Wednesday
October 22, 2014

‘what is happening here needs to be resolved domestically’

Thursday, January 30, 2014

Analysts say impact is limited for Argentina

By Santiago Del Carril
Herald Staff
As emerging markets continued sliding across the board yesterday, a trend that was accentuated later by more bad news for the markets with the US Federal Reserve announcing it would continue tapering off its bond purchasing stimulus, economists minimized the impact these declines would have in Argentina.

“It’s not good obviously, but it’s not transcendental,” Eric Rotenwilde, an economist with the Econviews consultancy, told the Herald yesterday.

The fear is that if the investors continue to take their money out from emerging markets it could lead to more overall declines such as what happened in Turkey’s and South Africa’s currencies yesterday despite their efforts to tighten monetary policy. Some analysts speculate this in turn could have a domino affect in the Latin America region, putting more pressure on their central banks, especially Argentina’s monetary authority that has seen reserves plunge by almost US$543 million this week.

“We are not dependent on the financial markets ... so if it affects us, the consequence would be less than in other countries such as Brazil,” claimed Estanislao Malic, economist for CESO, an economics think-tank.

Since Argentina’s 2001 economic crisis, the country has been essentially shut off from financial markets using its Central Bank reserves and the revenue it gets from its trade surplus to pay debt obligations. While Brazil, on the otherhand, is more dependent on capital markets to get its financing to sustain growth, explained Malic.

But some economists insisted that the effects of the emerging markets sell-off in Argentina would be greater than initially predicted, Econométrica Economist Ramiro Castiñeira argued that Argentina was at a disadvantage in comparison to Brazil which has a reserves cushion of more than US$300 billion.

“Brazil has the financial muscle to sort out this situation, but Argentina doesn’t have that backing,” said Castiñeira.

The economists, though, all generally agreed that the country’s current peso woes is not dependent on international shocks and more of a domestic problem that could be fixed within the country’s borders despite the global financial context.

“What is happening is self-inflicted, and it needs to be resolved domestically ... it won’t matter if international exchanges move up or down a few percentage points,” added Rotenwilde.

US Fed tapering affect

The US Federal Reserve decision to cut back on its bond-buying programme could also affect Argentina, explained Rotenwilde, because it could lead to a drop in commodity prices.

Argentina’s growth in the past decade has been highly concentrated on exports of grains and related oil seed products that fetched high prices, accounting for almost half of the country’s exports. If commodity prices decrease, this would weaken Argentina’s revenue.

Plus a slowdown in Brazil’s economy could also affect the country’s exports to its neighbouring giant, although the sharp depreciation in the peso could help make up for that shortfall by making Argentine products cheaper.

“This trend is clear, we need to implement the necessary mechanisms and be prepared, but that will be a debate for next year,” said Rotenwilde.

@delcarril

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