Argentina tops Bloomberg list of most vulnerable emerging markets

[sandensea]

The quarterly Emerging Market Economy Scorecard published today by Bloomberg showed Argentina overtaking Turkey as the most vulnerable to external shocks among the 20 leading emerging economies surveyed.

Five major parameters were measured: current account balance; short-term external debt; hard-currency reserves; inflation; and "government effectiveness."

Argentina scored lowest on inflation, which reached 55.8% in June (compared to government projections of 20%); and on its short-term external debt, which reached 40.5% of GDP.

The country's balance of payments deficit (3.5% of GDP in the first quarter) is now made up entirely of foreign debt interest outlays, which have ballooned from $5.1 billion in 2015 (0.8% of GDP) to at least $20 billion this year (4.5% of GDP).

Argentina's current account deficit reached 5% of GDP in both 2017 and 2018, cutting off Argentina's access to foreign credit markets on growing fears of a future default.

The crisis forced the central bank to raise base interest rates from 27% in April 2018 to 59% currently to discourage capital flight, and to turn to the IMF for a record, $57 billion bailout.

The ensuing recession - the second since Mauricio Macri took office in 2015 - has led to a 5.8% fall in GDP, a 24.6% collapse in fixed investment, and 291,000 registered job losses as of May.

Including massive bond debts taken on by Macri in 2016-18, the next administration (2019-23) faces around $150 billion in foreign debt payments.

The 20 countries surveyed in the Bloomberg scorecard include 35% of the world's economy, and 55% of the world's population.

At: https://www.bloomberg.com/news/articles/2019-07-24/emerging-markets-less-at-risk-from-turkey-this-time-round-chart

Argentine President Mauricio Macri entertains U.S. Secretary of State Mike Pompeo during the latter's visit to Buenos Aires earlier this week.

Macri enjoys staunch support from President Donald Trump, who reportedly ordered both Pompeo and Commerce Secretary Wilbur Ross to facilitate Macri's unlikely re-election (he's behind in most polls) and the IMF to rubber-stamp all loans to Argentina until the October elections.

Critics warn that Trump's bailout is setting the stage for a likely default by Argentina by 2022, should the IMF refuse to renegotiate the debt with Macri's successor.

[at140]

1. Could we become Argentina II with chronic budget

deficits year after year?

[sandensea]

2. Good question. I myself don't think so.

The U.S., the E.U., the U.K., and Japan (and to some extent China) have something almost no other country has: the ability to create massive amounts of hard currency, should the need arise due to some financial or other crisis.

The invisible power of hard currency was, of course, proven during the 2008 derivatives crash, when all of the above countries issued trillions in their respective currencies (as ledger entries in the central banks) to bail out their banks from mountains of bad debts.

Their governments were likewise bailed out, with trillions in deficits run up to help stimulate their economies - and most of that being "bought" by their central banks themselves.

With money created out of thin air, if you will.

And while I'd never want to see the faith in and strength of the dollar (and the other hard currencies) tested in that way ever again, I believe that if it came to that we'd be protected from outright collapse.

Not so, Argentina - alas.

Macri created a foreign debt snowball (swelling the public foreign debt from $85 billion to $200 billion in just 3½ years), that in turn created a debt service snowball - ballooning from $5 billion in 2015 to over $20 billion this year.

Since Argentina cannot create the dollars needed to meet those payments (it must export or borrow to get them, like most countries), it will have to either renegotiate the debts (with bondholders and IMF, mostly) or default on at least some of it.

And as mentioned in the caption, should a default take place Trump will almost as guilty as Macri is: he's ordered the IMF to lend Argentina $57 billion knowing they can't pay that back in 4 years.

All because Macri's a right-winger like himself, and a personal friend besides. Plus who knows what quid-pro-quo.

[Judi Lynn]

3. Amazing statistics. Things are going to have to be re-examined, and a new model created.

The right-wing does this repeatedly, leaving the opposition an impossible wreck of an economy to battle each time, and once progress is made to get the economies out of the gutter, ba-BOOM, the right-wing starts its hate assault on the sitting president and rages against him/her until it finds a way to sneak the next fascist into office, by filthy, dishonest, often violent tactics.

It's so conspicuous by now, surely EVERYONE can see how this works. It never works for the best interests of the population, not once. It only works for the unprincipled predators who drove the country into chaos the last time.

Wanted to say it's so easy to see on Macri's face that he absolutely abhors Mike Pompeo in every way, can't stand to be in the same room with him, and that Pompeo is so perverse he is eating it up, loving the fact he has a ferocious power of the US gov't behind him, and all the force at his disposal, should he use it, a person could want. Pompeo looks like a scheming bully, Macri looks "dipped in ####." Without a doubt Pompeo can't stand Macri and uses personal nasty bullying in his demeanor to rub it in.

It's actually funny, in a creepy, awful way. Two real monsters going through the diplomacy dance which forces them to act civilized, sorta. Do you think they are stuck in a moment of waiting while the translator is at work?

[sandensea]

4. You're probably right about Pompeo

He was in Buenos Aires once before - during the G20 summit last November - and he seemed to be enjoying himself.

You'll recall there was a minor flap about Trump booking an entire five-star hotel for himself, Ivanka (of course), and their entourage: https://www.democraticunderground.com/100211490760 .

Photos of Pompeo outside the hotel showed him contented and at ease. But there must have been some personal friction with Macri since then.

Macri's very much a con-man by nature, and I doubt he was ever deliberately unpleasant to Pompeo (as he often is with women). So Pompeo probably caught him in a lie.

Or it could be that Pompeo's annoyed because Trump ordered him (and Wilbur Ross) to "guarantee" Macri's re-election.

And he knows that, barring massive fraud, Macri can't be re-elected amid an economic crisis - an outright collapse but for the IMF bailout, which the next administration will have to pay back.

And the fraud, they're already working on: They're calling Smartmatic - the scandal-ridden electronic vote firm Macri hired to transmit results (without congressional approval) - SmartMacri.