The events of the last few months have undermined Argentina's credibility on international markets. However, it should be remembered that last May the country undertook to repay the arrears to the creditor countries of the Paris Club for a sum equal to 9,7 billion dollars. Furthermore, earlier this year, to improve the perception of the business environment, the Argentine parliament reached an agreement for the repayment of Repsol, which had expropriated the majority of Ypf. According to what was published in the last SACE focus, the decision not to repay hedge funds following the June ruling is partly justified by the fact that the Argentine government fears that paying 100% of its unrestructured debt could lead to multiple requests from those who had accepted the swaps, due to the RUFO (Rights Upon Future Offers) clause. In fact, the clause gives creditors who have accepted the previous restructuring the possibility of claiming the same rights as the holdouts, i.e. payment in full. And this clause expired on 31/12/2014.
The Selective Default is having a series of impact on the Argentine economy:
• GDP contraction of 1,7% in 2014 and 1,5% in 2015;
• growth in the inflation rate, worsening the prospects through a reduction in real wages, a drop in consumption and fixed investments and an increase in social discontent (strikes, protests and an increase in crime);
• increase in yields on government bonds and local government securities. The price of 5-year CDSs has indicated the possibility of a default for an extended period;
• capital flight, with the Argentine peso back under pressure: a further devaluation will probably be necessary after that at the beginning of the year (the exchange rate could reach 9-10 USD), with a direct impact on the costs of imports and therefore on the 'inflation;
• reduction of the trade surplus (-28% in the first half of 2014) due to the lower competitiveness of products, the increase in energy imports, the drop in international prices of exported products such as soybeans, corn and flour.
Here then is that to get out of this impasse, the country urgently needs a change of strategy and a reform plan. In particular, it is necessary to act on three key aspects: more restrictive policies, the strengthening of the local manufacturing industry and the containment of capital flight.
Italian exports in the first 9 months of 2014 recorded a tendential decline of 4,2%. Taking into account high inflation, a possible devaluation of the peso and measures to contain capital flight, SACE estimates predict a 2014-6% drop in exports for 7. In 2013, Italian exports to Argentina exceeded 1 billion euros and were concentrated mainly in the sectors of instrumental mechanics (47,5% of the total), motor vehicles (10%) and metallurgy (7,8%). Italy represents the tenth market of origin of Argentine imports in terms of importance, in a ranking dominated by Brazil, China and the USA. In this sense the greatest opportunities come from the mining sector (extraction of gold, silver, copper, granite and lithium) and energy resources. In particular, the recent discovery of shale gas fields places Argentina in third place in the world for unconventional hydrocarbon supplies, after China and the USA. These three sectors deliver opportunities for Made in Italy exports of instrumental mechanics, considering that Argentine demand from the world for these goods grew by an average of 5% annually between 2007 and 2013, reaching 10,6 billion dollars. Other opportunities are in the automotive sectors (whose imports have grown by almost 13% per year in the last 6 years), chemicals (+6,7%), rubber and plastics (+6,2%), renewable energies and in the waste treatment (including energy recovery). In this scenario, the situation in Argentina requires close attention from international operators, for whom the risk of non-payment from both private and public counterparties remains high. Agents are advised to be cautious, trying to select counterparties with primary credit standing and with revenues in hard currency. As underlined, opportunities must be seized in strategic sectors such as agriculture, energy, mining, fundamental for the development of the country, precisely where a lack of technology and know-how persists.
