A presidential election in Argentina has led to a sell off in the country’s bonds and currency, as fears were stoked that a populist ruling government would negate billions of dollars owed on government debt by foreign holders.
Argentina announced in late August that it would begin the process of reorganizing its government debt, meaning that the country was technically defaulting on its debt obligations. It plans to postpone $7 billion of debt payments on short-term bonds as well as “reprofile” $50 billion of long-term debt owed to foreign investors worldwide. Argentina also plans to delay payment on another $44 billion in loans owed to the International Monetary Fund (IMF).
Argentina imposed currency controls in order to stem the flight of capital out of the country as it tries to avoid an escalation towards default. The country is requiring exporters to keep profits in the country rather than converting them to foreign currencies such as the U.S. dollar.
The three primary rating agencies have all lowered their credit rating on Argentina, citing a deepening economic recession and the return of populist policies. Argentina has defaulted on its government debt eight times since 2000, making it one of the riskiest countries to loan to.
Sources: IMF, Bloomberg, www.argentina.gob.ar
Disclaimer: The information published herein is provided for informational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or an offer to buy securities, investment products, or investment advisory services. All information, views, opinions, and estimates are subject to change or correction without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. The appropriateness of an investment or strategy will depend on an investor’s circumstances and objectives. Please consult your advisor about what is best for you.