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EMTA Forum - Buenos Aires - May 12, 2011

Cosentino Describes Strong Growth Prospects at EMTA Forum in Buenos Aires

Argentina’s Undersecretary for Finance Adrian Cosentino stressed that his country was poised for “strong, balanced and stable” growth at EMTA’s Fourth Annual Forum in Buenos Aires.  The event took place on Thursday, May 12, 2011, and was sponsored by Banco Itaú.

In his remarks, Cosentino noted that economic growth in Argentina was balanced, coming from a variety of sectors.  The country’s debt indicators continued to improve and “Argentina is in a very comfortable position.” 

Cosentino discussed the composition of Argentina’s debt, with 46% in dollars, a total of 41% in pesos (including inflation-adjusted debt) and 11% in euros.  He also discussed the country’s debt profile, with 26% of debt due between 2011 and 2013, 34% due between 2014 and 2019, 15% due between 2020 and 2029 and 25% due beyond 2030.  Sustained growth and fiscal solvency are the main drivers of the economic program’s sustainability, he observed.

Argentina won’t need to issue debt to cover short-term financial needs, Cosentino stressed, as the country would be able to meet its obligations using its primary surplus, its debt payment fund and other sources.  Normalization of the country’s debt has been a priority of the government; the 2005 and 2010 debt exchanges have reduced debt/GDP ratios to 49% (including holdouts).  In addition, Argentina seeks to conclude a deal with the Paris Club in 2011. 

The success of these efforts was reflected in the compression of spreads on corporate and provincial issues that have tapped the market recently.  Spreads on medium-term Argentine debt have compressed by 300 bps, and by 150 bps on long-term issues, as investors focus on the country’s improving fiscal solvency, increased reserves and the perception of greater credit quality.

Cosentino concluded his remarks by observing that the government had shown in recent years its effectiveness in managing its obligations, and that the macro-economic outlook remained positive.

Following Cosentino’s presentation, Fernando Ferrari (Banco Itaú) moderated a panel discussion on the outlook for the Argentine economy.  In introductory remarks, he pointed out that his firm projected the ARP/USD rate to reach 4.68 by year-end, and forecast inflation at close to 25%.  He also sketched the changes that had occurred since the previous EMTA event in Buenos Aires, noting for example that Argentine CDS had declined to 592 bps, down from 1300 last April, at the initial stage of the Greek crisis.

Speakers reviewed the major global themes for 2011.  Low G-10 rates and high commodity prices were obviously key trends, noted HSBC’s Javier Finkman, although investors should have an exit strategy.  Ricardo Maxit (Galileo Argentina SGFCI) noted that selling dollars to buy virtually all other currencies was also a key theme.

The uncertain future for the global economy was also discussed.  “None of us learned in text books what a zero-rate world would mean,” observed Claudio Achaerandio of TPCG Valores Sociedad de Bolsa.  “In terms of economic theories, our current situation is very difficult to understand.”   

Following comments by President Fernandez de Kirchner that she was “not dying to run [for re-election],” Ferrari polled speakers for their presidential election predictions.  “I think she will run and that she will win big, maybe a landslide…this is our base case, but there is no way to confirm this,” replied Finkman.  There will probably be an economic slowdown in 2012 (a “non-election year”) as well as a lowered inflation, he believed.

Maxit expressed concerns for a “darker” outlook if the president were re-elected, although it “is hers to lose.”  He warned though that situations can change dramatically -- “election are decided closer to the actual time –look at Peru—and we are still months away.” 




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With foreign investors being averse to peso-denominated securities, how should Argentine debt be sold abroad?  Maxit replied that countries such as Brazil, Chile and Colombia were most attractive to foreign investors, and Argentina needed to be mindful of its historical record.  The inclusion of Argentina in the MSCI frontier market index has drawn the attention of frontier investors, even though most EM players find the characterization odd.

Independent consultant Juan Veron noted that, on the equity side, there were very few investor trips to Argentina and accessing the market might be difficult.  However, he advised investors to consider taking long positions in local banks, which were “safe assets despite volatility fears.” 

The event, which was conducted in Spanish with simultaneous translation into English, drew a crowd of 125 market participants.  Following the formal program, attendees mingled at a cocktail reception.