Argentina: election surprise amplifies market and political risks

Friday 23 August 2019

 

  • Recent update on Argentina: Government’s decision to freeze energy prices and suspend VAT on certain products will complicate fiscal metrics. The country is likely to miss the IMF target of a primary balance for 2019. However, the IMF could disburse the September tranche of financial assistance, although conviction levels are low.
  • Credit rating downgrade: As expected, markets reacted negatively to this news. The focus now would be on government’s ability to roll over short-term USD and Argentina Peso (ARS) denominated loans.
  • Markets in the coming weeks: A bounce in asset prices could be seen as an opportunity to lighten further exposure to Argentina. Markets will now focus on the roll-over ratio of short-dated government debt in the country. Elsewhere, investors will closely watch the US-China rhetoric, comments from the Fed Chairman at Jackson Hole and global growth data.