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Argentina's buybacks
Financial Times Latin America Agenda
August 24, 2008

Jude Webber

Argentina's Economy Ministry has already spent an estimated $280m in the last two weeks buying back debt in a bid to boost prices and stave off fears that a new default may be brewing. Now it will launch a new phase of the buyback operation: surprise auctions, announced 24 hours in advance. The first is expected in the second half of the week. The economy ministry will announce how much it plans to spend and which short- to medium-term bonds it is targeting, and the market will submit offers.

The new mechanism, which is expected to continue until the end of the year, should bring welcome transparency and save money, but the market remains edgy. Short term bond prices have recovered since the buybacks started but dealers say longer-term debt has not.

Upbeat industrial production data for July, showing a rise of more than 4 per cent after a slump in June has gone down well in the markets, and the government is tightening its belt, expecting a fiscal surplus of 3.5 per cent of gross domestic product, higher than expected earlier this year, which helps reassure investors that collapse is not imminent. But its mesh of subsidies on transport, energy and food which gobbles up much of the budget remains in place and it has sought additional budget funds to make it to the end of the year.

President Cristina Fern ndez has also confirmed Guillermo Moreno, controversial Interior Trade Secretary, in his job, at least for now, dashing hopes of an imminent revamp of inflation statistics with which he has been meddling since January 2007. That matters because bondholders may have been shortchanged to the tune of $8bn because of understated inflation. The IMF wants to censure Argentina's dubious data in its World Economic Outlook in October, according to Marcelo Bonelli of the local newspaper Clar n. In that light, even though macroeconomic figures remain sound overall, Argentina will have a hard time convincing investors it can be trusted. The debt buy-back looks insufficient to turn the tide. Expect more turbulence.