The Argentine economy in the new political and international environment. MIGUEL A. KIGUEL econviews

Transcription

1 The Argentine economy in the new political and international environment MIGUEL A. KIGUEL econviews October

2 Outline The international environment is helping Argentina once again The domestic financial conditions are improving rapidly There are less concerns about the exchange rate, capital outflows and about the ability to rollover the debt There are still questions about the fiscal situation, the speed of the recovery and the business climate The political transition to 2011 raises questions and opportunities 2

3 International Context The worldwide lower risk aversion favored Argentina Credit Default Swaps - 5 years spread, pbs High Yield (CDX.HY) Argentina (right axis) Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 3

4 International Context Since late 2008 the panic has eased but the spreads for some countries remain high CDS - 5 year Spread, bps Ukraine Argentina Venezuela Indonesia Turkey Russia Mexico Peru Brazil Korea China Source: JPMorgan Default Risk 4

5 International Context Soybean price is high compared to the average of the last 20 years but it has been very volatile Soybeans price US$, weekly values Soybeans (tons) Source: Econviews based on Reuters data 5

6 What has changed in the financial sector after the election period? 6

7 The local financial outlook improved in recent months Stability of exhange rate Recovery of money demand in pesos Low private capital outflows Exchange rate depreciation end of period variation 5% 4% 3% 2% 1% 0% Time-Deposits in pesos variations in million pesos - end of period 2,000 1,500 1, ,000 Foreign Asset Positions of Private Sector in million dollars - end of period ,000-1,500-2,000-2,500-1% Mar-09 Jul-09 Aug-09 Sep-09-1,500 Mar-09 Jul-09 Aug-09 Sep-09-3,000 Mar-09 Jul-09 Aug-09 Sep-09 7

8 The local financial outlook improved in recent months Low expectations of default Better financial conditions Strong rise of Sovereign Bond prices Argentina Default Risk: CDS Spread CDS bps spread 5 years end of period 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, PRIME Corporate Loan Interest Rate anual fin de periodo 19% 18% 17% 16% 15% 14% 13% 12% 11% Argentina Sovereign Bonds price changes in pesos end of period 25% 20% 15% 10% 5% 0% -5% Bonds issued in $ Bonds issued in US$ -10% 0 mar-09 jul-09 ago-09 sep-09 10% mar-09 jul-09 ago-09 sep-09-15% Mar-09 Jul-09 Aug-09 Sep-09 8

9 The economy will slowly get out of the recession 9

10 Economic Activity For 2009 we expect a GDP fall of around 2.8% GDP Interannual variations - EconViews estimates & forecasts 12% 10% 8.8%9.0%9.2% 8.5%7.6% 8% 6% 4% 2% 3.9% 5.5% 2.5% 0% -2% -4% -6% % -3.4% -4.4% E -2.8% 2010 E -8% -10% -12% -10.9% 10

11 Economic Activity A mild recovery may start at the end of this year GDP Seasonally adjusted - EconViews estimations & forecasts 2.0% Quarterly variation 1.5% Interannual variation (right) 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% 10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% -7.5% -2.0% -10.0% I 08 II 08 III 08 IV 08 I 09 Source: EconViews based on own estimates II 09 E III 09 E IV 09 E 11

12 Economic Activity Industrial production is falling in annual terms, but there has been a recent rebound Industrial activity (non-official estimates) Trend-cycle and YoY variations - 3 months moving average 15% % 150 5% 140 0% 130-5% % YoY variations % Trend cycle (1993=100, right) Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-07 Apr-07 Jul-07 Oct-07 Jan-09 Apr-09 Jul-09 Source: EconViews based on FIEL

13 Inflation is slowing down but the there are risks that it could creep up to the upper teens next year 13

14 Prices Inflation has been falling but might be reaching a floor Consumer prices YoY variation 25% EconViews 20% INDEC 15% 10% Sep-09: +1.0% mom +14.0% yoy 5% 0% Sep-09: +0.7% mom +6.2% yoy Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Source: EconViews based on INDEC and several sources Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 14

15 Prices The low tariffs are the main inflationary threat Electricity tariffs - household demand Thousandth dollar per 300 monthly KWh - July-09 Gran Buenos Aires 18 Provinces 63 Ecuador 91 Peru 111 Brazil Mexico Guatemala Uruguay Chile Panama El Salvador Rep. Dominicana Sourc: EconViews based on M ontamat

16 The concerns about a sharp depreciation have receded and the main risks are linked to a new bout of inflation 16

17 Monetary Sector Despite some nominal depreciation of the Peso, the currency gains competitiveness due to the appreciation of our neighbors LATAM Currencies - FX Market Index of nominal exchange rate -currency per dollar; Jan 1, = ARGENTINA BRASIL CHILE Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 17

18 International Context It is cheap eating in Argentina Big Mac Index from The Economist Precio en US$ del Big Mac EEUU Argentina Brazil Chile Mexico Euro area Japan China Korea Switzerland Source: EconViews based on The Economist 18

19 External Sector The external surplus will increase this year due to the strong drop on imports (higher than expected) External trade In USD millions 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Trade balance Exports FOB (right) Imports CIF (right) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, E 2010 E 0 19

20 External Sector Nowadays, the private capital outflows are the main concern, but they have recently receded Dollarization of assets In USD millions - Net foreign assets purchases of non-financial private sector 0 estimates ,000-1,500-2, ,600-1,100-1, , ,500-3,000-3,500-2,200-3,400-2,800-2,800 advancement of elections -2,525 elections -4,000-4,500 farm conflict -4,400 AFJP's nationalization -5,000 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 20

21 The debt should not be a problem, as financial requirements are manageable, but we need to watch the fiscal accounts 21

22 Fiscal Sector The fiscal accounts have deteriorated Fiscal and primary balance of Central Government As % of GDP 4% 3% Fiscal Balance Primary Balance 2% 1% 0% F 2010 F -1% 22

23 Fiscal Sector Deceleration in expenditures growth has to be stronger to totally offset the deceleration in revenues Central Government finance YoY (3 m.m.a.) - Exclude automatic transfers to provinces 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% Primary expenditures 10% Revenues 5% Transfers to provinces (coparticipación) 0% Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Note: total revenues in 2007 exclude transfers from social security reform Jul-09 23

24 The new financial requirements are manageable and can be satisfied with domestic resources The PG s s swap reduced amortizations in 2009/11 by around US$5.5 BN Debt buybacks (around US$2.0 BN per year) now can be made by the ANSES ANSES now has public debt with maturity in 2009/11 that wouldn t be necessary to refinance Financial gap with "the market" In USD billions - Central Government E 2010 E 2011 E 24

25 Fiscal The new net public debt is 36% of GDP Public debt As % of GDP - Excludes intra-public sector debt 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1998 Devaluation Public debt reestructuring AFJP's nationalization Note: excludes intra-public sector debt and include GDP warrants and since 2008 holdouts at 40% and private pension funds nationalization E 25

26 Perspectives and risks The economy is facing moderate growth and inflation The external accounts continue exhibiting surplus, but private capital outflows are a threat The fiscal accounts are challenging but should improve Banks remain liquid and solvent, but there is no long term credit due to macroeconomic uncertainty The interest rate spreads (country risk) have comoe down but they are still high The main challenges are at the sector levels where a web of price controls, subsidies and intervention is discouraging investment There are medium term opportunities helped by expectations of political changes. 26

27 Final reflections about Argentina What economic to watch Developments in the Indec Evolution of the fiscal accounts Capital outflows Soybean prices The relationship with the IMF The evolution of the offer to the holdouts The political changes in Congress 27

28 Thank you! 28