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lunes, 28 de septiembre de 2009

Argentina, everything is improving

Capital outflow diminished, real demonetisation has compressed, the expected devaluation rate declined, and exchange market tensions reduced, at the time that stock exchange recovered, not arbitrate Argentine bonds jumped, and “country risk” went down.
There are deep convictions to fulfil compromises. The debt exchange have the purpose to improve the expire date profile to normalize the situation of public debt and do progressive changes with the objective to return to debt market towards the end of next year 2010.
The shocking flight of capital - around USD1.800 million per month during first 5 months- that touched USD2,500 million in June, decreased in July to USD1,500 million and would decrease again in August to around USD500 million. Money demand, that was contracting at 10% rate in real terms during 1st half of 2009, stoped falling in the period April-August.
The expected devaluation rate went down, the exchange rate “future New York December”, which at the end of June watched 4.38 pesos per dollar, decreased to less than 4 pesos, and could go under said value if waters continue draining.
The reduction of the devaluation rate and the lower rhythm of capital flight, are bonded to the strong improvement that recorded the multilateral real exchange rate +24% since November 2008 to September 2009.
At the same time the BCRA lowered the effective devaluation rate of nominal exchange rate. In this way, it sponsored the reduction of the interest rate that reflects the decreasing prospects in the expected tax and consistently works positively in the future Dollar decline. Obviously, interest taxes in Pesos represent a sort of arbitration against the danger of future Dollar. Since end of March, Argentine bonds climbed explosively; after elections, market returned to normal. The actual scenario is more encouraging, and this is the way market players feel it. Argentine-risk which on ends of 2008 was 1,800bp, actually is around 750bp (September 2009), showing so far this year a reduction of more than 60%, while the insurance premium against default (CDS) to five years fell from 5,405bp in December 2008. Numbers and not the “feelings or tastes” say that for some reason the economical climate looks better than some months ago.
Capital flight cede, real demonetisation has shorten, and there is a better economical climate, for this reason BCRA (Argentina´s FED) started to apply a more expansive monetary policy reinforcing the added expenditure, lowering interest rate and trying to incentivise the credit to private sector.
Similarly, government is making decisions that propel primary expense which in July increased 29.3% inter-annual, keeping a primary surplus of $766 million Pesos. Anyway, is not convenient to hope that this trend would continue, most probably is that the fiscal boost of second half of the year be quite lower than the first one.
In the described context, inclusive Argentine consultants “ex pessimists full time” had revised their forecasts at rise. I believe that the economy will be growing at a 3/4% rate in next three quarters, touching around 5% in last quarter of 2010, reaching a growing rate in the level of 3,5/4,5% next year. Probably the consumption will grow at similar rate to GDP, perhaps slightly higher. Obviously growth rate will be lower to the coming-out speed of previous recovers associated to domestic issues, regional or emergent; due magnitude and range of world crisis that this time, i.e. affected industry and commerce in USA over the levels of the Great Depression.
Partial indicators of activity level are giving improvement signs in the margin, in sound with the world and the synchrony of globalization. Argentina celebrates Brazil’s recovery, and points to grow at an annual rate of 5/6% in the second half of this year and 4% in 2010. The amazing way out of China, strong partner of our exportations, in the second half have had grown again at incredible rates. Likewise, the improvement of the multilateral real exchange rate gives us a spontaneous improvement of competitiveness that will help propel the production of tradable goods and added demand. To the reduction of capital flight and the distension in the markets, which Fundación Esperanza forecast before elections, it adds a more expansive monetary policy that could give and additional contribution at the moment of underpin activity level.
Although our basic scenario was more optimist than the average, we didn’t have to modify it, and we don’t think that the possibility of more negative alternative scenarios have increased, as long as the fiscal situation improve and direct the solution to the absence of public financing at the end of 2009.
Markets grumble, although contradictory give signs of understanding that Government is going towards to correct macroeconomic imbalance that threatened Argentine economy. Politic interventionist and populist model, has showed before the caution of an economy that held for 6 years twin surpluses. It’s very important to have in mind this information, at the time to attend to forecasts of apocalyptical calamities managed by “CTM factor*”. CTM factor is working full time, with the purpose to shoot macroeconomic risks through novelist operations. To finish, we may say that good news as rise of bonds and stocks, fall of country-risk, less capital flight, stable exchange rate, decrease of interest rate; could be permanent.
*"CTM factor"(spanish: enemies of the economic model)

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