Alert on the relationship with the Paris Club and the high risk attributed to Argentina by the rating agency The Economist

At the end of the month, the last payment, in the amount of 2.4 billion dollars, of the debt of the Argentine State with the Paris Club, renegotiated in 2014 by the Minister of the Economy at the time, expired. Axel Kicillof.

It was one of the problems he was looking to solve Martin guzman during his recent European tour. Although there is a grace period of up to 60 days, until the end of July it is not clear that the Club will agree to refinance this quota if the Minister does not strike a deal first. with the IMF, which acts as a Club. auditor ”. Informal association of public investment and trade guarantee bodies for companies in their foreign countries, especially in unstable or low-income countries.

Guzmán is unlikely to agree with the IMF until July. They also do not give the time to face the deadline with the Club with the nearly 4 350 million dollars that Argentina will have available from the issue of 650 000 million dollars of special drawing rights (SDR, the Fund’s “currency”) approved by the G7. and approved at the recent IMF-World Bank Assembly. These resources would not be credited to the BCRA until August.

To top it off, the Club’s main creditors are Germany and Japan, which are very orthodox. In fact, in Berlin, Guzmán was able to verify Germany’s limited flexibility to implement its proposal to “reallocate” (in favor of poor and middle-income countries, like Argentina) much of the broadcast. of SDRs.

About, Hector Torres, representative of Argentina on the IMF board at the ministerial conference Roberto Lavagna and Alfonso Prat Gay tweeted some very revealing charts about Argentina’s very poor position in the global risk rankings and linked them to a crossroads with the Paris Club.

Country risk and State guarantees

“With this level of risk, private investors can only obtain bank financing if they have ‘country risk’ insurance (commercial risk is always private), issued by official credit insurance agencies (Hermès , COFACE, SACE, CESCE, EximBank, etc.). These official agencies require that debts to the Paris Club be regularized beforehand, ”he said. And he raised the dilemma facing the government of Alberto Fernandez. “To receive private investments from Club member countries, we have 2 options”, he explained:

1) Lower the level of risk (bring order to the macro and agree on state policies);

2) Immediately refinance the public debt with the Club so that the official insurance agencies can open quotas for us. Obtaining a short-term postponement of deadlines until after the elections (in addition to generating a financial cost – punitive interest -) is to postpone the possible arrival of investments.

According to Torres, refinancing with the Club is essential because “with this level of risk, private investors only get credit if official insurance agencies cover the country risk”. This involves “the regularization of public debt with the Club countries”.

Torres told Infobae that although he did not have “first hand” information about Guzmán’s meetings in Germany, Italy, Spain and France, “I feel like nothing concrete has not been provided “. And as for the aspiration (taken from the Instituto Patria) to stretch the terms and reduce the financial burdens of the IMF, he said that “there will be no exceptions in rates or conditions for the ‘Argentina”.

In addition, the former official replied that the risk charts had been sent to him by contacts he maintains at the Fund. They come from the report “Politics, Populism and Politics: Operational Risks in Latin America” ​​by The Economist Intelligence Unit (EIU), a sort of “qualifier” of the British magazine. Infobae accessed the document, which reflects a very critical view of the Alberto Fernández government.

Out of 29 countries assessed in Latin America and the Caribbean, the report places Argentina seventh most risky country for a foreign company, behind Venezuela, Nicaragua, Haiti, Bolivia, Cuba and tied with Honduras. on 57 points of “operational risk”, On a scale of 0 to 100. Venezuela leads with 86 points.

Skill

Argentina is seen as much riskier than the countries it competes with for investment, such as Chile (25 points), Peru (37), Uruguay (39), Colombia (42) and Mexico (44), but not so far from the risk attributed to Paraguay (47) and Brazil (51).

The report notes that “Latin America has suffered from one of the highest death rates from Covid-19” and that the most immediate task is to attack the pandemic with effective vaccination campaigns and aid to that economic activity returns to its pre-pandemic levels. “At the same time, he warns, the pandemic will have lasting effects, with great human and capital losses and sectoral changes that will leave winners and losers.

The report is divided into sections on political risk, economics and measures or policies of different governments. Thus, for one case, for a subset of 11 countries, Argentina ranks relatively well in terms of security, but poorly in political stability, behind Venezuela, Ecuador and Mexico (the report predates the elections Ecuadorian women during which the businessman Guillermo Lasso surpassed Andres Arauz, who had the support of the former president Rafael Correa).

In terms of political risk, the report highlights the most relevant for each country. From Argentina, he underlines “the divisions within the ruling coalition, which exacerbate governance problems”, attributing them an impact “with moderate probability” but potentially “high”. The sainete resulting from Guzmán’s hitherto truncated desire to fire the Under-Secretary of Electricity, Federico Basualdo, appears to be an example of what The Economist’s intelligence unit refers to.

Argentina’s worst scores appear in the “economic risk” section, in which, still considering a subset of 11 countries, it appears second, with 90 points, in terms of “macroeconomic risk”, behind Venezuela, and in “foreign trade and payment risk”, with more than 70 points. In fact, the report states that in the region, there have been no significant risks of increased tariff barriers or exchange controls, “with the notable exception of Argentina.”.

In comparison, the country’s “financial risk” appears moderate (just under 60 points), behind Venezuela, the Dominican Republic, Ecuador and Guatemala (since Lasso’s election, however, the “country risk” Ecuadorian, an eminently financial measure, has improved markedly compared to the Argentine).

According to the EIU, much of the economic risk stems from the limited fiscal space to counter the effects of the pandemic without increasing financial risk and generating macroeconomic instability. In this regard, he highlights two risks for Argentina. The first, to which she assigns a “very high” probability and a “very high” potential impact, is that “failure to correct macroeconomic imbalances leads to a sharp devaluation and an inflationary surge”. The second, to which he attributes a moderate likelihood and impact, is that the government “imposes new non-tariff barriers as part of its import substitution policy.”

The report highlights two risks for Argentina. The first, to which he attributes a “very high” probability and a “very high” potential impact, is that macroeconomic imbalances lead to a sharp devaluation and an inflationary surge. The second, of moderate likelihood and impact, is that the government imposes new barriers to trade.

The most comprehensive section is the section on policy risks, that is, not the instability of a government, but its policies, with measures that complicate business and the economy. There, Argentina ranks poorly in labor policy (second out of 11 countries, behind Venezuela), third in terms of legal and regulatory risks (behind Venezuela and Guatemala) and also in terms of fiscal risk (behind Venezuela and Brazil). The country ranks better, in the middle of the table, in “infrastructure risks”.

Economic policy risks in Latin America stem from increased fiscal pressure in the pursuit of a post-pandemic recovery, demands for a greater role for the state, and the rise of populist leaders, the report says. As a concrete example, he cites the attempt in 2020 by Alberto Fernández’s government to nationalize Vicentin and then withdraw from the resistance the initiative encountered.

Perhaps this is why, in a table on “scenarios” by country, the report warns against the possibility of Argentina “nationalizing strategic activities”, to which it attributes a potentially high probability and impact.

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