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The manner which Argentina handles its debt justifies fear of a default
El Cronista
August 15, 2008

For the economists Bleger and Rozenwurcel, what the ratings agencies are saying is not preposterous. Despite the good foreign context, there have been 'self-inflicted' wounds, they say.

ESTEBAN RAFELE Buenos Aires

The lowering of Argentine debt ratings by risk agencies Standard & Poor's, on Monday, and Moody's, yesterday, raised a debate that, for some months now, seemed like seven years ago: is it preposterous to think of another default? "Financing needs are growing at a considerable rate, and if to close out the year it's necessary to place debt in Venezuela at 16%, the situation is getting complicated," said economist Leonardo Bleger.

Member of the Center of Research on South American Economic Development (IDEAS) and ex-chief economist for Credicoop bank, Bleger argued that the government is using tools that still don't put in hand what they need to cover debt maturities in 2009, even as using them will great a gap that will have to be assumed or refinanced, something difficult to do with markets closed off.

He referred to the sale of public titles to AFJP, on the one hand, and the refinancing of guaranteed loans to the banks on the other. The financial entities continue on with special attention to this last point.

"The financial needs depend greatly on the primary surplus. Now, this is also rounded out by uncertainty over the rise in spending," Bleger explained. The director of IDEAS, Guillermo Rosenwurcel, agreed: "The fiscal situation is not bad, still it's getting worse; the problem is that the trend is evolving unfavorably and if they need to generate a higher primary surplus in order to pay, they're in trouble," he argued.

It's estimated that Argentina needs US$12 billion to finance itself in 2009, practically double what will be needed this year. In this sense, the economists judged as a bad sign that during a "light" year in terms of paying interest and principal on debt to have needed to turn to selling bonds to the government of Hugo Chavez, which last week bought US$1 billion worth.

However, they were careful to separate this situation with the one in 2001, when the country went into default during an economic recession and with deficits in trade and payment balances. "In part, this situation is self-inflicted by the government," said Rosenwurcel, aluding to the good foreign context and the twin surpluses that were inherited from ex-President Nestor Kirchner.

Indices

On that, academics at the University of San Martin presented two monthly indices that, in their judgment, demonstrate that Argentina didn't take advantage of the international conjuncture.

First, the Indicator of Key International Indicators for Argnentina (IVICA) follows the evolution of international factors, as much real as financial, that influence the local economy. It is made up of the index of international prices on raw materials from the Central Bank and for EMBI+ put together by JP Morgan. And it shows how despite the financial crisis, the foreign context is more favorable for the country than at the start of 2007.

The second is the Index of Financial Solvency (ISOLFI), which puts in play the reserves of the Central Bank and the fixed terms of Credit Default Swaps, the insurance contracts that cover investors on any eventual Argentine default. This is moved in an inverse form to IVICA and is continuing to deteriorate. "The widening of the gap between both indicators shows how, despite improving international conditions, we are not taking advantage of them," said Rosenwurcel.