Argentina Economy Expected to Show Slight Growth for 2015

May 8, 2015Argentinaby EW News Desk Team


Argentina's economy shows slight improvement as more investors buy up the nation's debt and become more bullish on Argentine stocks. The election process is set to take place in October 2015, and many hope a change in leadership would improve the economy.

Argentina's economy is still in a dire state, but it is gaining some traction. Tourism increased in 2015, and even though inflation and higher taxes remain a problem, the South American nation is in better shape than previous years. Consumer confidence levels increased 40 percent this year, despite the encroachment of higher food and energy bills, and more Argentines feel better about the future.

Argentine Markets in Better Shape

Argentina sees true success in the financial markets. The nation's Merval stock market shot up 45 percent so far in 2015, which is far more than the S&P 500. Further, the nation sold $1.4 billion in government debt, which is a small percentage when compared to the nation's overall debt payments, but the debt sale is a step in the right direction. To foster the sale, Argentina had to offer higher interest rates on dollar-based bonds more than other countries in the region, but the Argentines will gain some measure of short-term growth.

The crux of Argentina's problem lies with creditors, mostly American hedge funds, who seek repayment for the debt they purchased when the country underwent a whopping $95-billion default 2001. NML Capital in particular bought a piece of the nation's debt for little cash, but stands out as one of the few hedge funds seeking full payment of $1.5 billion in foreign bonds. While most of Argentina's creditors have accepted a discounted balance, NML Capital went so far as to take Argentina to court, and a New York judge ordered the country to honor the debt in full in 2012.

Argentina's Hedge Fund Problem

Argentina refuses to pay, and a degree of bitterness lingers, as American hedge funds became 'vultures' throughout the nation. Argentina chose not to pay balance because of a clause in a bond contract stipulating that any amendment deals offered to some bondholders would automatically extend to all holders. However, the clause expired, and NML opened negotiations with the nation about debt settlement. Argentina has not accepted the invitation thus far, but negotiations are inevitable, as Argentina cannot get the necessary foreign investment to develop the country's vast oil reserves.

According to analysts, Argentina will have to settle in order to enhance the economy because the country is dependent on oil and soybean production. Oil and soybean prices plummeted in 2015, but both commodities show recent signs of price stabilization. Part of Argentina's fate also lies with its two most valued trading partners, Russia and China, both nations that have undergone economic contraction and lower demand, dashing hopes of more commodity revenue. Current President Cristina Fernandez de Kirchner, claiming she is part of a vast conspiracy involving hedge funds, has taken a defiant stance against international finance and shows no sign of willing to negotiate with the 'vultures.' However, a change in government is the primary factor behind Argentina's renewed hope, and future leadership may turn Argentina's current gains into long-lasting growth for the future.

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