A dark future for the Argentine economy — MercoPress


A dark future for the Argentine economy

Monday July 18, 2022 – 09:05 UTC


The worst can be avoided “if global markets calm down and the IMF steps in with its support,” said a Reuters report.

Foreign analysts do not see a bright future for Argentina’s economy. If some place it among the countries most likely to default on its debt, others fear that it will survive a new adjustment of base interest rates by the United States.

According to a Reuters reportfive countries (Lebanon, Sri Lanka, Russia, Suriname and Zambia) have already defaulted so far in 2022 and ten others face significant deadlines, including Argentina.

Last week, IMF Managing Director Kristalina Georgieva warned that a global debt crisis was on the radar after Russia invaded Ukraine.

The Reuters study focused on the traditional signs of a debt crisis: collapsing local currencies, bond spreads of 1,000 basis points and the disappearance of foreign currency reserves.

Next in line for impending default was Belarus. Behind, there was a group of countries in which Argentina was also listed, with a drop of 400 billion US dollars.

“Argentina is the most exposed country with $150 billion,” the report said, followed distantly by Ecuador and Egypt, with between $40 billion and $45 billion,” the newspaper said. On a more upbeat note, he mentioned the worst can be averted “if global markets calm down and the IMF steps in with its support.”

The Reuters report states that Argentina is “the country with the world record for defaulting on sovereign debt” and that this gap could widen. But the country’s reserves are extremely low and bonds are trading at just 20 cents on the dollar, less than half of what they were after the country’s debt restructuring in 2020.

“The government has no major debt to pay until 2024, but after that it flies away and there are fears that powerful Vice President Cristina Kirchner will push to default” on the agreement signed with the Monetary Fund International (IMF), argues Reuters.

Besides Argentina, the other countries at risk were Ukraine, Tunisia, Egypt, Kenya, El Salvador, Pakistan and Ecuador.

Meanwhile, the U.S. Federal Reserve announced it would likely raise interest rates another 75 basis points at its July 26-27 meeting, amid one of Europe’s worst inflationary crises. story.

A recent report from the Dallas Fed details that most of the world’s largest emerging economies should be able to withstand rapid and sharp interest rate hikes from the Fed, as long as they have high reserves and low current account deficits, which Argentina currently lacks. The Dallas Fed document pointed out that only Argentina and Turkey have negative reserves.

Colombia and Chile have large current account deficits, but have large reserves and low amounts of foreign currency debt. Mexico, with one of the lowest foreign exchange holdings among the 13 economies, is in a much better position to withstand US monetary onslaught than it was 30 years ago during the Tequila Effect.

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