Argentina to steer clear of external capital markets
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Emerging Markets

Argentina to steer clear of external capital markets

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Argentina will not hurry back to global financial markets for funding, a senior Argentine official told Emerging Markets

An Argentine debt official said in Calgary yesterday that the country would not hurry back to the financial markets.

“It makes no sense to enter the markets when you do not have any financial needs to cover,” Adrian Cosentino, undersecretary of finance at the economy ministry of Argentina, told Emerging Markets in an interview.

“Many financial investors have been very anxious in the past few months regarding the possibility of Argentina returning to international markets,” he said.

Cosentino reckoned Argentina still has room for manoeuvre in terms of the management of its debt.

He said this was a policy matter, which did not depend on market conditions and the level of yield that Argentina could get. This may explain why Argentina chose not to seize the opportunity to go back to the market since the debt swap with bond holdouts last year.

“It is not a matter of threshold regarding the yield that we would like... Our position is clear. We have a financial strategy based on internal funding sources.

“It has proved very effective in terms of covering the funding gap and giving markets a strong signal in terms of willingness and payment capacity,” he said.

Argentine officials have said that the country, which triggered a $100 billion debt default 10 years ago, is in the process of normalizing its situation – but wants to do it at its own pace.

Argentina has been drawing on its foreign reserves in the past two years to meet its financing needs, while it has also borrowed on the domestic market.

Meanwhile, around 8% of bond holdouts have refused the terms of the swap offer and went to court in the US, a move that may bock any future deals.

“We showed willingness of solving this problem through the holdout swap deals,” Cosentino said. “We understand that this is an issue that will continue in the legal field... Argentina has been dealing with these risks over the last few years and we were able to advance with our financial strategy. We hope it can be resolved.”

Argentina’s economy minister Amado Boudou said this weekend that the government’s priority is to settle its estimated $7 billion debt with the Paris Club of creditor nations by the end of the year. “We are advancing on good terms,” said Cosentino without giving many details of what he called a complex transaction involving 10 different countries.

In spite of some improvement to the government’s financial profile and positive statistics, including a decline of the debt-to-GDP ratio to less than 46%, private-sector analysts have questioned the sustainability of the Argentine economic model, as inflation fuelled by monetary and fiscal expansion will eventually lead to an adjustment.

“We are in a position that clearly calls for a correction in the economic framework,” said Guillermo Mondino, head of emerging markets at Barclays Capital.

Meanwhile, Cosentino said Argentina is trying to woo foreign direct investors into key economic sectors. “The best way to involve investors is by showing healthy macroeconomic dynamics, and willingness on payment,” he said.

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