Miguel A. Kiguel, former Undersecretary of Finance at Argentina’s Ministry of Finance and current Executive Director of EconViews, delivered a relatively optimistic keynote address on the prospects for the Argentine economy. Kiguel argued that, notwithstanding a number of concerns, the economic outlook for Argentina remained favorable and that financing needs for the next few years were indeed manageable.
Inflation remains the main problem facing the Argentine economy, Kiguel acknowledged, and it will continue to pose a challenge for policymakers. His own forecast for inflation was that it would rise above 25% in Argentina in 2008, with inflation in smaller provinces dramatically higher than that in Buenos Aires. Inflationary expectations in the market are now above 30% according to his research.
However, Argentina’s twin surpluses "reduce macroeconomic risks even if the external environment deteriorates," Kiguel asserted. After declining in 2007, the primary surplus will rebound in 2008 due to higher export tax revenues. Argentina continues to benefits from strength in the prices of its commodity exports.
The Central Bank, Kiguel noted, has intervened in the market in order to avoid a nominal depreciation of the peso by selling dollars and has been able to maintain financial stability. The country’s exchange rate policy is torn between maintaining price stability and keeping exports competitive.
Kiguel dismissed concerns about a potential default as "exaggerated" due to a number of factors including the large stock of international reserves, decreased pressure on financial resources due to the country’s twin surpluses, a recovery in the banking system and the flexible exchange rate. The recent farmer’s strike "has changed the political and social climate but economic variables are still solid," he affirmed, although he recognized that a continuing political crisis could eventually lead to economic deterioration.
Despite overall favorable economic conditions, Kiguel did not have encouraging words for investors who did not tender their debt in Argentina’s 2005 debt swap. An agreement with holdouts was unlikely, he stated.
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