Argentine Finance Secretary Hernan Lorenzino, who helped oversee a $12.9 billion defaulted debt restructuring last year, will be the country’s next Economy Minister. Bonds rallied.
Lorenzino, 39, will help determine whether South America’s second-biggest economy returns to international debt markets for the first time since a record 2001 default on $95 billion of bonds. He will also be charged with tackling annual inflation economists estimate is running at 25 percent, the fastest in the world among major economies after Venezuela.
Argentine dollar bonds rallied on the news. The yield on the 2015 bond tumbled 48 basis points, or 0.48 percentage point, to 10.43 percent at 3:24 New York time, the biggest decline in a month. The extra yield, or spread, that investors demand to own Argentine debt over U.S. Treasuries tumbled 61 basis point, the most among major emerging markets, according to JPMorgan Chase & Co.
“He’s someone who has plenty of experience dealing with the markets,” said Carola Sandy, an economist at Credit Suisse Group AG in New York. “This is welcome news.”
Lorenzino, who accompanied President Cristina Fernandez de Kirchner to a summit of G-20 leaders in France last month, replaces Amado Boudou, who becomes vice president when Fernandez begins her second term on Dec. 10. He previously worked as undersecretary of finance for Buenos Aires province, where he managed the 2005 restructuring of $3.1 billion in defaulted provincial bonds. In 2008 he was named Argentina’s financial representative in Washington.
Fernandez’s decision “is great news,” said Alberto Bernal, the head of fixed-income investments at Bulltick Capital Markets in Miami. Lorenzino was “the best choice among the bulk of the candidates.”
Mercedes Marco del Pont, who has led the central bank since February 2010, will remain in her post, presidential spokesman Alfredo Scoccimarro told reporters in Buenos Aires today. Juan Manuel Abal Medina will become cabinet chief, replacing Anibal Fernandez, who was elected senator for Buenos Aires province, while Norberto Yauhar will become agriculture minister.
Lorenzino, who studied law at the University de La Plata, will have to manage one of the region’s fastest-growing economies, accompanied by an inflation rate economists calculate is more than double the 9.7 percent reported by the government. In its budget, the government forecasts economic growth will slow to 5.1 percent next year from about 8.3 percent in 2011.
The new minister will also have to tackle accelerating capital flight fueled by investor concern that Fernandez would devalue the peso to boost competitiveness. Capital flight in the third quarter reached $8.4 billion, the most in a decade. The outflows caused central bank reserves to fall to $46 billion in November from a record $52.6 billion in January.
Following her landslide election on Oct. 23, Fernandez sought to stem capital losses by ordering oil, gas and mining companies to repatriate all export revenue and telling insurance companies to bring foreign investments back into the country. She also instituted stricter controls over the foreign exchange market.
“The minister will have to face a lot of mistakes from the past that he will have to solve going forward, like inflation,” said Aldo Abram, director of Exante Consultora, a Buenos Aires-based research company. “It’s starting to hurt people’s purchasing power.”