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Argentine Debt Safer Than Greece... (Σε απλά Ελληνικά: Είμαστε χειρότεροι και από τους πτωχευμένους...)

Argentine Debt Safer Than Greece... (Σε απλά Ελληνικά: Είμαστε χειρότεροι και από τους πτωχευμένους...)

20.August.2010, 01:02

Argentine Debt Safer Than Greece as Expansion Quickens: Argentina Credit

By Boris Korby - Aug 19, 2010 12:31 AM GMT+0300

The credit-markets are showing that Argentina’s debt is less risky than Greece for the first time in seven weeks as the South American nation’s economy grows at the fastest pace since 1992.

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 12 basis points, or 0.12 percentage point, to 821 this week, 22 less than similar contracts for Greece, according to CMA DataVision. Greek swaps rose 23 basis points in the same period.

Argentine credit risk will remain below Greece as surging commodity exports boost tax revenue in South America’s second- biggest economy, according to Wells Fargo & Co. While Argentina’s economy is forecast to grow 9.7 percent this year by Morgan Stanley, the fastest in the region, Greece’s gross domestic product may shrink 4 percent, according to the government and European Union estimates.

“It is definitely a longer-term trend,” said Aryam Vazquez, an emerging-markets economist at Wells Fargo in New York. “The economy is growing, and the growth outlook is very robust. But more importantly, the fiscal situation is very strong. Their financing needs aren’t even a concern now, and that clearly is not the case with Greece.”

Budget Deficit

Argentina’s budget deficit will equal 0.1 percent of GDP this year, according to Morgan Stanley, which revised its estimate lower from 1 percent on Aug. 9. Greece is seeking to reduce its budget shortfall to 8.1 percent of GDP from last year’s 13.6 percent, the highest in the 27-nation European Union after Ireland. Greece’s debt equaled 113 percent of GDP last year, more than double Argentina’s 49 percent ratio, according to data compiled by Bloomberg.

The average yield on Argentine bonds sank 93 basis points to 9.92 this year, according to JPMorgan Chase & Co. indexes. The yield on the 5.83 percent peso-denominated bond due in 2033 is 10.11 percent. The yield on Greece’s bonds due in 2020 surged 436 basis points to 10.59 percent since trading began in March, according to data compiled by Bloomberg.

Five-year credit default swaps tied to Argentine debt yesterday tumbled 175 basis points over the past three months, the biggest decline among governments in the world after Ukraine, according to CMA. Contracts for Greece surged 230 to 844 during the same period.

Argentine swaps first fell below Greece on June 24, trading at 151 basis points below, before climbing back above four days later.

Argentine credit default swaps will probably trade cheaper than Greek contracts for the next 12 months, said Jim Craige, who helps manage $12 billion of emerging-market debt at Stone Harbor Investment Partners in New York.

Rollover Risk’

“In Argentina, you continue to have a lower debt-to-GDP rate, less rollover risk and relatively high growth,” Craige said in a phone interview. “These are much more likely to attract capital than countries that have high debt-to-GDP, structural fiscal deficits and high rollover risk, such as Greece.”

The extra yield investors demand to own Argentine dollar bonds instead of U.S. Treasuries was unchanged at 678 basis points at 5:28 p.m. in New York, according to JPMorgan. The difference is down from 846 on July 1. The peso rose 0.1 percent to 3.9298 per dollar.

Warrants linked to economic growth fell 0.02 cent to 10.10 cents on the dollar.

Record Harvest

A record 55 million-ton soybean harvest helped the central bank boost reserves to an all-time high of $51.1 billion in July and pushed tax revenue 39 percent higher in June from a year earlier to 37.3 billion pesos. Argentina’s budget surplus before interest payments was 2.7 billion pesos in June. The government has run a so-called primary surplus every month since December 2008.


“Commodity exports have been huge for Argentina,” Craige said. “That’s the big driver here. It’s produced an account surplus and higher growth relative to other markets.”

Accelerating growth pushed inflation to 11.2 percent in July, the highest in four years, according to the National Statistics Institute. Former Undersecretary of Finance Miguel Kiguel estimates inflation is actually running at about 25 percent.

Economists and government officials including Vice President Julio Cobos have questioned the accuracy of the inflation data, saying officials have underreported price increases since January 2007, when former President Nestor Kirchner made personnel changes at the statistics agency.

Regime Change’

“Argentina’s macro management is still very poor,” said Bertrand Delgado, an economist at Roubini Global Economics LLC in New York. Argentina’s credit-default swaps will only “see a significant move downward with a regime change, to one that’s somewhat more market friendly and has the political capital to implement the necessary changes in macro policy. That’s still a long bet,” he said.

President Cristina Fernandez de Kirchner’s four-year term ends in December 2011.

Argentine default swaps have tumbled from 1,379 basis points in May as Fernandez, 57, restructured $12.9 billion of defaulted debt, sparking a credit-rating upgrade by Fitch Ratings to B, or five levels below investment grade, from default. Greece was forced to seek an EU-led bailout in May after mounting concerns the country may default drove up its borrowing costs.

“You cannot compare anymore the fiscal strength of Greece to a country like Spain,” said Alberto Bernal, head of fixed- income research at Bulltick Capital Markets, a Miami-based brokerage that focuses on Latin America. “It’s no longer a valid comparison. So you start looking at alternatives and Argentina is one.”

To contact the reporters on this story: Boris Korby in New York at;


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