EMTA Special Seminar: Argentina Economic and Political Outlook (NYC) - April 26

EMTA SPECIAL SEMINAR: ARGENTINA ECONOMIC AND POLITICAL OUTLOOK
Wednesday, April 26, 2017

Sponsored by


EMTA
360 Madison Avenue, 17th Floor
(on 45th St. between Madison and 5th Aves.)
New York City 

3:30 p.m. Registration  

4:00 p.m. Panel Discussion
Alejo Costa (Puente) – Moderator
Casey Reckman (Credit Suisse)
Patrick Esteruelas (EMSO)
Shelly Shetty (Fitch Ratings)
Robert Koenigsberger (Gramercy) 

5:00 p.m. Cocktail Reception 

Additional support provided by Credit Suisse and Fitch Ratings. 

Registration fee for EMTA Members US$95 / US$695 for non-members. 

We regret that this event is not open to the media. 

Registration for this event is now closed.  We hope to see you at a future EMTA event. 

Focus Remains on Mid Term Elections in Argentina, according to EMTA Panel

Speakers at EMTA’s Special Seminar on Argentina maintained a generally constructive view on the country’s economic outlook, while monitoring the upcoming legislative elections for proof of the end of the Kirchner era. 100 market participants attended the event, held at EMTA’s New York City headquarters on Wednesday, April 26, 2017. Puente sponsored the Seminar, with additional support from Credit Suisse, Fitch and MarketAxess.

Puente’s Alejo Costa served as the discussion’s moderator. Costa asked speakers to describe the main external risks for Argentina. Casey Reckman (Credit Suisse) and Shelly Shetty (Fitch) concurred that higher global interest rates and commodity pricing posed the greatest potential external pitfalls for the country, with Reckman pointing out Argentina’s front-loading of debt issuance in 2017 as a way to mitigate against rate hikes. Shetty observed that Argentina lacks a deep local capital market that the government can exploit as an alternative source of financing should external sources become prohibitive, while also warning that weakness in the Brazilian or Chinese economies could depress Argentine growth.

Costa probed deeper on the relationship between Argentina and its larger neighbor, asking for a view on the likelihood of a ratings convergence between the two countries. Shetty could envision a path to a higher rating for Argentina, while highlighting that Brazil’s relative advantages, such as a deep local markets to allow for better absorption of shocks, its passage of a government spending cap and legislative debate about pension reform. “Track records also matter, and Argentina only has one year of the Macri administration record and is just in the process of rebuilding its institutions; Brazil, on the other hand, has gone through severe economic stress and has coped,” she concluded.

Gramercy’s Robert Koenigsberger affirmed a constructive view of Argentina, characterizing the country as being in the first stage of recovery, with the benefits of curing its 2001 default, liberalization of the FX regime and the tax amnesty beginning to materialize. Reckman acknowledged that she too was constructive, “though it’s not a ‘pound-the-table’ view…we need to see the sustainability of growth…and it’s critical that we see private consumption start to kick in.”

Patrick Esteruelas (EMSO) was, “more than willing to give the Argentine government the benefit of the doubt.” In his view, January and February were months of some concern, punctuated by questions about Macri’s political capital, some “unforced errors” by the administration and worries that the growth recovery was failing to take root. However, since then, confidence measures have improved and the president’s approval ratings has been rising.

Koenigsberger disc used the effects of the transition of Argentina’s investor base from a stickier, distressed contingent to “T+3” money. This caused headline risk to be a concern, as well as a more simple impatience with growth. Koenigsberger hoped to see Argentina pass a market test of investor confidence, and noted that overall market liquidity (“which has never been so constrained”) remained a primary issue.

Costa introduced political themes into the discussion, including the 2018 midterm elections. Reckman reasoned that a number of barometers could be applied to determine if the Macri administration “did well” in the elections, “but they won’t get a majority, so it’s more about getting the space for further reforms, and creating the aura of the inevitability of changes in policies.” Moderator Costa speculated that perhaps an ideal result could be a strong result by Peronists who subsequently maintained Macri administration policies, and thus cemented the reform process.
Shetty agreed that investors would analyze election results for evidence on the durability of recent reforms, while cautioning that “it wasn’t really clear that accelerated reforms” would result if the government gained seats. “Our ratings will respond to macro performance, such as will we see tax reform, further fiscal consolidation and increased FDI,” she stated.

For his part, Koenigsberger would be monitoring the behavior of both the administration and the opposition post-ballot; “I don’t think we will get a sense of the coalitions that might form until the day after the vote.” He anticipated post-election FDI inflows, assuming the result at least reflected the status quo. Esteruelas added that the vote won’t offer a binary result, and many interpretations and analyses would be offered. In addition, midterm victories don’t guarantee the results of the next presidential elections. However, he agreed that if the markets see evidence of a definitive end to the Kirchner era, “there will be a sigh of relief.”

Costa returned to the theme of FDI, and the disappointing capital inflows thus far. Koenigsberger highlighted the slower process of FDI decision-making, “which can take a year or longer,” while revealing that his firm was starting to finance FDI into Argentina. Esteruelas speculated that investors might first want to see evidence of the durability of the new administration, with many recalling the failure of non-Peronist governments to complete their full terms. Finally, Koenigsberger added that the non-resolution of ICSID claims might also be serving as a deterrent to FDI.

Other panel topics covered during the Seminar included the government’s fiscal strategy, the recent Central Bank rate hike, the “crowded” trade of Argentine local paper, the FX rate and inflation.

Esteruelas believed that investor sponsorship of Argentina would continue as long as external economic conditions remained benign and the cost of financing was not prohibitive. “A good faith down payment has been made in a multiyear reform program,” he affirmed.