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IMF-`Blessed' Jamaica, Pakistan Bonds Top Fernandez Debt: Argentina Credit
Argentine President Cristina Fernandez de Kirchner’s reluctance to work with the International Monetary Fund is leading the nation’s bonds to lag behind debt from similarly rated Pakistan, Belize and Jamaica.
The South American nation’s dollar bonds have returned 12.9 percent this year, compared with gains of more than 50 percent for bonds sold by Jamaica and Belize and an advance of 18 percent for Pakistani notes, according to JPMorgan Chase & Co. indexes. Moody’s Investors Service rates the countries B3, six levels below investment grade.
While Jamaica, Pakistan and Belize allow the Washington- based fund to evaluate their economic policies in return for financial assistance, Argentine Economy Minister Amado Boudou said on C5N television yesterday the government won’t accept the IMF’s economic-policy “recipes” because the country “did poorly” in the past following the lender’s advice. Argentine debt yields 223 basis points, or 2.23 percentage points, more than Jamaica and 220 more than Pakistan.
“Argentina is unrealistically cheap partly because they haven’t got any program from the IMF,” said Jerry Brewin, who manages $2 billion of emerging-market assets at Aviva Investors in London. “The reason Pakistan and Jamaica have performed better than expectations is that the IMF has been standing in the background. The IMF has blessed these credits.”
Former President Nestor Kirchner, Fernandez’s husband and predecessor, tapped foreign reserves to pay off the country’s $9.5 billion debt in 2006 and said the monetary fund helped lead the nation to default in 2001.
IMF Review
“Argentina did poorly when the IMF got involved in our finances,” Boudou said yesterday when asked about whether the country may allow the lender to review its economic policies for the first time since 2006.
The Financial Times said Sept. 8 Argentina will allow the IMF to undertake an Article IV review, which is required for all members of the organization, as part of a plan to pay off about $7 billion in defaulted debt owed to the Paris Club group of creditor nations. The newspaper didn’t say where it obtained the information.
Caroline Atkinson, the IMF’s director of external relations, said yesterday in Washington that she was not aware of a request by Argentina to have such a review. The institution remains “ready as we have been for some time” to participate, she said.
Pakistan’s debt returned 17.6 percent this year and 147 percent in 2009 as an $11.3 billion bailout from the IMF helped shore up the country’s economy, according to JPMorgan.
‘Very Well’
Jamaican bonds gained 52 percent this year. The IMF said in June the Caribbean nation “has performed very well” under a $1.2 billion, 27-month loan program approved in February.
Belize, which held talks with the IMF in June as part of an Article IV review, posted an advance of 62 percent this year.
Yields on the country’s 7 percent bonds due in 2015 rose 22 basis points today to 11.24 percent, according to Bloomberg market average pricing. Warrants linked to growth in South America’s second-biggest economy fell 0.05 cent to 10.75 cents, according to data compiled by Bloomberg.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries narrowed seven basis points today to 703, according to JPMorgan. The gap is down from 846 on July 1.
Argentina’s borrowing costs tumbled after the country restructured $12.9 billion of defaulted debt in June that was kept out of a 2005 restructuring and as surging commodity exports propelled its economic expansion. The central bank forecast the economy will grow 9.5 percent, the strongest pace in 18 years.
‘Trigger’
The debt swap “was really a trigger to improve sentiment towards Argentina,” Stuart Culverhouse, chief economist at London-based investment bank Exotix Ltd., said in a telephone interview. “We’re taken by the story, but I think obviously others need to be convinced. For some investors, the jury is still out.”
Exotix recommended in a report this week that investors buy Argentine warrants linked to economic growth and bonds that mature in 2033, 2015 and 2011.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps is the third-highest in the world, according to data compiled by Bloomberg and CMA DataVision. Only Venezuelan and Greek swaps are more expensive. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
“If things get really bad, you want to have a relationship with the IMF because they can help you through a difficult period,” said Jim Craige, who helps manage $12 billion of emerging-market assets at Stone Harbor Investment Partners in New York. “If you don’t have a relationship, they won’t. It does give a level of comfort.”
To contact the reporters on this story: Ben Bain in New York at bbain2@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
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