In June, this column predicted that default was inevitable, whoever won the coming presidential election. The foreign currency debt dynamics that had led to the IMF’s $56 billion rescue package had become a mortal weakness. That rising debt meant that the IMF was to be the life support for an economy that would never be able to recover sufficient strength to return to the international capital markets. (Luckily for Christine Lagarde, her departure means that she will avoid mopping up after the fund’s largest ever bet collapses.)
However, while the poor showing by President Mauricio Macri in the primaries in mid August doesn’t change the inevitable default, it does impact its nature and timing. The fact that Macri performed so badly all but guarantees that the country’s next president will be Alberto Fernandez – quite possibly to be confirmed with a victory on October 27.
Among bankers, and particularly investors, the focus is now on recovery rates as the basis of market value of Argentine bonds. Most of the debt is now trading between 40 cents to 50 cents on the dollar – in line with some predictions of recovery values.
