Argentina’s Future Growth Debated at Buenos Aires Forum
EMTA’s third annual Forum in Buenos Aires, hosted by Banco Itau Unibanco, was held on Thursday April 15, 2010. The event featured presentations from political columnist Carlos Pagni of La Nacion, well-known economist Miguel Broda, and a panel of top Buenos Aires strategists and investors. 150 market participants attended the event, which was conducted in Spanish with simultaneous English translation.
In his remarks, Pagni discussed the current political environment in Argentina. The country has “obviously been going through a huge political crisis,” he stated, and it was unclear if there were any signs of an improved future.
Pagni discussed the government’s dismal public relations, both at home and abroad, a problem exacerbated in recent months with the dismissal of Central Bank President Martin Redrado. Pagni described the Argentine political situation as one of “asphyxia, lacking any air at all.” The 60%+ disapproval rating for President Fernandez de Kirchner actually does a disservice to the Argentine people as it allows for the political opposition to escape having to develop a real alternative, “it is enough for them simply to untie the Kirchner demons.” Thus Argentina, for the third time since the end of the military juntas, could be electing a new leader without really knowing what the new government would do. The vote will be more focused on “punishing” an unpopular government than on the future direction of the country, Pagni feared.
Pagni discussed in detail the intricacies of Argentine politics, including tensions between the various Peronist factions. The President had adopted a strategy of playing for time with other Peronists, although the speech delivered at the opening of Congress appeared to indicate the President would resort to “buying back approval” via an increased number of new subsidies. Thus, the Kirchners are becoming parodies of themselves, with a sort of “don’t worry about the Central Bank fiasco, here is more money” message to the hoi polloi.
Miguel Broda delivered a wide overview of the Argentine economy. Broda noted the asymmetry of the economic downturn and recoveries between developed and emerging countries. The strong recovery of most Latin countries was impressive and “it is very hard to be pessimistic” for the immediate future. He affirmed the “graduation” of EM countries during the most recent downturn.
Broda expects the Argentine economy to deliver 5.5% to 6% growth in 2010, vs 3.5% in 2011. The country is experiencing a favorable tail wind, with GDP growth of approximately 6% to 7% in recent quarters. This compares to the official (and highly questionable) growth rate of 0.9% in 2009, or more likely a decline of 2.5% to 3% in growth according to preliminary forecasts by private economic analysts, Broda stated. Inflation is accelerating although Broda was optimistic that it would not spiral out of control.
The unfortunate news is that the economy is probably peaking. “This cannot go on…we might stay at the top of this cycle for a while,” stated Broda, while also warning investors to be on the lookout for an eventual downturn.
Broda added to the criticism of the current administration. “The fact that they are running the Central Bank is like putting a fox in charge of the henhouse,” he commented.
A panel discussion followed Broda’s comments. Fernando Ferrari (Banco Itau Unibanco) reminded attendees of the poll taken at the Buenos Aires Forum in 2009, displaying the average economic predictions submitted by attendees at the event last year. The audience had not been far off with its consensus estimate of a 2.2% decline in GDP in 2009, compared to the 3% decline private analysts have recently estimated. The 4.18 ARP/US$ exchange rate predicted at the 2009 Forum compares to a 3.81 ARP/US$ exchange rate on the date of the 2010 event.
Ferrari asked speakers for their thoughts on how the economy would react following the planned debt swap. Ricardo Maxit (Galileo Argentina) opined that a successful completion of the swap would likely lead to “Argentina becoming connected to the world again,” and no longer just a high-yield market play. Maxit argued that the structural underpinnings of the economy are strong – with relatively high commodity prices including soy, and with the expected changes in the presidential administration in 2011. Maxit believed that spreads on Argentine issues would compress substantially.
HSBC’s Javier Finkman expressed concerns that even a very successful debt exchange could be hindered by additional judgments in favor of holdout creditors. The government has a strategy in mind to avoid an asset seizure by holdouts, although its success in avoiding attachments cannot be guaranteed. Finkman recommended a more “wait and see” approach. TPCG’s Claudio Achaerandio highlighted Argentina’s comparative advantages and the huge potential it offers from a macro-economic perspective.
Discussing the potential contamination from the Greek debt crisis, Juan Veron (HSBC Global Asset Management) noted that other eurozone countries remained vulnerable, and the potential for a dramatic return of risk aversion could not be ruled out. The effects of a return to large-scale risk aversion on Latin countries were impossible to predict.
The panel also discussed the exchange rate for the ARP. Finkman warned that the upcoming elections 2011 could lead to greater volatility.
All attendees to the event were asked to submit their forecast of the ARP/USD exchange rate, Argentine GDP growth and other economic variables during the Forum. The average forecast was a 5.35% rise in GDP in 2010 with 4.19% growth in 2011. Attendees also predicted, on average, a 4.14 ARP per USD exchange rate for December 2010.
Following the event, attendees sampled some of Argentina’s best-loved export during a wine reception.