EYEING US$20BN IN INVESTMENT (Business News Americas)
11 May 2016

Argentina’s mining industry expects US$20bn in new investment over the next five years thanks to a series of measures being implemented by the government of President Mauricio Macri to attract private sector investment in the country.

“The mining sector will invest US$20bn in the regional economies through 2021, thanks to improvements in our competitiveness due to tax changes and the expectations that we’re creating the necessary certainties that the mining sector needs,” Marcelo Álvarez, president of Argentina’s mining chamber (Caem), was quoted as saying by state news agency Télam.

Macri took office in December and, since then, has taken steps to foster private sector investment. Within weeks the government abolished export duties and trade controls, eliminated the fixed exchange and capital controls and most recently settled the 2003 default with bondholders and returned to global debt markets.

Most of the investment is expected to be made between 2018 and 2020. Some of the projects that are due to come online include Glencore’s El Pachón, First Quantum’s Taca-Taca, Yamana Gold’s Agua Rica and McEwen Mining’s Los Azules, Caem said.

During the five-year period, the industry expects exports to reach US$25bn, and generate 40,000 new jobs, on top of the existing 90,000 jobs in the mining industry.

8. MOODY’S TAKES RATING ACTION ON ARGENTINE STRUCTURED FINANCE TRANSACTIONS, RECALIBRATES ARGENTINA’S NATIONAL RATING SCALE AND REPOSITIONS NATIONAL SCALE RATINGS (Moody’s Investors Service Press Release)
12 May 2016

Moody’s Latin America Agente de Calificación de Riesgo (Moody’s) has repositioned the national scale ratings of 40 Argentine structured transactions in conjunction with the recalibration of the Argentine national rating scale. At the same time, Moody’s has taken selective rating actions on the global scale based on updated performance data.

National scale ratings (NSRs), which provide a measure of relative creditworthiness within a single country, are derived from global scale ratings (GSRs) using country-specific maps. The adoption of a revised correspondence between Moody’s global scale ratings and the Argentine national scale follows the publication of Moody’s updated methodology “Mapping National Scale Ratings from Global Scale Ratings” https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189032 . For more information, please see “Moody’s publishes updated methodology for national scale ratings” https://www.moodys.com/research/Moodys-publishes-updated-methodology-for-national-scale-ratings–PR_348579 .

With nearly 100 rated fundamental issuers in Argentina, the new map has been designed using the modified approach, whereby the map design is adjusted to reflect the distribution of fundamental ratings in the country in order to ensure adequate opportunity for differentiation where ratings are most highly concentrated. Because more than 10% of fundamental issuers are rated above Argentina’s B3 sovereign rating, as well as the previous anchor point of B1, the anchor point, or the lowest global scale rating that can map to a Aaa.ar, has been raised to Ba3, the level of the local currency country ceiling. All GSRs from B1 to Caa3 now map to three NSRs each. This provides adequate opportunity for differentiation on the national scale among the more than 50% of Argentine fundamental issuers rated B3 on the global scale.

As a result of these changes, GSRs will generally correspond to lower NSRs on the Argentine national scale than they did previously. Consequently, the majority of Argentine NSRs that are currently under review direction uncertain are being confirmed at their current levels notwithstanding the recent upgrades of their corresponding GSRs. However, a number of fundamental issuers’ primary local currency NSRs are being raised, while the NSRs of those issuers whose GSRs were not upgraded following the recent sovereign upgrade are in most cases being lowered, reflecting their relatively weaker creditworthiness compared to the majority of domestic peers, whose GSRs were raised. In total, slightly more than 10% of Argentine fundamental issuers’ primary NSRs are being repositioned an average of 1,3 notches higher, while 20% are being repositioned 2,3 notches lower. Other NSRs may be raised or lowered for some additional issuers. In addition, approximately 20% of the NSRs assigned to Argentine structured finance transactions are being repositioned an average of 1.8 notches lower. The repositioned national scale ratings of individual issuers do not signify a change in credit risk, since the global scale ratings (GSRs) for these issuers remain unchanged.

In addition, the level of risk associated with particular Argentine NSRs has changed in many cases. NSRs have no inherent absolute meaning in terms of default risk or expected loss; they are ordinal rankings of creditworthiness relative to other domestic issuers within a given country. A historical probability of default and/or expected loss consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. However, both the probability of default and the expected loss of an NSR may change if and when a country’s national scale is remapped.

Moody’s also took selective rating actions on global scale for some transactions based on updated performance data and cash flow analysis. Moody’s considered the credit enhancement provided in each transaction through the subordination levels over the current pool of assets (less than 30 days of delinquency) and ran simulations with original assumptions regarding prepayment and losses rates, as well as specific factors related to the Argentine market.

ISSUERS AND RATINGS AFFECTED

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF432227 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer

RATING RATIONALE

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF432227 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody’s disclosures on the following items:

• Principal Methodology

• Loss and Cash Flow Analysis, if applicable

• (sf) indicator

National scale ratings are assigned by applying the published correspondence from global scale ratings. Where a single global scale rating maps to multiple global scale ratings, rating committees assigned higher or lower national scale ratings to individual issuers and debts depending on their relative credit position within the same global scale rating category, using the same methodologies as were used to determine the GSRs themselves.

FIDEICOMISO FINANCIERO CHUBUT REGALÍAS HIDROCARBURÍFERAS I

Moody’s upgraded the global scale rating of Class A (VDF A) debt securities issued by Fideicomiso Financiero Chubut Regalias Hidrocarburiferas I to Ba3 (sf) from B2 (sf) and the national scale rating to Aaa.ar (sf) from Aa3.ar (sf). The upgrade follows the upgrade of Argentina’s foreign currency bond ceiling to B2 from Caa1. Class A debt securities are denominated in US dollars. Moody’s notes that the Class A ratings continue to pierce the Argentine foreign currency bond ceiling by two notches based on structural protections, including: (i) an offshore reserve account with The Bank of New York Mellon (Aa1) for the benefit of investors that covers five quarterly interest payments on the Class A notes, (ii) provisions that allow Banco de Valores S.A. as the Argentine trustee, in case of a convertibility or transferability event, to purchase an amount of Argentine government or corporate bonds denominated in US dollars to be sold in the New York, Zurich or Montevideo market, so that the amount in US dollars resulting from the bond sale, net of expenses and taxes, equals the debt service to be paid to note holders, and (iii) payment-in-kind provisions.

Moody’s upgraded the global scale rating of Class B (VDF B) debt securities issued by Fideicomiso Financiero Chubut Regalias Hidrocarburiferas I to Ba3 (sf) from B1 (sf). Class VDF B debt securities are payable in local currency. The upgrade follows the upgrade of Argentina’s local currency country ceiling to Ba3 from B1 as the credit profile of these securities was constrained by Argentina’s previous local currency country ceiling at B1.

Additionally, the deal’s credit profile was also strengthened by the fact that the ratings of key counterparties in the transaction have been upgraded following the upgrade of the sovereign rating. The rating of the Province of Chubut, the seller of the receivables in the transaction, was upgraded to B3 from Caa1, while the rating of Pan American Energy LLC, Argentine branch (the operator of the concession generating the cash flows) was upgraded to B1 from B2.

Factors that would lead to an upgrade or downgrade of the ratings:

The NSRs would face upward or downward pressure if their corresponding GSRs are upgraded or downgraded, unless this is in conjunction with a sovereign rating action that results in another recalibration of the Argentine national scale with an offsetting impact on NSRs. In addition, the NSRs may face upward (downward) pressure if Argentina’s sovereign is downgraded (upgraded) and the map is revised accordingly, but the corresponding GSRs have not changed as a result of the sovereign action. Because of the higher granularity of national scales, NSRs may also face pressure due to changes in creditworthiness that are not sufficient to cause a change in the corresponding GSR, measured using the same methodologies used to determine the GSR.

Moreover, changes in the credit profile of key counterparties in the transaction could also have a rating impact.

METHODOLOGIES USED

Please refer to the following Excel file for further references regarding the applicable rating methodology for each transaction http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF432227 .

Moody’s National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody’s global scale credit ratings in that they are not globally comparable with the full universe of Moody’s rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a “.nn” country modifier signifying the relevant country, as in “.za” for South Africa. For further information on Moody’s approach to national scale credit ratings, please refer to Moody’s Credit rating Methodology published in May 2016 entitled “Mapping National Scale Ratings from Global Scale Ratings”. While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189530.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF432227 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody’s disclosures on the following items:

• Loss and Cash Flow Analysis, if applicable

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody’s did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.ar.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on http://www.moodys.com.ar.

9. ARGENTINA YPF LOOKS TO BOOST SHALE OUTPUT BY 15% IN 2016 (Platts Commodity News)
By Charles Newbery
11 May 2016

Buenos Aires (Platts)–11May2016/1222 pm EDT/1622 GMT Argentina’s state-run energy company YPF said Wednesday its oil and natural gas production from unconventional plays is on track to increase this year, as it removes facility bottlenecks and improves drilling efficiency and productivity.

YPF is shooting for “10% to 15% growth” in shale oil and gas production this year, as it continues to develop the Vaca Muerta play, interim CEO Daniel Gonzalez said during a conference call with investors.

YPF, the busiest shale developer in Argentina, boosted its output from Vaca Muerta by 19% year on year to 49,800 b/d of oil equivalent in the first quarter of 2016. Of that Q1 output, 24,100 b/d was crude, 11,600 b/d was NGLs and 2.2 million cu m/d was gas, the company said.

While shale production was down from 50,600 boe/d in the fourth quarter of 2015, Gonzalez said this was because the company reined in some of its hydraulic fracturing in Q1 as part of an expected 20% to 25% reduction in capital expenditures for 2016.

The spending cut is expected to leave the company’s overall production flat this year.

YPF’s oil production rose 0.8% to 249,000 b/d in Q1 from 246,800 b/d in Q1 2015, while gas output increased 1.1% year on year to 44 million cu m/d. The company’s total hydrocarbon production rose 0.3% year on year in Q1, compared with a 3% year-on-year increase in 2015 and a 13.5% year-on-year increase in 2014.

Even so, production from shale and tight-sand formations is poised to increase and help offset dwindling output from conventional fields, many of which are maturing.

In April, the company put a compression system at its Rincon del Mangrullo block targeting the Mulichinco tight formation online. This made it possible to increase production there to 4 million cu m/d in April from an average of 1.4 million cu m/d in Q1.

“Tight gas is one of the drivers of our production growth,” Gonzalez said.

YPF plans to remove a facility restriction this year at its Estacion Fernandez Oro tight gas development to add more production, Gonzalez said.

Tight gas production from the Aguada Toledo and Sierra Barrosa blocks, where the company is targeting the Lajas formation, is poised to increase thanks to surplus processing capacity. This is because the blocks lie close to Loma La Lata, Argentina’s biggest conventional gas block over the past two decades. Loma La Lata is now maturing.

“There is plenty of idle capacity there,” Gonzalez said

YPF’s tight gas production rose 23% year on year to 9 million cu m/d in Q1, and now accounts for 20% of its total gas production.

GAS PRICES RISE, OFFSET CRUDE DECLINE

Helping to fuel the drive to boost gas output has been a steady increase in wellhead prices, which is helping to offset the decline in crude prices.

While the company’s average crude price dropped 10% year on year to $61.90/b in Q1 from $68.80/b in the year-ago period, its average gas price rose 4.1% to $4.71/MMBtu from $4.53/MMBtu.

Gonzalez said the energy ministry is considering further hikes in gas wellhead prices, which will probably take the average price to a stable $5.50-$6.00/MMBtu by the end of 2017.

FOCUS ON HORIZONTAL DRILLING

To help cut shale drilling costs and boost productivity, YPF is putting more focus on horizontal wells. Some 23 out of 34 of its shale wells connected in Q1 were horizontal wells, Gonzalez said.

This is helping to cut drilling and completion costs, which are now “consistently below $12 million per well in Loma Campana,” the biggest shale development in Vaca Muerta, which is a partnership with Chevron, he said.

YPF is aiming to cut the drilling cost to $10 million per well by the end of the year, he added.

In the cost-cutting drive, YPF also has started to drill four aligned wells per pad to reduce drilling times, and plans to increase the number of frac stages drilled per day to six from four per bundle.

Most horizontal wells are now being drilled with 18 frac stages, and one recently was drilled on the El Orejano block with 27 stages, Gonzalez said.

YPF LOOKS TO CUT LABOR COSTS AS TALKS LOOM

YPF also is looking to reduce its labor, supplier and transport costs, with salary discussions due to start this month.

“We do expect the unions to act rationally because if we are not able to reduce upstream costs in dollar terms to a sustainable level then it will be very difficult to keep the level of activity that we have today,” Gonzalez said.

10. ANIMAL AND PLANT HEALTH INSPECTION SERVICE ISSUES PROPOSED RULE ABOUT IMPORTATION OF LEMONS FROM NORTHWEST ARGENTINA (US Fed News)
11 May 2016

WASHINGTON, May 11 — Animal and Plant Health Inspection Service, Department Of Agriculture (USDA), has issued a proposed rule called: Importation of Lemons From Northwest Argentina.

The proposed rule, published in the Federal Register on May 10 by Michael L. Gregoire, Acting Administrator, Animal and Plant Health Inspection Service, states: “We are proposing to amend the fruits and vegetables regulations to allow the importation of lemons from northwest Argentina into the continental United States. As a condition of entry, lemons from northwest Argentina would have to be produced in accordance with a systems approach that would include requirements for importation in commercial consignments; registration and monitoring of places of production and packinghouses; pest-free places of production; grove sanitation, monitoring, and pest control practices; treatment with a surface disinfectant; lot identification; and inspection for quarantine pests by the Argentine national plant protection organization. Additionally, lemons from northwest Argentina would have to be harvested green and within a certain time period, or treated for Medfly in accordance with an approved treatment schedule. Lemons from northwest Argentina would also be required to be accompanied by a phytosanitary certificate with an additional declaration stating that the lemons have been inspected and found to be free of quarantine pests and were produced in accordance with the proposed requirements. This action would allow for the importation of lemons from northwest Argentina into the United States while continuing to provide protection against the introduction of quarantine pests.”

For more information, contact Juan A. (Tony) Roman, Senior Regulatory Policy Specialist, PPQ, APHIS, 4700 River Road Unit 133, Riverdale, MD 20737-1236; 301-851-2242.

11. CROWN POINT FORECASTS US$61/B ARGENTINA OIL PRICE (Business News Americas)
11 May 2016

Argentina-focused junior Crown Point Energy said it expects to receive an oil price of US$61.10/b in 2016 for crude produced at the firm’s acreage in southernmost Tierra del Fuego province.

Argentine crude trades domestically at a premium to international benchmarks amid the current global commodities downturn.

The discrepancy is a legacy of price controls enforced under the previous government that were originally meant to keep local prices in check when global benchmarks soared above US$100/b.

“The intent of the [new] Argentine government is to allow domestic pricing to be coupled with international benchmarks,” Calgary-based Crown Point said in an update, “however it is evident that the government is reluctant to allow domestic pricing to fall precipitously as this could result in a severe downturn in the industry, which in turn could trigger extensive layoffs, social unrest and disruptions.”

Crown Point’s assessment corroborates public statements from new President Mauricio Macri’s energy and mines minister Juan José Aranguren, who said this month in a radio interview that “once [oil] prices in the world begin to recover, which has already begun… we must never again decouple ourselves from the world.”

For natural gas, Crown Point said it expects to receive a price between US$2.66-US$4.25 per thousand cubic feet under the government’s new gas pricing scheme.

Macri’s administration, Crown Point CEO Murray McCartney said, “is methodically bringing responsible government to Argentina, providing the country with an opportunity to realize its full economic potential.”

First quarter hydrocarbon production from the Tierra del Fuego licenses averaged 1,421boe/d, down 7% year-on-year, which Crown Point attributed to “the natural decline of wells combined with restricted production from some existing wells during the last three days of March due to a fire in the San Martín main gas line in Santa Cruz province.”

Crown Point posted a net loss of US$1.34mn for the period, compared to a year-ago loss of US$1.65mn.

12. ARGENTINA DOMINATES BRAZIL CORN IMPORTS, U.S. STILL ABSENT (Reuters News)
11 May 2016

SAO PAULO, May 11 (Reuters) – Corn shipments from neighboring Argentina have dominated imports into Brazil since the country was forced to import larger amounts of the grain in March, including into the distant Northeast where some analysts thought U.S. corn could arrive.

Data from the Brazilian agriculture ministry showed this week that no U.S. corn arrived in Brazil in the last three months, even after the government eliminated an import tax on shipments from countries outside the Mercosur trade bloc in April.

Brazil imported 106,000 tonnes of corn last month, the most imports of the grain since October 2014. Around 58 percent of that volume came from Argentina and the rest from Paraguay.

In the northeastern state of Ceara, for example, the poultry industry formed a group to acquire imported corn. One ship already landed and two others are scheduled, all with corn from Argentina.

The association’s vice president said they had studied offers from the United States but that Argentine venders had made an effort to keep their prices competitive. U.S. corn would have cost 1 real per 60-kg bag more.

Pork and poultry producers throughout Brazil have counted on imported corn to keep their operations going, after stocks were depleted by strong demand for and exports of Brazil’s summer corn harvest, which is winding down.

Traders said the window for significant volumes of imported corn will likely close in the second half of the year, when a second, larger annual crop is harvested.

One reason for the lack of U.S. corn could be the quality of grain offered, said one broker in Ceara.

“The deals are not occurring because the U.S. corn is from 2010,” said Emilio Geleilate, director of the Geleilate brokerage.

13. PRESS RELEASE: HUNT MINING CLOSES PURCHASE OF MARTHA MINE, SANTA CRUZ PROVINCE, ARGENTINA (Dow Jones Institutional News)
12 May 2016

LIBERTY LAKE, WASHINGTON–(Marketwired – May 12, 2016) – Hunt Mining Corp. (the “Corporation” or “Hunt”) (TSX VENTURE:HMX) is pleased to announce the closing on the purchase of the Martha Mine, located in the Santa Cruz Province, Argentina and 50 kilometres northeast of the town of Gobernador Gregores, Argentina. The Martha Mine has year round access, contains a flotation mill, equipment and buildings and commenced silver production in 2008. Additional information including photos of the Martha Mine are available on the Corporation’s website at: http://www.huntmining.com. The Corporation’s acquisition of the Martha Mine will further the transition from an exploration entity to a mining entity. Hunt has one of the largest land packages in Santa Cruz and plans to use its acquired flotation mill and infrastructure for mineral exploitation.

Hunt has been an active exploration and development entity in the Santa Cruz Province, Argentina since 2006. Since 2006, the Corporation has invested a total of CDN $40,000,000 in its Santa Cruz properties which includes the flagship La Josefina Gold/Silver Project (“La Josefina”) and La Valenciana Gold/Silver Project (“La Valenciana”). Both La Josefina and La Valenciana are located within 120 kilometres of the Martha Mine.

Chairman and CEO Tim Hunt states: “We are extremely pleased with the purchase of the Martha Mine, and look forward to initiating production in 2016. The Martha Mine is a state of the art facility, with the capacity to process localized ore from regions surrounding the Martha Mine mill, which includes our La Josefina and La Valenciana projects. We look forward to working with the Argentine government and local work force for continued exploration and future mining.”

The parties involved include an Argentine subsidiary of the Corporation and an Argentine subsidiary of Coeur Mining, Inc. The purchase price for the Martha mine, flotation mill, equipment and buildings is US$2.7 million plus applicable taxes.

The terms for payment were US $1.2 million, plus approximately US $400,000 in taxes paid at closing, with the balance of US $1.5 million due 365 days after the closing (the “Balance Payment”). The financing for this acquisition came from a related party with 8% interest per annum and is reviewable and renewable on a month to month basis.

The Corporation will retain an independent qualified person to prepare a technical report for the Martha mine in compliance with National Instrument 43-101-Standards of Disclosure for Mineral Projects (the “Report”), which Report is expected to be received on or about 120 days from the initial closing. A further news release will be issued by the Corporation when the Report is available, providing further details about the Martha Mine.

About Hunt Mining

Hunt Mining Corp. has continued to develop its properties as an active and aggressive explorer in Santa Cruz since 2006. During that time, Hunt’s wholly owned subsidiary, Cerro Cazador S.A., has completed exploration activity including approximately 64,000 meters of HQ core drilling, 416 line kilometers of Induced Polarization geophysical surveys and more than 20,000 surface soil, sediment, channel, chip, and trench samples, beyond the historical work previous to the same properties. The Corporation also holds a 100% interest in the Martha Mine through an Argentina subsidiary.

14. MACRI’S FIGHT AGAINST CORRUPTION IN ARGENTINA TAKES A HIT (World Politics Review)
By The Editors
May 11, 2016

Last week, a prosecutor in Argentina asked for an investigation into illegal enrichment allegations against former President Cristina Fernandez de Kirchner and her son. In an email interview, Manuel Balán, an assistant professor at McGill University, discussed Argentina’s fight against corruption.

WPR: How big a problem is corruption, both low- and government-level, in Argentina, and to the degree it is one, how does it manifest itself in daily life?

Manuel Balán: There is generally a great deal of public concern over corruption in Argentina, but it is affected by the country’s economy. In good economic times there is less of a sense of urgency and anger about corruption than when the economy is not doing well. In terms of how it manifests itself in daily life, I would distinguish three different levels.

First, “pocketbook” corruption, or direct personal experience with corruption, is somewhat prevalent in everyday dealings with the state, including the police and low-level bureaucrats, as well as in the education and health sectors. This is especially the case for the lower classes. However, and although available data is far from perfect, Argentina does not exhibit particularly high levels of personal experience with corruption when compared with other countries in the region.

Second, the perception of corruption in the upper echelons of government is quite high, in both absolute and comparative terms. Overall, there is a sense that politics does not always work for the public interest and that politicians get rich on the job. The media, which has become increasingly polarized in recent years, often serves a specific political agenda.

Third, corruption negatively affects the efficacy and delivery of public services. Corruption diverts state resources away from their stated goals, so that funds and services often never make it to their intended recipients. Furthermore, corruption makes it so the allocation of resources does not always favor public interests, but instead benefits private interests that are willing to bribe their way into government contracts.

WPR: What steps has Argentina taken against corruption, how effective have they been, and what more needs to be done to tackle the problem?

Balán: Argentina has signed the United Nations International Convention Against Corruption and the Inter-American Convention Against Corruption, and has adjusted parts of its legislation to comply with their transnational bribery and illicit enrichment provisions. Argentina created an Anti-Corruption Office in 1999 that is in charge of investigating allegations of corruption and presenting charges to the judiciary. The office also has some preventive mechanisms, such as identifying and addressing conflicts of interest and administering an electronic financial disclosure system, which is applicable to high- and mid-level members of the executive, but not the legislature or judiciary.

In 2003, then-President Nestor Kirchner issued a decree regulating access to public information, which partially improved transparency in the executive branch. These and other measures have been effective at the margins, but they were never able to tackle structural issues that make corruption prevalent in Argentina.

A few of weeks ago, in response to the news about his implication in the Panama Papers, President Mauricio Macri presented a freedom of information bill to Congress, which is currently under debate, and announced he was setting up a blind trust for his funds. The blind trust is a valuable first step, but is little more than political posturing. As for the bill, it is quite weak in terms of providing access to information, and in any case it is not enough to tackle corruption. The problem is systemic. Lasting solutions require a mid- to long-term commitment to change practices, the enforcement of legal provisions, and investment in judicial independence and investigative capacity.

WPR: How big a priority has anti-corruption been to date for Macri as a candidate and as president, and how will his implication in the Panama Papers leak affect his administration’s anti-corruption efforts?

Balán: Macri campaigned, at least partly, on an anti-corruption platform. His Cambiemos, or Let’s Change, coalition made this anti-corruption message central to its identity. The coalition catered to voters looking for a change from Kirchnerism and the corrupt practices that had been associated with the previous government.

Since the start of his presidency last December, Macri has faced a number of challenges, of which his involvement in the Panama Papers is just one. In terms of his commitment to fighting corruption, he started things on a negative note when he appointed Laura Alonso, a close ally and a main political figure of his own political party, the Republican Proposal (PRO), to the anti-corruption office. Regardless of Alonso’s credentials, her partisanship makes her a poor choice for the position, as it signals a will to make political use of the Anti-Corruption Office.

On the judicial front, there are a number of open investigations against former President Kirchner and a few of her close associates. These probes are ongoing and might uncover corrupt acts. However, the political use of government agencies such as the Anti-Corruption Office, along with biased media coverage from major outlets, unfortunately calls into question the motivations behind these investigations. Moreover, Macri’s involvement in the Panama Papers raises doubts about his private business transactions, and highlights the fact that he is the heir to one of the richest families in the country, which he tried to downplay during the campaign.

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FRIDAY, MAY 13TH

1. ARGENTINA’S CAPITAL REPORTS HIGHEST INFLATION IN 14 YEARS (The Washington Post)

2. A BILLION PRICES CAN’T BE WRONG (Financial Times (FT.Com))

3. BELLO: MERCOSUR’S MISSED BOAT (The Economist)

4. WORKERS SET TO PUSH AHEAD WITH STRIKE AT MAJOR ARGENTINA GRAINS PORT (Reuters News)

5. ARGENTINA’S PAMPA ENERGIA AIMS TO INVEST $400 MLN IN RENEWABLE ENERGY (Reuters News)

6, ARGENTINA AIMS TO STOP IMPORTING LIGHT CRUDE THIS YEAR: MINISTER (Reuters News)

7. UPSTREAM CHALLENGES CONTINUE IN ARGENTINA DESPITE SOVEREIGN DEBT DEFAULT EXIT (IHS Global Insight Daily Analysis)

8. FITCH UPGRADES ARGENTINA’S SOVEREIGN RISK RATING TO B (IHS Global Insight Daily Analysis)

9. GM BEGINS NEW CRUZE PRODUCTION IN ARGENTINA; CEO BETS ON BRAZILIAN RECOVERY (IHS Global Insight Daily Analysis)

10. BRAZIL’S PETROBRAS APPROVES SALE OF ARGENTINA UNIT, TALKS TO SELL PIPELINE UNIT (Platts Commodity News)

11. MARK MOBIUS: A NEW ERA FOR ARGENTINA (ValueWalk)

1. ARGENTINA’S CAPITAL REPORTS HIGHEST INFLATION IN 14 YEARS (The Washington Post)
By Debora Rey
May 12, 2016

BUENOS AIRES, Argentina — Inflation in the capital’s metropolitan area reached 6.5 percent in April, the biggest monthly price jump since Argentina’s worst economic crisis 14 years ago, the Buenos Aires statistics agency reported Thursday.

The rise in consumer prices was mainly due to the government’s recent elimination of utilities subsidies in the country’s main population center that has led to sharp increases in everything from bus rides to light bills. The city says inflation in the first quarter was 19.2 percent and it reached 40.5 percent year-on-year.

The Buenos Aires inflation rate is being used as a reference while the new government of President Mauricio Macri revamps the questioned national statistics agency. Argentina’s inflation numbers have been in doubt since 2007, when President Cristina Fernandez’s late husband and predecessor, Nestor Kirchner, had political appointees change the agency’s methodology.

Macri came to power in December with promises to cut bloated spending, curb government deficits and tame one of the world’s highest inflation rates. But Argentines have taken to the streets in big protests against his unpopular decisions to eliminate subsidies and cut thousands of state jobs, while still failing to curb soaring prices.

About two dozen people gathered this week at a soup kitchen set up in front of the presidential palace. It was originally intended to feed the homeless. But increasingly poorer Argentines who have lost their jobs or who are being forced to cut back due to rising food prices are commuting long distances in the hopes of a warm free meal.

“I can’t buy clothes, I can’t buy food. I’m pregnant and I can hardly survive,” Claudia Valenzuela said as she waited for stew served in a plastic plate.

Valenzuela, an unemployed mother of a 3-year-old, said she recently stopped eating lunch despite being four months pregnant as the only way to cope with high prices.

2. A BILLION PRICES CAN’T BE WRONG (Financial Times (FT.Com))
By Tim Harford
13 May 2016

In the dying days of 2015 came news to set any geek’s pulse racing: the declaration of a “statistical emergency” by Mauricio Macri, the new president of Argentina. Macri’s move enabled Jorge Todesca, head of the statistics bureau, to suspend publication of some basic economic data. That might seem extreme but Argentina’s inflation numbers were widely discredited.

The International Monetary Fund censured Argentina in 2013 for its implausible numbers under previous president Cristina Fernández de Kirchner. Government statisticians say they were leaned on by her administration to report low inflation. Todesca himself used to be a private-sector economist, and, in 2011, his firm was fined half a million pesos for publishing numbers that contradicted the official version. (Half a million pesos was about $125,000 at the time; it is $35,000 these days, which rather proves the point.)

But one economist found a way to publish plausible inflation statistics without being prosecuted. His name is Alberto Cavallo, and he realised that by gathering price data published by online retailers, he could produce a credible estimate of Argentine inflation from the safety of Massachusetts. Cavallo’s estimate averaged more than 20 per cent a year between 2007 and 2011; the official figure was 8 per cent.

So began the Billion Prices Project and its commercial arm PriceStats, both collaborations between Cavallo and fellow MIT economics professor Roberto Rigobon. “Billion Prices” sounds hyperbolic but that is the number of prices collected each week by the project, from hundreds of retailers in more than 60 countries.

While the project confirmed that Argentina’s inflation numbers could not be trusted, it also showed that the US inflation numbers published by the US Bureau of Labor Statistics could be. Several maverick commentators had argued that hyperinflation would be the inevitable consequence of money printing at the Federal Reserve. When hyperinflation plainly failed to materialise, some critics suggested the BLS was hiding it — as if nobody would notice.

A second advantage, swiftly noted, was that the daily flow of data from PriceStats was a good predictor of official inflation statistics, which are typically published once a month. Cavallo and Rigobon like to point out that their US online price index started to fall the day after Lehman Brothers declared bankruptcy; the official Consumer Price Index took a month to respond at all, and two months to respond fully.

The BPP is also shedding light on some old economic mysteries. One is the problem of adjusting inflation for changes in quality. To some extent this is an intractable problem. The Edison phonograph cost $20 at the end of the 19th century; an iPod Nano costs about $145 today. What inflation rate does that imply over the past 117 years? There is simply no good answer to that question.

But statistical agencies are always wrestling with smaller slices of the same problem. A new model of washing machine is introduced at a premium price, gradually discounted over the years and eventually sold at clearance prices and replaced with a swankier model. The same thing is happening over differing timescales with computers, summer dresses and cars. If the economic statisticians mishandle these cases, they will get their measure of inflation badly wrong; usually they rely on careful substitutes and clever theory, but success can never be assured.

Cavallo and Rigobon argue that the sheer volume of prices collected by the BPP helps resolve the problem. Every day, the project gathers the prices of hundreds of washing machines. By observing that the availability of the Scrub-O-Mat 9000 overlaps with that of the Cleanado XYZ, it’s possible to adjust as new products are introduced and old products discounted and then phased out.

This “big data” approach to inflation is also helping us to understand the fundamental question of why recessions happen. Without opening a big bag of macroeconomics at this stage in the column, one influential school of thought is that recessions happen (in part) because prices don’t adjust smoothly in the face of a slowdown. Like a small rock that starts an avalanche, this price rigidity causes big trouble. Unsold inventory builds up, retailers slash their orders, and manufacturers go bankrupt.

The trouble with the idea that price stickiness causes recessions is that, according to official inflation statistics, prices routinely change by amounts large or small, which suggests no price rigidity.

But it turns out that many small price changes are statistical illusions. For example, if a product is missing from four monthly inflation surveys and is 1 per cent more expensive when it returns in the fifth month, official statisticians will quite rightly smooth over the gap by imputing a 0.2 per cent rise per month. But it would be a mistake to take this as evidence that retailers did, in fact, repeatedly raise prices by 0.2 per cent. Collecting billions of prices removes the need to fill in these gaps, and in the BPP data very small price changes are rare. Prices will move by several per cent if they move at all. One might guess that in physical stores the cost of relabelling products is higher, and small price changes are even rarer.

The BPP’s big data approach has rescued the important macroeconomic idea of price stickiness. It is a reminder that we often gain from having a second opinion — or a billion of them.

Tim Harford is the author of ‘The Undercover Economist Strikes Back’.

3. BELLO: MERCOSUR’S MISSED BOAT (The Economist)
14 May 2016

Can a new attempt to strike a deal with Europe revive a moribund trading block?

AT A meeting in Brussels this week, officials from the European Union (EU) and Mercosur exchanged offers to cut tariffs and expand market access for each other’s’ goods and services. This is their second attempt to begin serious negotiations on a free-trade agreement–a mere 16 years after the idea was first mooted.

The first effort collapsed in 2004, when both sides judged the other’s offer to be insufficiently ambitious. Even now, nobody should count on success. The core Mercosur countries–Argentina, Brazil, Paraguay and Uruguay–are keener. But 13 European countries, led by France, want to scupper the talks because their farmers are scared of Mercosur, the world’s most competitive producer of grains and meat. They forced the EU to withdraw, at the last minute, proposed tariffs cuts on beef.

A trade pact between the blocks would make shopping cheaper for 750m consumers. The EU wants accords on services and government procurement. Brazil’s law firms are notorious for protecting their home market, while its construction and engineering companies used corrupt practices to win contracts from Petrobras, the state-controlled oil company. As for Mercosur, Europe is potentially a big market for some of its manufactures as well as its grains and soyabeans.

If the talks prosper, the biggest benefit for Mercosur could be the reviving of its original mission of boosting trade and investment. Over the past dozen years, left-wing governments in Brazil, Argentina and Uruguay have turned Mercosur into a political club. They invited Hugo Chávez’s Venezuela to join; Bolivia, under Evo Morales, followed (neither is part of the EU talks). Buoyed by high prices for their commodities, they proclaimed their commitment to “south-south” economic ties.

They did strike useful agreements on migration, pensions and tourism. But they lost interest in trade deals with rich countries and in deepening economic integration in Mercosur itself. Although Mercosur claims to be a customs union (like the EU) with a common tariff and foreign-trade policy, in practice it is not even a proper free-trade area. Cristina Fernández de Kirchner, Argentina’s former president, imposed quotas and licences on imports from Brazil. Uruguayan truckers face harassment in Brazil, says Luis Alberto Lacalle Pou, a Uruguayan senator. Intra-Mercosur trade was only 14% of its members’ total trade in 2014, down from 19.5% in 1995. Mercosur thus excluded itself from regional value chains in which much production is now organised–as well as from new trans-regional trade and investment agreements, such as the Trans-Pacific Partnership.

A light breeze of change is now in the air. Argentina’s new president, Mauricio Macri, is opening up his country after Ms Fernández tried to shut it off from the world. Tabaré Vázquez, Uruguay’s president, recognises that Mercosur is suffering from “fatigue”. The impeachment of Dilma Rousseff, Brazil’s president, would bring to power people who are more open to trade talks with Europe and the United States, and who are “very critical of the south-south strategy”, says Alfredo Valladão, a Brazilian political scientist at Sciences Po, a French university.

The obstacles to renewal in Mercosur remain large. In the short term Brazil’s political upheaval divides the group. At a meeting last month to mark the 25th anniversary of the Treaty of Asunción, Mercosur’s founding document, most of the Brazilian parliamentary delegation walked out in protest when Jorge Taiana, who was once Ms Fernández’s foreign minister and now chairs the block’s parliament, called Ms Rousseff’s impeachment “a coup”. Many in Uruguay’s left-wing government are wary of collaborating with Michel Temer, who is poised to replace Ms Rousseff as Brazil’s president. Argentina is cautious about freeing trade in cars within Mercosur, fearing that Brazil’s currently idle factories will flood its market. Most Brazilian industry lives on “protection and subsidies”, says Mr Valladão.

But some Brazilian industrialists are starting to realise that the state has run out of money to prop them up and that protectionism has weakened them. China has wrested markets from Brazilian manufacturers across Latin America. Chile, Colombia, Peru and Mexico formed the Pacific Alliance of free-trading economies; on May 1st they eliminated tariffs on 92% of their trade with each other and will phase out the rest over 17 years.

Brazil’s industry lobbies, like its probable new president, now want to talk trade with the United States as well as the EU. But free trade has become politically toxic in the north. While they were indulging ideological dreams, Mercosur’s governments were also missing the trade boat.

4. WORKERS SET TO PUSH AHEAD WITH STRIKE AT MAJOR ARGENTINA GRAINS PORT (Reuters News)
By Maximilian Heath
May 12, 2016

May 12 Workers at the Rosario grains export hub in Argentina will go ahead with plans to start a strike on Friday to demand higher salaries, a union leader said late on Thursday.

Reuters has seen a copy of a letter written by the country’s labor ministry asking workers at the port, the largest in one of the world’s top grains producers, to call off the strike.

However, Edgardo Quiroga of the local San Lorenzo branch of the CGT union said the group had not heard from the government and would begin striking for an indefinite period from Friday.

“We still haven’t received anything. The strike will start at midnight and tomorrow we will hold an assembly meeting,” Quiroga said, adding that the situation could change after discussions during the union meeting.

Rosario handles about 80 percent of Argentina’s grains exports. San Lorenzo covers the northern districts of the Rosario hub where multinational companies like Bunge Ltd, Cargill and Louis Dreyfus Commodities BV have crushing plants and ports.

The CGT counts quality control inspectors and dock workers among its members in Rosario.
According to Quiroga, the union is seeking a 45-percent increase in the minimum regional wage, to 20,015 Argentine pesos ($1,410.40) per month.

Wage negotiations are tough in Argentina because of soaring inflation.
Argentina’s government is targeting an inflation rate no higher than 25 percent this year. Private economists expect consumer prices will rise 35 percent this year.

Argentina is the world’s top exporter of soymeal livestock feed and the third-biggest exporter of raw soybeans, the fourth biggest provider of corn and a leading wheat supplier.

5. ARGENTINA’S PAMPA ENERGIA AIMS TO INVEST $400 MLN IN RENEWABLE ENERGY (Reuters News)
By Nicolas Misculin
May 12, 2016

May 12 Argentina’s Pampa Energia SA said on Thursday it planned to invest $400 million in thermal and wind energy projects if it wins a tender process for renewable power projects that the government will hold next week.

In April, the government of business-friendly President Mauricio Macri implemented a law mandating that renewable energy as a share of power consumption rise to 8 percent by 2018 from 1.8 percent currently.

“In thermal and wind energy it is an investment of 400 million between both of them,” said Pampa Energia head Marcelo Mindlin.

The energy projects are expected to total 320 megawatts in installed capacity.

Pampa Energia plans to invest between $100 million and $120 million in a thermal energy project in the Neuquen province and a total of $300 million in two wind energy projects in the south of the Buenos Aires province.
Argentina will hold a tender next week for 1,000 megawatts of renewable energy, part of the plan to install 10,000 megawatts of new cleaner power capacity by 2025, Energy Minister Juan Jose Aranguren said on Thursday. He expects investment of some $2.1 billion for the first phase.

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6, ARGENTINA AIMS TO STOP IMPORTING LIGHT CRUDE THIS YEAR: MINISTER (Reuters News)
By Marianna Parraga
May 12, 2016

Argentina aims to stop importing light crude this year and improve domestic refining operations as it moves further down the road toward energy self-sufficiency, Energy Minister Juan Jose Aranguren said on Thursday.

Operators working in Argentina will continue to export oil, mostly Escalante heavy crude, he told reporters on the sidelines of an industry conference in Houston.

But more refining of domestic light crudes and larger and more regular gas supplies from Bolivia would help the South American country cut imports of costly liquified natural gas (LNG), gasoil and crude.

The Argentine government is in talks with local refineries, encouraging them to buy more domestic light crude and import less, after a 200,000-barrel cargo of a rare light crude was exported last month to drain inventories that were not bought by state-run oil firm YPF, he said.

“Locally produced crude should be given priority in order to avoid a reduction in jobs and tax revenue,” Aranguren said. “The domestic price goes from $55 to $67.50 per barrel depending on the crude type, which means it would be convenient to sell production in the domestic market.”

President Mauricio Macri promises to increase investment in the oil sector, particularly in renewable energy and the sprawling Vaca Muerta shale formation in Patagonia, as part of his campaign to reverse Argentina’s status as a net oil importer.

Argentina has been running an energy deficit since 2011, draining foreign exchange reserves.
But in a low oil price environment, foreign companies are uncertain that Vaca Muerta will be profitable and have been focusing on reducing drilling costs, executives said.

Macri was elected in November on a platform of eliminating currency and trade controls in a bid to increase investment. His election followed eight years of interventionist policies under previous leader Cristina Fernandez, who nationalized YPF in 2012.

“The country disconnected itself from the international market and lost its competitiveness,” the minister said.
In five or six years, Aranguren said, Argentina should be able to stop importing liquefied natural gas, only preserving gas imports from Bolivia contracted to 2027, while limiting gasoil purchases for the winter season.

Argentina will hold a tender next week for 1,000 megawatts of renewable energy, part of the plan to install 10,000 megawatts of new cleaner power capacity by 2025, Aranguren said. He expects investment of some $2.1 billion for the first phase.

7. UPSTREAM CHALLENGES CONTINUE IN ARGENTINA DESPITE SOVEREIGN DEBT DEFAULT EXIT (IHS Global Insight Daily Analysis)
By Juliette Kerr
12 May 2016

The government of President Mauricio Macri has used the proceeds of a USD16.5-billion bond issuance to repay the majority of holdout bondholders, leading to a lifting of the court injunction that had prevented Argentina from paying interest on restructured bonds and forced it to default on its sovereign debt for the second time in 13 years on 31 July 2014. Local upstream investors will welcome Argentina’s return to the international capital markets and exit from selective default, as limited access to external financing and relatively high borrowing costs have impeded greater investment in the sector. However, financing challenges for Argentina’s hydrocarbons sector will likely remain due to continuing low international oil prices, a relatively small number of operators, and the heavy capital costs involved in developing Argentina’s unconventional hydrocarbon resources.

Significance: The national oil company (NOC) YPF will be the main beneficiary of Argentina’s formal exit from default as its credit rating is closely tied to that of the sovereign. Corporate bond spreads will likely fall gradually as the sovereign is still regarded as a high payment risk by credit rating agencies, but the 7.14% average yield on last month’s sovereign debt placement was lower than for a YPF bond issue earlier this year. The risks of partnering YPF will also likely fall following the settlement reached with litigating holdout bondholders. YPF’s revenues and assets were previously at potential risk of seizure, given attempts by holdout bondholders to obtain payment from Argentina by claiming that state-owned companies like YPF were an extension of the government. Without renewed access to credit, Argentina had insufficient international reserves to settle its debt obligations and finance its import bill (Argentina’s international reserves (excluding gold) stood at ~USD23 billion as of end-2015, providing around four months of import cover).

The government hopes that ending the long-running legal dispute with holdout bondholders will boost investor confidence, although Macri’s claim that the new government’s policies will attract USD20 billion in foreign investment in 2016 remains optimistic (foreign direct investment inflows last year totalled ~USD6.5 billion). In the hydrocarbons sector, international oil company (IOC) capital expenditure budget cuts in response to continuing low international oil prices will likely limit any upsurge in investment in response to the perception of increased legal stability.

Several provincial governments, encouraged by strong investor demand for sovereign bonds (and the prospect of more favourable terms following Argentina’s exit from default), are planning to tap international bond markets. The first oil-producing province to follow the federal government’s lead, Neuquén, has already raised USD235 million in a hydrocarbon royalty-backed bond issue; another producer, Mendoza, plans to issue up to USD500 million worth of debt. The use of royalties as collateral for provincial bonds will exert pressure on the government to maintain favourable domestic prices to safeguard production volumes. Several Argentine oil companies may also issue new debt, though in the case of YPF, the Macri government will likely limit any increase in borrowing. YPF objectives include maintaining a net-debt-to-EBITDA ratio of 1.5, although YPF did approve a motion to raise the ceiling of its medium-term global debt issue programme from USD8 billion to USD10 billion at its annual shareholders’ assembly in late April. This modest increase in borrowing and insufficient cash flow mean that YPF’s ability to tap its significant resource potential as the largest acreage holder in the Vaca Muerta shale play (it controls around 40% of the 30,000 square kilometre area) will continue to depend on partnership deals with foreign and domestic entities.

OGRS risk impact: Argentina’s return to the international capital markets after a 15-year absence will allow the country to finance its debt commitments without resorting to further drawdowns of its depleted foreign-exchange reserves. This will ease pressure on the Transfer Risk score, which has been raised to “D” (3), from “F” (2). Argentina’s Sanctity of Contract score has been raised to “D” (3), from “F” (2) to reflect the country’s formal exit from technical debt default. The five-year outlook Rule of Law score will be lifted a notch to “D” (4) following the settlement of legal disputes with holdout bondholders, but judicial reforms to strengthen the independence and efficacy of the domestic court system are still needed to improve the current score, “D” (3).

8. FITCH UPGRADES ARGENTINA’S SOVEREIGN RISK RATING TO B (IHS Global Insight Daily Analysis)
By Paula Diosquez-Rice
12 May 2016

Following Argentina’s return to the external market for financing, ratings agency Fitch upgraded Argentina’s short- and long-term foreign currency issuer default rating to B, with a Stable outlook.

IHS perspective

Significance

Fitch has upgraded the rating for Argentina’s sovereign risk rating to B, from RD.

Implications

Fitch cited that Argentina resuming debt service disbursements also supported the change in the rating.

Outlook

The expectation is that the new government will continue working towards increasing credibility and macroeconomic stability.

Risk ratings

Fitch’s decision to upgrade Argentina’s risk rating brings it half a notch above the same level of IHS (60 points, B-, very high payment risk), and that of Moody’s and Standard & Poor’s, all of which deem Argentina slightly more risky.

Fitch upgraded its short- and long-term foreign currency issuer default rating for Argentina from RD to B. The outlook on the rating was set at Stable. According to its press release, Fitch based its move on the end of the legal blockade on debt servicing set by the New York City court system; indeed, Argentina was able to restart interest payments for bonds that had previously been exchanged and were in default since July 2014. Argentina’s ratings mirror the enhanced uniformity and coherence of Argentina’s policy structure, reduced external weakness, and the reduction of fiscal financing limitations. The Stable outlook balances Argentina’s economic policy improvements with the still-weak external environment, the deteriorated fiscal accounts, and macroeconomic underperformance when compared to its peers. The agency highlighted the political brokerage that enabled the Macri administration to obtain congressional approval to negotiate with the holdouts and ultimately exit default. The successful return to the global stage (Argentina issued some USD16.5 billion in April 2016) will increase the government’s financing sources and will reduce the pressure on the country’s foreign-exchange reserves; however, the inadequate access to finance increased inflationary pressure through monetising fiscal deficits. The rating agency highlighted President Mauricio Macri’s government’s work on changing economic policies, such as the elimination of currency controls and the reduction of utility subsidies, which show a commitment to reduce economic distortions and eventually restore macroeconomic balance. Fitch estimates that gross public-sector debt increased to 59% of GDP in 2015, above the median of the B peers; meanwhile, the majority of Argentina’s public-sector debt is held by public-sector entities such as the country’s social security agency (ANSES). At the same time, the fiscal deficit widened in 2015 and it is expected to gradually decline with the fiscal consolidation stance of the current administration.

Outlook and implications

The decision by Fitch to upgrade its risk rating brings it half a notch higher than the level of IHS (60 points, B-, very high payment risk) and that of Moody’s and Standard & Poor’s, all of which deem Argentina more risky. The outlook on the IHS rating is Stable and recent developments are being monitored very closely and could eventually lead to an upgrade. However, unlike the rating agencies that rate individual bonds, IHS does not convert a rating that only affects a legally limited minority of the total external debt; therefore, IHS’s sovereign risk rating was not downgraded when the New York City court system placed the injunction that blocked payments to previously exchanged bond holders. Normalising the country’s stance in the international finance market was a first step towards improving its credit rating. However, in order to move up from the very high payment risk Argentina would need to show improvement in its solvency metrics; indeed, among the main problems to tackle are the country’s inflation rate and the steep fiscal deficit.

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9. GM BEGINS NEW CRUZE PRODUCTION IN ARGENTINA; CEO BETS ON BRAZILIAN RECOVERY (IHS Global Insight Daily Analysis)
By Stephanie Brinley
12 May 2016

General Motors CEO Mary Barra visited the company’s Argentine production plant in Rosario to inaugurate production of the new Cruze, according to a GM press release. Production of the second-generation Cruze, and a new engine plant that will go online in 2017 supporting the model, stems from a USD740 million investment begun in 2014 (see Argentina: 10 July 2014: ). Argentine president Mauricio Macri also attended the ceremony. Barra told reporters after the event that the Brazilian market’s decline from last year is creating very difficult conditions for companies such as GM but the group is betting on a recovery. Barra said Brazilian employees are “responding incredibly well to the challenges in the marketplace and also making the right investments for the future because I do believe the market will recover.

Chevrolet is an incredibly strong brand in Brazil, and as the market starts to rebound we want to participate very strongly in that recovery”, according to the Wall Street Journal.

Significance: Through April 2016, Brazil auto sales have dropped by 27.6% to 623,333 units and GM sales by 30.4% to 101,609. IHS Automotive forecasts Brazilian sales will slide until 2018, with a 24% drop in 2016. In early 2016, GM president Dan Ammann indicated that the company might revisit its investment plans if the market continued to deteriorate (see Brazil: 22 February 2016: ). Yet Barra’s remarks do not suggest changes in GM’s plans are imminent. In July 2015, GM announced plans to double Brazilian investment (see Brazil: 29 July 2015: ). Production of the Cruze in Argentina replaces the Agile and Corsa and IHS forecasts the plant’s output will reach 41,000 units in 2018, then pull back in subsequent years, serving Argentina and Brazil. The compact car is also built in China, Mexico, South Korea, and the United States.

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10. BRAZIL’S PETROBRAS APPROVES SALE OF ARGENTINA UNIT, TALKS TO SELL PIPELINE UNIT (Platts Commodity News)
By Jeff Fick
12 May 2016

Rio de Janeiro (Platts)–12May2016/1012 pm EDT/212 GMT The board of Brazilian state-led oil company Petrobras has approved the sale of the company’s Argentina subsidiary and exclusive talks to sell a pipeline unit, as divestment plans gain momentum, the company said late Thursday.

Petrobras agreed in early May to sell its 67.29% stake in Petrobras Argentina to Pampa Energia for $892 million, but the deal was still subject to board approval. The deal values the full company, which trades on the Buenos Aires Stock Exchange, at $1.327 billion.

Petrobras and Pampa also agreed to subsequent operations that will see Petrobras retain a 33.6% stake in the Rio Neuquen concession in Argentina and 100% of the Colpa Caranda field in Bolivia for $52 million, Petrobras said in a regulatory filing.

“The Rio Neuquen and Colpa Caranda assets have strategic value for Petrobras because they hold large potential for natural gas production, especially Neuquen, where Petrobras estimates there are large reserves of tight gas,” Petrobras said.

The two subsequent deals must be approved by the board of Petrobras Argentina and local regulators, the company said.

In a separate filing with stock regulators, Petrobras also said that it would enter into exclusive talks for 60 days to sell its Nova Transportadora do Sudeste, or NTS, to Brookfield. The talks can be extended for an additional 30 days, Petrobras said.

Petrobras had previously said it was reorganizing its natural gas pipeline unit into two distinct companies for the purpose of divesting the business unit. NTS operates about 2,500 km of natural gas pipelines in the industrialized south and southeast of Brazil. The second subsidiary, Transportadora Associada de Gas, or TAG, operates pipelines in the north and northeast of Brazil.

Analysts have said the sale of NTS could fetch more than $5 billion for Petrobras. The deal is still subject to approval by the boards of Petrobras and Brookfield, as well as relevant regulatory authorities, Petrobras said.

The sales are the first this year in a divestment program that is targeting asset sales of $14.4 billion by the end of 2016. So far, the company has made deals totaling about $1.4 billion through the Petrobras Argentina sale and the sale of a fuel-distribution business, called Petrobras Chile Distribucion, in Chile.

The slow pace of the sales has caused many analysts to question whether the company will be able to meet its target. Petrobras needs to raise the cash to pay down debt that topped $125 billion at the end of the first quarter, so a series of large-scale deals could provide quick relief for the cash-strapped company.

The company also continues to hold talks with interested parties on the potential sale of oil and gas fields and non-core business units in fuel distribution, logistics and transportation. In March, the company said it was putting 98 production concessions and six exploration blocks in the Brazilian states of Bahia, Ceara, Espirito Santo, Rio Grande do Norte and Sergipe on the auction block. The fields account for about 35,000 b/d of onshore oil output.

But Petrobras has also faced some resistance to its plan.

Local judges have handed down injunctions blocking the sale of Petrobras’ 49% stake in its Gaspetro unit to Mitsui & Co. for $501 million, which generated the largest portion of the $700 million in asset sales made in 2015. Workers also walked off the job for 19 days in November, the longest strike at Petrobras since 1997, to protest the company’s asset sales.

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11. MARK MOBIUS: A NEW ERA FOR ARGENTINA (ValueWalk)
By Franklin Templeton Investments
May 12, 2016

My colleagues and I recently visited Argentina, which is undergoing a transformation after last year’s election ousted President Cristina Fernández de Kirchner, the wife of the previous President Nestor Kirchner. The center-right opposition candidate Mauricio Macri’s win with his “Let’s Change” slogan ended a regime that brought high inflation, dollar shortages, an erosion of foreign reserves, and government actions that undermined business confidence and limited access to international capital markets. Taking office in December, President Macri appointed a skilled technocratic team promising to improve the economic situation in the country, which the financial markets have welcomed.

Soon after the new government took office, rating agencies upgraded their outlook for the country from negative to stable as a result of the swift changes from the previous government’s economic policies, including the elimination of currency controls and the reduction of exporting tariffs. These actions indicated the new government was rejecting the public-sector interventionism that hurt exports and reduced foreign-exchange earnings. Even more important than this vote of confidence was the ability of the new government to reach agreement on defaulted foreign debt the prior administration had refused to pay and had locked the country out of the international debt markets.

In March 2016, Macri was able to obtain approval from Argentina’s Congress to reach an agreement settling a 15-year dispute with “holdout” hedge funds that owned substantial amounts of the debt. The Argentinian government issued US$16.5 billion in debt, with US$9.3 billion allocated to settle with holdouts, US$2.5 billion to pay blocked restructured debt which was performing until 2014, and the remainder to be used to finance part of the fiscal imbalance during the 2016 fiscal year. Argentina’s return to the international capital markets should be considered a major triumph and was extremely well received by investors; its bonds were oversubscribed.

It was remarkable that congressional approval was obtained, since Macri had won the presidential election by a margin of less than 3% nationally. Thankfully, Macri moved fast and immediately lifted capital controls, raised interest rates, liberalized the foreign-exchange market and cut export taxes. He still faced the problems of small and falling international foreign reserves, a bloated public sector, a fiscal deficit of 7% of gross domestic product (GDP) and a wage price spiral, but the global community has by and large welcomed Macri’s policies. The Chinese had previously engaged in a currency-swap deal with the cash-strapped Argentinian government, giving them renminbi in exchange for Argentine pesos so the country would have Chinese currency to pay for Chinese imports, while the Chinese could use pesos to import the raw materials that Argentina produces. Under the new administration, the People’s Bank of China stated that the swap could be converted into US dollars, which would add US$11 billion to Argentina’s central bank assets.

Signaling another boost of confidence in Argentina, US President Barack Obama made an official visit to the country in March after Macri took office. Obama praised the speed at which reforms were being made and signed a trade and investment framework agreement to cooperate in a number of areas, with the hope that US companies would add billions in investment dollars to Argentina’s economy.

Short-Term Pain for Longer-Term Gain

When a populist, high-spending government leaves office, the need for reform results in short-term pain, since the debts generated by the previous government have to be paid. It’s like a hangover after a big party. So it was no surprise to me that when we arrived in Argentina this spring that the English-language Buenos Aires Herald newspaper had the headline: “Electricity rates may jump by 300%.” The article said that President Macri’s administration had paved the way for increases in the wholesale prices of power nationwide that would mean a cut in subsidies for users, particularly in the Buenos Aires area, who had enjoyed the lowest electricity rates in the country. This would be positive for the government’s budget, which has been drained by those subsidies, but also for electric power companies that had to share in the pain. This reform should enable power companies to increase capital spending and enable a reduction or even elimination of blackouts and brownouts, which have been experienced in recent years. We witnessed one case of a brownout when we traveled to the outskirts of Buenos Aires to visit one of the new shopping malls. On the way there, one whole section of the city was dark because of a cut in power for that area.

When I first visited Buenos Aires in the 1990s, the Puerto Madero area was a rundown collection of derelict warehouses along the canal connected to the Rio de la Plata (Silver River). In 1989, city and federal governments formed a joint stock company to urbanize the area, which led to a major restoration and conversion program, which included transforming the old warehouses into trendy restaurants, offices and apartments. The place blossomed, further resulting in entirely new developments of high-rise apartments and office buildings along the river canal. With good city planning, a network of wide roads and picturesque riverside walkways was developed. A number of architects were involved in creating beautiful structures, including my favorite architect, Santiago Calatrava, who designed an ultramodern pedestrian bridge, the Puente de la Mujer (Women’s Bridge), which swings to the side allowing ships to pass. In 2008, the heir to a cement fortune and reputedly Argentina’s richest women, Amalia Lacroze de Fortabat, financed the construction along the canal of a beautiful museum housing her extensive art collection. When I visited, I found it to be quite an impressive collection, particularly of Latin American art. More international hotels are currently planned for the area.

On my most recent trip, the first thing I noticed when driving from the Buenos Aires airport to the Puerto Madero area was a tall, modern skyscraper at the end of the port channel with large logo initials of a Chinese bank at the top. The influence of China has been growing in Latin America and globally. Argentina has imported substantial amounts of telecommunications equipment from the likes of Huawei, China’s electronics equipment giant. Discussing this with the Argentinian telecom companies during our recent visit, we heard that the Chinese payment terms and conditions were very generous and that large teams of Chinese technicians were brought in to do the maintenance, which was deemed as superb.

A Legacy of Mismanagement

In our view, one of the key reforms going forward for Argentina will need to come from the country’s statistical agency. The Kirchner government had fired the head of the agency when she issued (accurate) inflation numbers of over 20% and installed a new agency head to issue false inflation numbers and other inaccurate information. The Kirchnerist policy mismanagement also banned the export of meat in an attempt to protect domestic consumers and keep prices down, but this policy forced many companies that had lost overseas profits to close. At the same time, since it was not profitable to invest in new cattle, the stock of cattlehead declined from 60 million heads in 2006 to 52 million by 2012. This Kirchnerist policy actually created the opposite effect that it originally intended, and prices skyrocketed.

Labor, an issue deeply related to inflation, remains a challenge for Macri’s administration today. The new government wanted to make the 2016 inflation target of 25% the benchmark for wage negotiations, but leaders of the powerful General Confederation of Labor warned that they expected wage increases in 2016 to be at least 30%, the number that they considered the real inflation rate. This put the Macri government in a bind, since wage restrictions were part of the administration’s promise to rein in inflation. The labor unions were concerned about the surge in inflation coming from the peso depreciation in addition to job losses in the oil industry. Ever since the Kirchner administration forced the government statistical agency to issue false inflation data, there has been mistrust in the official numbers. Another problem facing Macri is that traditionally, labor unions were aligned with the opposition Peronists instead of Macri’s center-right Republican Proposal Party. Additionally, thousands of public employees hired by the previous administration have been dismissed, but many are still receiving salaries without having to show up for work.

Taking a walk from our hotel to the business district, we saw signs of the Kirchner heritage’s ability to survive even though she is no longer in power. At the time when Argentina was one of the world’s wealthiest countries, construction started in 1908 on an elegant French Second Empire-style building designed by a French architect as a post office. At the time of its dedication, the huge eight-story building with a floor area of 88,050 square meters (947,800 square feet) was considered the largest in Latin America. The building is lavish with marble all over, stained-glass windows, many bronze sculptures and a four-story-high domed ceiling. The grand setting led President Juan Perón to move his offices into the building during the early years of his 1946-1955 reign, and his First Lady, Eva Perón (remember “Don’t Cry for Me, Argentina”), assigned one wing as the first headquarters of the so-called charitable Eva Perón Foundation. Former President Cristina Kirchner had the building fully restored and renamed it the “Kirchner Centro Cultural,” which is carved in stone at the top. It includes a concert hall, five other auditoriums for theater and concerts, 18 halls for other performances and events, 40 rooms of art and history galleries, 16 rehearsal rooms and two rooftop terraces. When I entered the building and went to the counter where a young man and woman were sitting, I said what I wanted to see, but the man answered that it was closed. When I asked why, he said matter-of-factly: “There has been a change in the government.” Nevertheless, outside on the curb were painted stenciled signs with a profile of Mrs. Kirchner and the words in Spanish translating in English as, “I will be back.”

A New Era for Argentina

In an effort to dismantle the structure of corruption left over from the Kirchner era, the new government took action to block money allocated for infrastructure projects in a number of provinces due to the lack of transparency on contracts signed by the previous government. Audits showed that in some cases 80% of the payments for some projects were made despite the fact that only 10% of the work was completed. The audits would impact major projects such as two hydroelectric dams being built by Chinese companies at an estimated US$5 billion in a Kirchner stronghold province.

Besides demystifying the Kirchner heritage, another challenge is the issue of tax sharing between the federal government and the provinces. After the election, Argentina’s Supreme Court ruled it was unconstitutional for the federal government to take a 15% greater share of its tax-sharing agreement with the provinces, a practice in place since 1992. This meant that the federal government would have additional budget constraints and would be liable to repay billions that had been withheld in previous years.

The issue of law and order is another legacy of the Kirchner administration that the new government has to grapple with. In December 2015, three convicted murderers in a high-profile case escaped a Buenos Aires province prison. That, along with a rising crime wave, resulted in criticism of the Ministry of Security and the police in general, and the rising belief that there were direct links between criminal networks, the police and politicians. Since Argentina has good ports and infrastructure, drug traffickers were relocating from Colombia and Mexico using Argentina as a transit point for trafficking cocaine to consumer markets in North America and Europe. When he entered office, President Macri declared a 365-day nationwide state of emergency and outlined a new security policy, including increased control at entry points to prevent transport of drugs, and renewed international cooperative efforts (specifically with Israel) on security and defense technology.

On a more positive note, the change in government was good news for Argentina’s major media group, which had been battling with the Kirchner administration and had been subject to laws and regulations designed to break it up. Now the group has the ability to expand and consolidate its media empire to offer a full range of so-called “quad play” services (wireless, TV, Internet and home phone services), newspapers and magazines, free-to-air television, Internet broadband, telecommunications and cable). We had visited the group in the dark days, when the Kirchner administration was attacking it and even going as far as sending gangs of political agitators to break into their offices and disrupt their operations. This time when we arrived at their offices, the executives were in much better spirits, and the company is a strong political and social force.

We also visited a steel producer located in Argentina. The officials there mentioned that Mexico was a particularly important market because of its large manufacturing base for automobiles—which has been increasing. In 2015, Mexico’s production of vehicles reached 3 million units and is expected to reach more than 5 million units by 2020.1 The challenge, of course, was coming from China where steel was being sold at a far lower price than US steel. They said that it was important to protect local markets with anti-dumping duties which were being put into effect, although lower steel prices weren’t negatively impacting all of their operations. We discussed the situation of China’s steel industry; roughly half of the world’s output of steel comes from China, and issues of excess capacity have caused some plants there to close, but there has been tremendous resistance to putting people out of work. I had to laugh when one of the officials at the steel company told me he heard in one case, the Chinese government sent an executive to close down a plant in one of the provinces and the workers threw him out of the window, a story which I certainly can’t verify!

Visiting a company that makes seamless steel pipes mainly used in the oil industry, it was not a surprise to hear of a decline in demand in the United States and Canada and subsequent increase in inventory amid the oil price drop in 2014-2015. While they felt certain a large part of production would be taken out of the market with continued low prices, they believed their business would recover as oil prices recovered.

Experiencing Nearby Sights – and Currency Challenges

Over the weekend, my colleagues and I took a short ferry trip to Colonia del Sacramento, Uruguay, right across the Rio de la Plata. When we went to buy tickets for the Buquebus (the Argentinian ferry operator), the teller said they would not accept local peso currency—only US dollars. After discussing some other exchange-related anomalies, we proceeded to Colonia, one of the oldest towns in Uruguay developed on a peninsula that protrudes into the river. It is renowned for its historic quarter, a UNESCO World Heritage Site. It’s a popular tourist attraction for visitors from Buenos Aires, and there is frequent ferry service between the two cities, with fast ferries completing the journey in less than an hour. The historical section of Colonia, which has some cobblestone streets built by the Portuguese in the 17th century, is within walking distance of the ferry terminal. The ferry company operates services from Buenos Aires not only to Colonia but to Montevideo, Uruguay’s capital, entry to the famous summer resort area of Punta del Este.

Renting a bicycle, I enjoyed the opportunity to soak up some sun and local sights along the coast. We were encouraged to see many vacationers and bustling traffic. Overall, our visit to Argentina confirmed our views that its economy was gradually on the recovery path—and I believe if the pace of reforms continues there, Argentina’s turnaround could be even faster than expected.

The comments, opinions and analyses presented herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

Important Legal Information

All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

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Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.
~Oscar Ameringer~

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