Country risk reaches over 1500 points and Stock Exchange falls 8.16%

By Luis Beldi
Columnist for Ámbito Financiero

The local leadership described yesterday's session as a "market coup" and some officials compared this "plot" to the military coups.

Gathered in Raúl Alfonsín's (former president) flat, officials were imagining another coup, De La Rúa's resignation and a figure with similar ideas replacing him.

Perhaps they did not realize that before that "market coup" there was a "consumers coup" given that consumers, overwhelmed by the lack of political decisions, tax burdens, public spending increases and other administrative inabilities, stopped buying. They preferred to save their money in banks because they felt that the future would not be better.

Collection fell, more taxes were imposed and the political leadership continued to blame bankers.

Yesterday, country risk closed at 1519 points (+17.6%) and revealed the mistakes of a government that has consumed three ministers of economy.

The fact that this level of country risk that has hit all the records of the Argentine history has arrived 24 hours after the government takes up the courageous measure of achieving a budget without deficit maybe unfair.

The present administration does not understand that having a zero deficit today is not a good or bad idea, it is just unavoidable. There is no other choice because Argentina does not have credit to finance the deficit.

Leadership

But for that leadership this is only a detail. They used to issue money to cover the deficit and not to pay the credit when hyperinflation arrived. Emergency savings, bond festivals, postponement of payments, accumulation of lawsuits against the State the leadership loves these ways although they blow de market.

A serious government, then, has to pay dearly those excesses.

While the leadership was having a meeting in Alfonsín's flat, PJ's (main opposition and a more sensible party) governors had their own meeting.

After the cabinet meeting, Domingo Cavallo (minister of economy) himself gave a speech to calm markets down, ratify the convertibility and assure that the adjustment in the wages of the public administration will not last long if there is an improvement against evasion.

"This kind of hysteria experienced in the market will revert as soon as the Argentine leadership puts general interest and the solution of problems before partisan or election matters," said Cavallo.

About the measures announced yesterday, Cavallo stated: "nobody wants to affect the standard of living of civil servants or pensioners.

"The national government is working to enable governors to implement programs to reach a fiscal balance, such as the State is doing," Cavallo pointed out.

Yesterday, the stock exchange decreased 8.16%. Early trading saw the leader index fall 13.59% to 293.23 points, the lowest level since March 2, 1995. The index closed at 311.63 points (not reached since September 10, 1998).

High trading volume ($52.57 million) reveals a nervous market without efforts to defend prices. This is the second sharpest fall of Merval in one day during De La Rua´s administration. The most important fall was registered a year ago (-8.66%).

The stock exchange has lost 22.52% so far this month and 25.2% in the year. So far this week, stocks fell 15.73%.

But the worst performance was not that of stocks but of external debt bonds. Argentine securities alongside Brazilian and Russian securities endured a strong pressure of sales.

The bonds of the debt swap (megaswap), the most traded bonds, posted falls around 12.96% in the case of the series 2008. Global bond 2018 lost 10.53%. Investors were so anxious to sell that they did not realize that the Global bond 2008 has no risk of default and has a very low price of US$56.94.

Among Brady bonds, FRB bond hit the sharpest fall (-11.51%). Par and Discount bonds dropped only 3.21% and 5.2%, respectively, thanks to their US collateral.

The remaining series of Global bonds lost up to 17% of their value as in the case of the series 2010.