FIRST online has decided to dedicate a series of articles to emerging countries, which many consider to be in crisis, or in the process of reflection, even if the situations are very different from country to country. We started in recent days with the Mexico and Turkey, and we will continue with two outings a week throughout this month of February. This intervention is dedicated to the most delicate case of all: theArgentina, starting from a brief examination of its past economic history, which it is feared could repeat itself in the near future.
Argentina's default in 2001 followed a truly dramatic period that lasted all year, in which every day there was negative news, up to the hasty flight of President de la Rua, and the declaration at the end of December in which the government ad interim it took note of the impossibility of repaying as much as 132 billion dollars, i.e. most of the public debt, mostly held abroad.
After several years of total closure of the country to foreign investments and a large part of import projects, some timid improvement only began in 2006-2007. But an even larger crisis loomed over world trade, the consequences of which we are still feeling after 6 years. Trade with the large South American country has resumed with caution. But the story of Argentina's difficulties, as we know, is not going to end anytime soon. The escalation of these difficulties, which occurred in the past year, was not as violent and dramatic as that of 13 years ago, but certainly the government of the President Cristina Fernández de Kirchner navigates very rough waters.
Loss of reserves, difficulty in repaying external debt, lack of structural investment, currency restrictions to curb capital flight from the country, slowdown in economic growth, loss of export competitiveness, rising inflation, dollar hoarding and distrust of the peso have led at the strong devaluation at the end of the year, equal to more than 30% compared to a year earlier. The loss of value of the Argentine currency is the constant nightmare of the population of all classes, so much so that since the 80s, the inhabitants of Buenos Aires have become accustomed to shopping in the morning, fearing that prices will already increase in the afternoon .
On January 27, Argentina amended the restriction that since the end of 2011 prevented the purchase of dollars by natural persons and which he had created a parallel market where the dollar and the peso are exchanged at a much higher value (12/13 pesos per dollar against 8 at the official exchange rate). In these first two weeks, this intervention seems to have slowed down the weight's drop (see initial graph), but has not brought the weight back below 8 dollars. In the meantime (as SACE writes in its latest country risk update), the country has dialogue with the Paris Club restarted – the informal group of creditor countries – per renegotiate the payment of USD 6,7 billion of debt bilateral Argentine (net of interest). According to Argentine Economy Minister Kicillof, the dialogue is at a preliminary stage. Almost simultaneously the government introduced new ones purchase restrictions orn line. In the intentions of the executive, the measure should protect national production, but in reality it could imply a new attempt to capital outflow controlaimed at avoiding a possible balance of payments crisis. International reserves decreased by 36% during 2013, currently standing at USD 29,5 billion.
How will it end? The situation is serious, very serious, but not as desperate as it was in 2001. We are not as close to default as then, ma we know that enough any black Swan around the world to make it fall an already deteriorated situation. We also know that, as Luigi said Einaudi, saver is an animal with the memory of elephant and hare legs; international investors have these particularly accentuated characteristics, they have already been burned once by the hot water of Argentina and today they are also afraid of the cold water of Argentina.
So what can be done for Italian exports and FDI in Argentina?
First of all, we need to draw fruit from the experience of 13 years ago. In February 2001, few believed in the approaching Argentine default: operations could still be carried out by eliminating a large part of the country risk or of Argentine banks and corporates. However, it was enough for a perverse spiral of negative factors to start and the default materialized within a few months. And this must inspire us one great caution: today we are still able to take precautions to defend our exports and protect our investments, who knows in a few months.
Secondly, we need to consider what it is the attitude of SACE towards the country, considered by the OECD in the seventh risk category, the highest. SACE does not grant coverage for sovereign risk, and evaluates those relating to banking and corporate risk on a case-by-case basis.
In conclusion, for the exports with settlement in the short term, it is essential to ask documentary credits issued by a leading Argentine bank and confirmed by an Italian bank, in any case limiting itself to the quantities exported and verifying the residual lines of credit available to the country's banks. Better operate with known counterparties and postpone the acquisition of new customers to better moments.
For exports with settlement in the medium term, it is advisable to always ask for the release of promissory notes endorsed by leading banks in the country, to be demobilized with forfaiting operations or discounts without recourse with SACE policy transfer. The commitment to the discount or the issue of the policy must be requested before the conclusion of the contract, Whose entry into force is subject to these events with specific contractual clauses. In both cases it is very difficult to be able to grant extensions of more than 1 year, maximum 2, even for the best banks, and Costs to bear for the discount of credit instruments are remarkable.
- investments collide with the impossibility of hedging sovereign risk: better then freeze important projects for volumes and amounts, if there are no adequate guarantees.
The panorama is therefore not cheerful, but, as we have said, the utmost caution is required.
