The nationalization push further throws into sharp relief the declining creditworthiness of Latin Americas heterodox economies Argentina and Venezuela relative to the rest of South America, with Uruguay recently attaining investment-grade status, an ever-expanding emerging market club.
And analysts views of Argentinas financial position relative to Chile, the regions poster-child for fiscal prudence, charted:
In recent years, Argentina has scrambled under Kirchners populist administration to boost money supply to increase investment and growth. The government recently removed legal limits to access on central bank financing to public and private sectors. Its no surprise that these stubborn fiscal monetization efforts have resulted in a sharp fall in the peso and a rise in inflation.
Against this backdrop, bank lending has collapsed amid risk aversion and soaring inflation. The ratio of bank credit to the private sector to GDP stands at only 12%. Contrast that with red-hot Brazil, which under a relatively more stable policy environment has managed to capitalize on soaring commodity prices and a subsequent surge in portfolio flows to boost consumer financing to eye-watering levels.
After raiding domestic capital providers in Argentina the social security system, state-owned banks and the central bank itself the government is running out of financing options fast. If the government makes good on its nationalization push, then the prospect for foreign capital has darkened further.