Argentina Seeks IMF Help to Shed Risk Ranking on Par With Iran

Updated on
  • IMF delegation set to assess Argentine policies this month
  • Report is first step in tapping cheaper OECD member financing

Argentina’s sovereign debt may be outperforming most of its emerging-market peers this year, but the Organization for Economic Cooperation and Development says the country is as risky as North Korea, Venezuela and Iran.

The ranking is a remnant from the days when Argentina was still a pariah in international markets -- and it could soon change.

About half a dozen International Monetary Fund economists are set to touch down in Argentina in September to assess the reliability of the country’s economic statistics and the sustainability of its fiscal and monetary policies, as well as the banking industry. The so-called Article IV consultation -- normally an annual review but, in Argentina’s case, the first in a decade -- is a key step to reclaiming legitimacy among organizations like the OECD and unlocking cheaper financing from member nations.

“It’s important for them to reestablish that relationship if only to open the door down the road,” said Marco Santamaria, a portfolio manager at AllianceBernstein LP, which invests in Argentine bonds. “There’s a lot of scope for a lot of infrastructure and social projects to be funded by the World Bank and the IDB and having normal relations with the IMF and other multilaterals will certainly ease that pressure.”

That may also add support to this year’s rally in Argentine bonds, said Miguel Kiguel, director of Econviews, an economic consultancy. Sovereign notes have returned on average 19 percent, according to a JPMorgan Chase & Co. index. Corporate foreign-currency debt from South America’s second-largest economy has returned 14 percent.

The Article IV consultation is just one more step in President Mauricio Macri’s efforts toward unwinding the policies of his predecessors, Nestor Kirchner and then his wife, Cristina Fernandez de Kirchner, who refused to undergo the assessment since 2006. Within a few months of taking office in December, Macri had already lifted the most onerous of currency controls, reached a settlement to end a decade-long battle with holdout creditors from its 2001 default and returned to international markets with a $16.5 billion bond sale.

In a June 24 report, the OECD gave Argentina, which is trying to become a member, its lowest grade in a system that regulates the interest-rate spread that export credit agencies from member countries can apply when granting loans or insurance to companies that trade with the Latin American country. The OECD’s press office said in an e-mailed statement that its team of experts meets three times a year to assess economies by geographic region, but that a country can be reviewed out of turn if a new IMF report becomes available.

The IMF’s review of Argentina’s policies is expected to take a couple of weeks and a full report will be ready six to eight weeks after that. A separate technical IMF delegation visited Argentina in July to assess the reliability of its economic statistics after becoming the first nation to be censured for publishing inaccurate data, and Managing Director Christine Lagarde is set to present a report to the IMF’s board of directors on the findings this month.

“Argentina is trying to go from being a frontier country to an emerging market,” said Kiguel of Econviews. “By normalizing the relationship with the IMF, it will help to reduce costs with credit export agencies and central banks and will help foreign investors understand that this is a normal country.”

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