Argentina Financial Crisis Fears Arises

Aug 13, 2019

Fears once again loomed all over Argentina in a financial crisis rushing to the fore. And over the weekend, President Mauricio Macri had a stunning rout in the primary elections. At the same time, investors dropped its bonds, stocks, and currency en masse in a selloff. And it left Wall Street thinking that the crisis-prone country will have another default.

In addition to that, the upset is widely seen as a preview of the presidential vote in October. And it suddenly opens the doors to the possibility of a more protectionist government will take power come December. Also, it might untangle the hard-won gains that Macri build-up to retrieve international markets’ trust.

Then, it intensified worries Alberto Fernandez, his populist rival, and Cristina Fernandez, his running mate, will attempt to renegotiate its debts and agreements with the International Monetary Fund. In the coming year, the foreign-currency billion debt is due.

Edwin Gutierrez is the head of emerging-market sovereign debt at Aberdeen Asset Management. And he stated, “The market is starting to price in default” and it “is unwilling to give Fernandez the benefit of the doubt.”

Debt Payments of Argentina
Meanwhile, looking at the credit-default swaps, it suggests that traders are expecting a 75% likelihood that Argentina will suspend its debt payments for about five years. Last Friday, this chance was only about 49%.

Then, its dollar-denominated government bonds wiped out about 25% on average. As a result, it dragged down prices to as low as 55 cents on the dollar. Yields, on the other hand, on shorter-maturity notes surged above 35%.

Moreover, in Argentina, the peso tumbled as high as 25%, hitting a new record-low 60 per dollar on Monday. Also, the Merval stock index had the most lost in the intraday trading.

On Sunday, Macri expected to trail his rival by just a few points and pummeled the polls, with Fernandez in a 15-point lead.