News Center

For Wall Street, the fear of a default on the debt is exaggerated
Clarin
September 01, 2008

Even with the drop in soybeans and the slowdown, financing for 2009 is doable

by Sebasti n Campanario

Neither Sergio Massa nor Carlos Fern ndez nor Mart n Redrado: those who were charged with saying that the fears of a default on Argentine debt are exaggerated in the past few days were the economists at the investment banks on Wall Street. Even in a scenario of another major drop in soybean prices, the deceleration and persistent inflation, the panorama on debt in 2009 doesn't present major risks, said private reports for investors at Morgan Stanley, UBS and Barclays Capital.

In a report signed by Daniel Volberg, of Morgan Stanley, it explains that the worry of an eventual default has its origins in three principal factors: the fall in commodities prices, which are deteriorating export tax revenues, the high level of spending and the manipulation fo the price index at INDEC: as some 41% of almost US$150 billion in debt is attached to inflation, it is generating doubts about the will of the government to pay.

But Volberg believes that those fears are exaggerated, because the national authorities are counting on "deep pockets" (Morgan Stanly estimates that the government has some US$10 billion in savings in the banking system, plus US$47 billion in reserves); the AFJP could send over, through bond purchases, between US$1.8 and US$3 billion in 2009 and there is a margin for adjusting the fiscal accounts, for example reducing subsidies.

Volberg made the following accounting: with an additional drop of 30% in the price of soy, a GDP growth rate of 4.7% and an inflation rate of 23%, there would be a primary surplus of almost US$9 billion. That would leave "only" US$2.1 billion to find in 2009.

In another report, compiled by Javier Kulesz for UBS, it assures that "the market overreacted, and the current assumptions of a default are excessive."

"We believe that a default is not an option," says UBS, "the Kirchners understand that a default would be associated with a collapse of their model and their political careers."

The economists at Barclays agree with this analysis: "We believe that the possibility of a strategic default is very minor, inasmuchas the Kirchners, like all of Latin America's leaders, see such a thing as political death."

Barclays played with the refrain from a song by The Clash to make its recommendation to investors: "Should I stay or should I go?". Here they said that the recent payments to stave of continued drops in bond prices reinforced the idea that there exists a will to pay public debt on the part of the Government.