The ghost of the defect gains ground | The pro …

As Argentina begins to return the "Stand By" position of the Monetary Fund in April 2021, the probability of default is 78%. The percentage comes from the prices of credit risk swap contracts (CDS, or default risk insurance), which show the market's perception as to the possibility of a certain type of credit default on a certain period. This perception of a possible cessation of payments or a rapid restructuring of the debt contracted over the last three years has been reinforced by the request for badistance to the Fund and increases with each new injection of liquidity by the agency. With a country risk that reached more than 1,000 points this week and doubled compared to the end of 2015, the six-month CDS premium has risen 611 basis points since last May, according to a report from the economic project.

Based on the values ​​currently quoted by insurance premiums offered by CDS, the probability of the market estimating the cessation of payments for the next six months in Argentina is 24%. The cover badumes the possibility of a payment interruption and removes 30%, which is close to the average of the internationally regulated restructuring. In the case of a period of six months to a year, this possibility represents 56% of default cases and between one and two years, it is between 70 and 80% when the loan begins to be returned to the Fund.

Signs of mistrust of economic actors, which are generally part of the abstract idea of ​​the market, are becoming increasingly apparent in the last year in which the relationship with the Fund has been reestablished. In addition to the country risk record in the Changeons phase, we can observe a sharp deterioration of bond yield curves, which are at absurdly high levels, above 20%. The government promised to pay off the debt at a single-digit rate. On the other hand, the formation of net private badets (leakage) in March reached $ 1,771 million, to which must be added 243 million outflows by portfolio of foreign hedge funds in the face of the risk of financial crisis.

The renewal of treasury bills is another sign that the market has already turned its back. This week, $ 750 million was placed on maturities of $ 1215 million, including $ 207 million in the hands of public sector agencies.

The international context has not cooperated, but the exit of the fund by the Argentine government to compensate for the slump in the markets for financing has aggravated the problem. "In May, two emerging countries experienced strong exchange rate fluctuations: Argentina and Turkey While Turkey regulated the capital account and avoided resorting to the Monetary Fund, Argentina went into debt and The consequences are obvious: while the probability of default in Turkey is less than 15%, Argentina foresees a probability of default between 60 and 70% in 2 or 3 years " says the consultant who leads economist Fernanda Vallejos. .

This risk is measured in different ways. Country risk is measured by comparing the dollar bond rate of any economy with similar securities in the United States. CDS are insurance badets intended to cover non-payments. The difference between them is that the first is simply stated – this week has exceeded 1000 basis points – while the second is used to close specific hedging transactions. "The rise of the latter since August to date shows that the IMF program has failed to generate greater credibility in terms of sustainability of the country's external debt," the report said. In fact, it has deteriorated.

Another example of financial weakness that triggers investor warnings is the level of reserves, which is currently only supported by the Fund's liquidity injections. In the package of reforms for the power plant that drives the multilateral body, highlights the impossibility for the country to use the reserves, this past Thursday to 72 081 million dollars, to pay the external debt. "After three months of stability, because of the BCRA's inability to intervene in the foreign exchange market, debt maturities force the government to use its reserves in the absence of refinancing," says keep the economic project report. Last month, Argentina sacrificed $ 6300 million of reserves, offset by the latest tranche of the IMF.