ARGENTINE UPDATE – Sep 24, 2016


1. ARGENTINA PLANS EUROBOND AS EMS RIDE HIGH (Financial Times)

2. ARGENTINA’S RECESSION DEEPENS AS MACRI’S REFORMS BITE (Bloomberg News)

3. ARGENTINA TAKING DEBT SPREE TO EUROPE WITH BENCHMARK SALE (Bloomberg News)

4. BELLO: OF GROWTH AND GLOBALISATION (The Economist)

5. HOW MAURICIO MACRI IS TRYING TO REHABILITATE ARGENTINA’S ECONOMY (The Economist)

6. ARGENTINA’S ECONOMY SHRINKS FOR THIRD STRAIGHT QUARTER (Reuters News)

7. ARGENTINA’S ECONOMY SHRINKS FOR THIRD STRAIGHT QUARTER (Voice of America)

1. ARGENTINA PLANS EUROBOND AS EMS RIDE HIGH (Financial Times)
By Thomas Hale
September 22, 2016

Bond comes six months after country’s return to international debt market.

Argentina is planning to sell its first euro-denominated bond in more than a decade as the reformist government of president Mauricio Macri takes advantage of low borrowing costs and investors scramble for richer yields.

The government has hired BBVA, BNP Paribas and Credit Suisse to help market the debt on a roadshow that begins next week and will visit London, Germany, Paris, Amsterdam and Milan.

Efforts to tap the eurobond market come almost six months after Argentina sold a $16.5bn dollar bond, the largest ever issue from a developing economy and a stunning return to the international debt market for the Latin American country after a 15-year exile.

“There is definitely the argument that where rates are in Europe, investors in Europe who traditionally would not have looked at LatAm … are now more or less forced to,” said a banker familiar with the deal.

The maturity and possible pricing of the debt have yet to be decided. April’s dollar bond, which came at several maturities, followed an agreed $4.65bn cash payment for “holdout” creditors, including Elliott Management, who refused to restructure debt after the 2001 default.

The 10-year portion of the deal was priced to yield 7.5 per cent, down from 8 per cent thanks to robust investor demand.

Argentina will join Chile, Colombia and Peru which have all recently tapped the euro sovereign bond market. Record-low interest rates have enticed borrowers, and forced investors to look further afield as part of an increasingly difficult search for yield.

Emerging market investors say Argentina’s bond is likely to prove attractive given the yields available in developed economies, where low rates or, in the case of the Eurozone and Japan, negative benchmark rates, have driven yields to record low levels.

“I would argue that you are much better off in an Argentine bond trading 400-500 basis points over (US treasuries) than an Italian bond,” said Jan Dehn, head of research at Ashmore, an emerging markets investment house. “Argentina has done more reforms in the past six months than they have in the past 15 years,” he added.

The election Mr Macri at the end of last year has improved investor sentiment towards Argentina. In December, he lifted capital controls in a sign of a pro-market shift in the country’s policies. One concern is the future supply of Argentine debt, which has been low over the past decade but now stands to increase steadily.

“The profile of Argentine debt is very benign — what you’re going to get in Argentina is constant supply. If you keep providing supply, eventually prices go down,” said Mr Dehn.

2. ARGENTINA’S RECESSION DEEPENS AS MACRI’S REFORMS BITE (Bloomberg News)
By Charlie Devereux
September 22, 2016

* Economy shrank 3.4% vs. median forecast for 2.5% decline
* Macri’s free-market reforms exacerbating year-long recession

Argentina’s recession deepened in the second quarter as President Mauricio Macri’s efforts to implement free-market reform exacerbated an already flagging economy.

Gross domestic product fell 3.4 percent from the same period a year earlier, the largest year-on-year contraction in almost two years, the statistics agency said in a report published Thursday in Buenos Aires. That compares with the median estimate from 11 analysts surveyed by Bloomberg for a decline of 2.5 percent. GDP fell 2.1 percent from the previous quarter, it’s fourth consecutive contraction.

Macri took office in December and froze many construction projects as he reviewed contracts and devalued the peso, causing a spike in inflation that’s eroded consumers’ purchasing power. The economy is showing the first signs of exiting recession, Macri said at a forum for international investors last week. He is seeking to drum up increased investment to foster growth and move away from a model based on consumption.

The central bank raised its benchmark rate to as high as 38 percent in March as it sought to tame inflation that peaked at 47 percent in July. That drove away fixed capital investment, which plunged 4.9 percent in the second quarter, as businesses refrained from borrowing.

Construction, one of the main drivers of the economy, fell 10.2 percent.

Argentina last week presented to Congress a budget for next year calling for a wider fiscal deficit target, as the government seeks to boost growth by increasing spending.

Macri also ordered a revision of all the country’s statistics after Argentina became the first country to be censured by the International Monetary Fund for reporting inaccurate economic data. An IMF team arrived in the country this week to conduct an Article IV review for the first time in a decade.

3. ARGENTINA TAKING DEBT SPREE TO EUROPE WITH BENCHMARK SALE (Bloomberg News)
By Lyubov Pronina and Carolina Millan
September 22, 2016

* Banks to pitch two-tranche, benchmark-sized euro bonds
* Investor meetings planned in Europe between Sept. 26-29

Argentina picked three banks to pitch an offering of at least 500 million euros ($562 million) of bonds to European investors in what would be its first euro-denominated offering in six years.

Banco Bilbao Vizcaya Argentaria SA, BNP Paribas SA and Credit Suisse Group AG will arrange meetings in London, Germany, Netherlands and Milan next week. A benchmark-sized, euro-denominated bond sale in two tranches may follow subject to market conditions, according to a person familiar with the deal, who asked not to be identified because the information is private. The sale would be the country’s third international bond sale of 2016 and the first euro-denominated issue since a debt restructuring offer in 2010.

Argentina has sold more debt than any other developing nation this year, placing about $20 billion in dollar-denominated bonds to investors lured by a reform-driven government that scrapped most currency controls and reached a milestone settlement that pulled the country out if its 15-year sovereign default. A $16.5 billion sale in April was the biggest ever from a developing nation and was met with $70 billion worth of offers from international investors, a record at the time. Government authorities had previously said they didn’t intend to sell more debt in international markets this year.

“There is probably a lot of demand among euro-based investors given low yields on emerging-market sovereigns in euros,” said Richard Segal, a senior analyst at Manulife Asset Management in London. Argentina’s “story is improving,” he said, citing public support of structural reforms to the economy and recovering foreign investment.

Euro-denominated sovereign bonds in developing nations currently yield 1.6 percent on average, compared with 4.69 percent on equivalent dollar debt, according to Bank of America Merrill Lynch indexes. The yield on Argentina’s euro-denominated discount bonds due 2033 fell to 6.69 percent from 7.05 percent on Wednesday.

“There’s a lot of interest from European investors to invest in Argentina’s bonds again,” Finance Minister Alfonso Prat-Gay told reporters in Buenos Aires. “We want there to be European instruments to channel investment from that part of the world, and that’s what we’re working toward in the next few days.”

The bond sale will only be available to European investors, according to a government official close to the deal who asked not to be identified because the matter is private. The sale is unrelated to an offer released yesterday that expands the eligibility of defaulted German-law bonds for a settlement offer, the person added.

Other Argentine issuers have sought to benefit from falling yields in European currencies. YPF SA, the country’s biggest oil company, issued 300 million Swiss francs ($307 million) of 3.75 percent bonds on Sept. 16, its first sale in that currency.

“For Argentina there will be lots of opportunities for arbitrage like this,” Miguel Angel Gutierrez, YPF chairman, said Tuesday during an interview at Bloomberg’s headquarters in New York. “We are witnessing a lot of interest in the country. You will see more opportunities like the one in Swiss francs in other currencies.”

4. BELLO: OF GROWTH AND GLOBALISATION (The Economist)
24 September 2016

Latin America wants to rejoin the world. Will the world reciprocate?

“FROM Argentina to the World” is the slogan. This month President Mauricio Macri welcomed 1,600 business leaders to Buenos Aires, inviting them to invest in and trade with his country. That marked a big change. During 12 years of rule by Cristina Fernández de Kirchner and her late husband, Néstor Kirchner, Argentina cut itself off from the world, nationalising foreign businesses, curbing imports and severing normal ties with the IMF. The Kirchners once stood up Carly Fiorina, the boss of Hewlett-Packard, an American computer giant, when she went to visit them at the Casa Rosada.

Some countries in Latin America, especially those on the Pacific seaboard, like Mexico, Chile and Peru, never turned their backs on globalisation. Others did. Boosted by record prices for their commodity exports, they turned inward and subjected their economies to state controls, repeating on a smaller scale the model that failed the region in the 1970s.

Mr Macri’s initiative is not the only sign of a renewed desire to connect with the world. Brazil’s congress is poised to roll back a law that gave Petrobras, the state-controlled oil company, a monopoly over deep-water operations. Michel Temer, the new president, is set to loosen rules governing national content in the oil industry. In Ecuador Rafael Correa, a left-wing populist who boasted that his country was doing well because it disregarded the IMF’s recipes, plans to stand down as president next year amid a recession. His government has already accepted a $364m no-strings loan from the fund for earthquake reconstruction; whoever wins the election is likely to seek a conventional IMF programme.

These changed attitudes respond to a harsh reality. Because of the end of the commodities boom, 2016 will be the sixth successive year of economic deceleration in Latin America. True, the IMF’s forecast of an aggregate contraction of 0.4% this year is depressed by the recessions in Brazil, Argentina and Venezuela. The fund assumes the first two will recover next year, and that the region will post a return to growth, of 1.6%. In other words, even those countries that pursued responsible macroeconomic policies are growing at a mediocre rate of 3% or so. The IMF reckons that the region’s potential (ie, non-inflationary) growth rate has fallen from 4.5% to 3%. That is not enough to satisfy the aspirations of an expanded middle class, nor to complete the task of abolishing poverty.

So what is to be done? Thanks to better policies, some countries have adjusted smoothly to lower commodities prices. Their currencies have depreciated without triggering high inflation. With central banks now poised to cut interest rates, cheaper currencies ought to trigger strong export-led growth. But there is little sign of that. During the years of boom and strong currencies, many Latin American manufacturing firms lost the links they once had to export markets. Restoring them takes time and effort. It is harder still because world trade is now expanding much more sluggishly than in the recent past.

Latin America’s need to conquer new markets comes as globalisation is in retreat elsewhere. After years of procrastination, the Mercosur trade group (based on Brazil and Argentina) in April began formal negotiations for a trade pact with the European Union. Because of the farm protectionism of France and others, the Europeans are unlikely to offer anything useful. Earlier this year, Chile, Mexico and Peru signed the proposed 12-country Trans-Pacific Partnership. This now looks stillborn, since both candidates in the American presidential election oppose it. Donald Trump threatens to throw up barriers around what is still, despite the rise of China, by far Latin America’s single largest export market.

At the turn of the century, parts of Latin America suffered the kind of backlash against globalisation that now affects Europe and the United States. The likes of the Kirchners and Venezuela’s Hugo Chávez railed against “neoliberalism” and “savage capitalism”, by which they meant the free trade and free markets that underlie globalisation. They attributed the extreme inequality which scars Latin America to “imperialism”, just as Mr Trump blames foreigners for the loss of American industrial jobs.

One lesson from Latin America is that governments can ease inequality through social programmes. Another is that disconnecting from the world makes the poor worse off, as they are today in Venezuela. Having gone through its anti-globalisation backlash, Latin America is finding that the world now offers fewer easy gains than in the past. So it will be hard to make up for lost time. But at least the region is (mostly) back on the right track.

5. HOW MAURICIO MACRI IS TRYING TO REHABILITATE ARGENTINA’S ECONOMY (The Economist)
Sep 22nd 2016

FOR most of 2015 few gave Mauricio Macri much chance of becoming Argentina’s president. The pro-business mayor of Buenos Aires lagged in the polls behind Daniel Scioli, the candidate favoured by Argentina’s outgoing president, Cristina Fernández de Kirchner. Pundits pointed out that no non-Peronist president had completed a full term in office since 1928. But in the end it was Mr Macri’s outsider status that clinched his victory. After scraping 51% of the vote in a run-off on November 22nd, his supporters at home and abroad looked forward to swapping political populism for economic prosperity. But, more than nine months after his inauguration, Argentina is still plagued by high inflation, unemployment and weak consumer demand. What has gone wrong?

The scale of the task confronting Mr Macri was formidable. Argentina had been a financial pariah for more than 14 years, cut adrift from international capital markets thanks to a long-running dispute with holders of its defaulted debt. Official government statistics were widely discredited, prompting the International Monetary Fund to issue a formal censure in 2013. A standoff with the agricultural sector meant that farmers preferred to stockpile grain and soyabeans rather than export them. Currency controls left the peso overvalued and foreign exchange reserves at a nine-year low. Years of chronic underinvestment in infrastructure had pushed the country’s energy network to the brink of collapse.

The new president favoured bold action. During his first weeks in office Mr Macri eased currency controls, reduced export tariffs on agricultural goods and oversaw an overhaul of the national statistics institute. In April he concluded a $9.3 billion deal with holders of Argentina’s defaulted debt, restoring the country’s access to credit markets. But the remedies, although necessary, have proved painful. The peso’s devaluation pushed up the already-high inflation Mr Macri had inherited to around 40%, the highest rate in Latin America outside Venezuela. The reduction of unaffordable energy subsidies and an accompanying rise in utility bills inflicted more pain on hard-pressed consumers. With unemployment at 9.3% and the economy in recession, union-organised protests brought tens of thousands of demonstrators onto the streets of Buenos Aires on September 2nd.

Mr Macri is desperate for good news. With legislative elections due in October 2017, his political fortunes will hinge on whether or not Argentines begin to feel tangible improvements in the economy. Inflation is finally slowing: in August prices rose by just 0.2%. But the flood of foreign investment Mr Macri promised would arrive following Argentina’s return to the markets has so far failed to materialise. For now at least, experts remain optimistic. Although the IMF believes the economy will shrink by 1.5% of GDP this year, it forecasts growth of 2.8% for 2017. Argentines also appear willing to give Mr Macri the benefit of the doubt. After months in decline the president’s approval ratings have stabilised at 56% over the past two months, according to Poliarquía, a pollster. As spring arrives in Buenos Aires, Mr Macri must be hoping that his fortunes have finally turned.

6. ARGENTINA’S ECONOMY SHRINKS FOR THIRD STRAIGHT QUARTER (Reuters News)
By Luc Cohen
22 September 2016

BUENOS AIRES, Sept 22 (Reuters) – Argentina said on Thursday the economy shrank 2.1 percent in the second quarter from the first quarter of 2016, as the country remained mired in recession during the first year of President Mauricio Macri’s administration.

Compared with the same quarter of 2015, gross domestic product shrank 3.4 percent in the April-to-June period, the first quarter of year-on-year contraction since at least 2015. The government expects a return to annual growth in 2017.

Year-over-year declines in Argentina’s construction, manufacturing and agriculture industries weighed most heavily on the economy in the second quarter, according to Indec, the government statistics agency.

The South American country had growth in the public sector, however, as well as restaurants and hotels and transportation.

Macri’s center-right administration, which took office in December after more than a decade of leftist rule, has been trying to reform the economy through free-market measures.

It has eliminated currency controls and grains export taxes, lowered utility subsidies and settled a long-standing lawsuit with bond-holders that had kept the country in default.

Indec revised its estimate for the third quarter of 2015 to growth of 0.1 percent from the prior quarter, up from a contraction of -0.1 percent. That means the second quarter of 2016 was the third consecutive quarter of contraction.

Indec also revised growth for the second quarter of 2015 down to 1.1 percent from 1.4 percent and revised first-quarter 2015 growth up to 2 percent from 1.7 percent.

Finance Minister Alfonso Prat-Gay said earlier this week that the economy would break its contraction streak in the July-to-September period.

This was the second time Macri’s administration announced quarterly GDP figures following a major revamp by the statistics agency. The prior administration’s economic statistics were widely viewed as manipulated.

In addition to recession, Argentina is suffering inflation of around 40 percent this year, although the government expects it to fall to 17 percent next year.

Argentina is planning a euro-denominated bond issuance and has tapped three banks to arrange meetings with fixed income investors in Europe beginning next week, Thomson Reuters publication IFR reported on Thursday.

The country has already raised nearly $20 billion in sovereign debt after a successful return to global bond markets in April following a 15-year absence.

The debt will help finance a stubbornly high fiscal deficit, which ballooned after decades of populist rule, largely due to generous spending on social programs.

7. ARGENTINA’S ECONOMY SHRINKS FOR THIRD STRAIGHT QUARTER (Voice of America)
September 22, 2016

BUENOS AIRES — Argentina said on Thursday the economy shrank 2.1 percent in the second quarter from the first quarter of 2016, as the country remained mired in recession during the first year of President Mauricio Macri’s administration.

Compared with the same quarter of 2015, gross domestic product shrank 3.4 percent in the April-to-June period, the first quarter of year-on-year contraction since at least 2015.

The government expects a return to annual growth in 2017.

Year-over-year declines in Argentina’s construction, manufacturing and agriculture industries weighed most heavily on the economy in the second quarter, according to Indec, the government statistics agency.

The South American country had growth in the public sector, however, as well as restaurants and hotels and transportation.

Macri’s center-right administration, which took office in December after more than a decade of leftist rule, has been trying to reform the economy through free-market measures.

It has eliminated currency controls and grains export taxes, lowered utility subsidies and settled a long-standing lawsuit with bond-holders that had kept the country in default.

Indec revised its estimate for the third quarter of 2015 to growth of 0.1 percent from the prior quarter, up from a contraction of -0.1 percent. That means the second quarter of 2016 was the third consecutive quarter of contraction.

Indec also revised growth for the second quarter of 2015 down to 1.1 percent from 1.4 percent and revised first-quarter 2015 growth up to 2 percent from 1.7 percent.

Finance Minister Alfonso Prat-Gay said earlier this week that the economy would break its contraction streak in the July-to-September period.

This was the second time Macri’s administration announced quarterly GDP figures following a major revamp by the statistics agency. The prior administration’s economic statistics were widely viewed as manipulated.

In addition to recession, Argentina is suffering inflation of around 40 percent this year, although the government expects it to fall to 17 percent next year.

Argentina is planning a euro-denominated bond issuance and has tapped three banks to arrange meetings with fixed income investors in Europe beginning next week, Thomson Reuters publication IFR reported on Thursday.

The country has already raised nearly $20 billion in sovereign debt after a successful return to global bond markets in April following a 15-year absence.

The debt will help finance a stubbornly high fiscal deficit, which ballooned after decades of populist rule, largely due to generous spending on social programs.

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