Bonds decline once more, with country risk escalating to 1.224 points versus the dollar, approaching the upper limit of the band in financial markets.
In the heart of South America, Argentina finds itself navigating a complex economic landscape. The stock and bond markets have taken a significant hit this year, with losses exceeding 30% in dollars. This turbulence has raised concerns about a potential default on the country's sovereign debt, a worry that the government officially denies.
The current political climate in Argentina is marked by the presence of economist Javier Milei, a radical reformer who has steered the country towards historic budget surpluses and significant fiscal consolidation. Under his leadership, Argentina managed to shift from chronic deficits to a budget surplus of 1.8% of GDP by the end of 2024. This has been achieved through measures such as dissolving over 100 state agencies and promoting privatization, resulting in a notable reduction of inflation.
However, President Milei has faced resistance from the Peronist opposition in Congress, particularly over vetoed laws due to excessive state spending. His recent defeat in the legislative elections in the province of Buenos Aires adds another layer of complexity to his tenure.
The economic team, while not explicitly named, seems to be preparing for adverse scenarios, assuring that debt payments will be made. The stock market is closely monitoring the evolution of the official dollar, which reached 1.474.50 pesos today, and the wholesale market has even reached the ceiling of the band.
The government's efforts to manage the dollar's rise are evident in the BCRA's involvement in the sales of the official dollar. Meanwhile, the province of Buenos Aires has reached an agreement with bondholders, similar to the debt restructuring of 2021.
The overall adverse scenario has hit sovereign assets hard, pushing country risk to its highest level in almost a year. The JP Morgan indicator, which measures the spread of Treasury bond yields between the US and emerging markets, ended Tuesday at 1,167 basis points.
Amidst these challenges, public discontent over severe cuts in sensitive areas such as health and education is making the social atmosphere increasingly tense, with growing protests.
On a brighter note, the S&P Merval index of the Buenos Aires Stock Exchange is up 0.3% in pesos, at 1,793,000 points, as of 14:50. Yet, the financial tensions persist, with mixed numbers among ADRs and shares of Argentine companies traded in dollars on Wall Street, and dollar sovereign bonds -Bonares and Globals- down an average of 1%.
In a bid to learn from other countries, President Milei recently spoke at the Paraguay Congress, expressing thoughts about lessons his country could learn from its neighbour. The road ahead for Argentina's economy remains challenging, but the nation continues to strive for stability and growth.
