October 30, 2019 / 6:59 PM / a month ago

Argentine markets in limbo as investors seek clarity from president-elect

BUENOS AIRES (Reuters) - Argentina’s markets were in limbo on Wednesday, as traders and investors awaited signals from President-elect Alberto Fernandez about the future direction in which he will take Latin America’s no. 3 economy.

Argentina's President-elect Alberto Fernandez speaks as he attends the oath of office of Tucuman Governor Juan Manzur, in San Miguel de Tucuman, Argentina October 29, 2019. REUTERS/Agustin Marcarian

The country’s peso dipped slightly to 59.6 per dollar amid muted trading and as the central bank effectively set a floor to stop the currency weakening past 60 pesos, with a dollar auction.

The bank has intervened in the foreign exchange market and applied stricter currency controls since Sunday’s presidential election victory by Peronist candidate Fernandez, which ousted market friendly leader Mauricio Macri.

Ratings agency Fitch said on Wednesday that Fernandez now needed to turn “vague campaign promises into a detailed economic plan” to help salve jittery markets, adding that his picks for key economics posts would be an important signal.

One possible sign came when a spokesman for Fernandez said earlier on Wednesday that the President-elect would include current advisers Matias Kulfas and Cecilia Todesca in any economic transition team.

Kulfas and Todesca are both economists who held senior roles at Argentina’s central bank during the administration of former President Cristina Fernandez de Kirchner, who will now serve as vice president alongside unrelated Alberto Fernandez.

Fernandez de Kirchner implemented protectionist policies and currency controls during her back-to-back 2007-2015 terms that scared off many investors, and fought a bitter fight with holdout creditors over a previous debt restructuring.

Now the country is facing fresh complex debt restructuring negotiations with creditors, including the International Monetary Fund (IMF), over around $100 billion in sovereign debt amid rising fears it may be forced into a damaging default.

Fitch said in a report that Argentina would need “significant debt relief” beyond maturity extensions because the “fiscal adjustment needed to do so without such relief is too large to be politically and economically viable.”

While Fernandez’s policies remain unclear, Fitch said that the fact he did not win a majority in Congress - falling just short in the lower house - may help “prevent a sharp leftward shift.”

“But policy uncertainty remains high given a complex power dynamic. It is unclear to what extent Fernandez’ running mate, ex-president Cristina Fernandez de Kirchner, will exert control over policies,” the agency said.

Argentine over-the-counter sovereign bonds gained an average 0.1%, with the country risk index rising 25 units to 2,231 basis points. The black market peso gained 0.75% to 66.5 per dollar.

Reporting by Jorge Otaola and Walter Bianchi; writing by Cassandra Garrison and Adam Jourdan; Editing by Angus MacSwan and Rosalba O'Brien

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