South America

In Argentina’s sunny Mendoza province, officials had been preparing to break ground on the Vecaso solar park, a 115 megawatt project costing $90 million, Reuters reported. The culmination of nearly four years of planning, Vecaso was one of several ambitious projects to take root under a renewable energy push by the government of President Mauricio Macri.

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Argentine President-elect Alberto Fernandez on Tuesday told International Monetary Fund Managing Director Kristalina Georgieva that he has a plan to grow the economy and tackle the nation’s debt after his predecessor agreed to a $56 billion credit line from the fund, Bloomberg News reported. “We have developed a sustainable plan that will allow us to grow and comply with our obligations that Argentina has with you and with the rest of the creditors,” Fernandez told Georgieva in their first publicly known phone call, according to his transition team’s press statement.

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Argentine President-elect Alberto Fernandez says he won’t rush the debt agreement process to ensure he gets a good deal for the country, Bloomberg News reported. “We don’t want to sign anything and then regret it,” he said in an interview for Pagina 12 released on Sunday. “We don’t want to run after the timelines for the bondholders, we want to run after the timeline that’s best for Argentines.” He said he listens to Guillermo Nielsen, the debt negotiator for Argentina in 2005, on debt, but that he’s looking to make the final decisions himself.

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Chile is on the brink of losing its hard-won reputation as the safest bet in Latin America following the biggest social upheaval in a generation. One month into a wave of mass protests Chile’s credit-default swaps are near those of the region’s other most stable countries, Bloomberg News reported. The gap between the spread on its five-year CDS and Peru’s has narrowed 21 basis points to two basis points. The gap with Panama has disappeared over the same period, with the Central American nation now 0.6 basis point below Chile.

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Chile is on the brink of losing its hard-won reputation as the safest bet in Latin America following the biggest social upheaval in a generation. One month into a wave of mass protests Chile’s credit-default swaps are near those of the region’s other most stable countries, Bloomberg News reported. The gap between the spread on its five-year CDS and Peru’s has narrowed 21 basis points to two basis points. The gap with Panama has disappeared over the same period, with the Central American nation now 0.6 basis point below Chile.

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Investors are souring on how much they can recoup from a potential Argentine default as President-elect Alberto Fernandez procrastinates on plans to save his nation from financial ruin, Bloomberg News reported. Argentine dollar bonds due in 2028 now fetch as little as to 36 cents on the dollar -- a drop of about 20 cents since the immediate aftermath of the leftist’s surprise primary victory in August. A mountain of debt, staggeringly high inflation and little sign of who Fernandez will pick for his cabinet -- and which policies they will implement -- have bondholders begging for clarity.

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Argentina must repay $5 billion by the end of 2019. It doesn’t have much to work with. While the country’s foreign reserves total a still somewhat robust $43 billion, that figure shrinks markedly once untouchable assets such as dollar deposits of everyday Argentines and a credit line from China are stripped out, Bloomberg News reported. Analysts surveyed by Bloomberg News estimate that the amount that policy makers can actually freely spend is no more than $12.5 billion. One of the analysts, Siobhan Morden of Amherst Pierpont Securities, puts the figure at as little as $6.5 billion.

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Investors in frontier-market bonds are on course to get their best returns in seven years. It looks like it’ll be a lot tougher in 2020, Bloomberg News reported. Some of the biggest money managers are already becoming more selective. BNP Paribas Asset Management, which oversees almost $500 billion in assets, is sticking to countries with sound fiscal management such as Ivory Coast, or those with investment-grade ratings like Kazakhstan, Uruguay and Morocco. Aberdeen Standard Investments sees opportunities to get above-market returns by buying the bonds of Sri Lanka, Ecuador and Ghana.

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A Third Way for Argentina: Reprofiling

Despite allegations to the contrary, “reprofiling” is not an Argentine euphemism for debt restructuring. It is a distinct liability management exercise that is optimal, from a welfare standpoint, for certain well-defined sovereign debt crises. In our (preliminary) opinion, Argentina’s situation meets the required criteria for a reprofiling that would defer its maturities for a relatively short period, while not reducing either the face value of its obligations to private creditors or their contractual coupons, the Financial Times reported in a commentary.

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Argentine economists predicted a worsening recession and a slightly higher inflation forecast of just under 56% in a central bank monthly poll of analysts released on Monday, the first since the victory of leftist Peronist candidate Alberto Fernandez in the country’s presidential election, Reuters reported. Inflation was seen at 55.6% for the year, up from 54.9% in the same central bank poll last month. It will ease to 42.9% by 2020, slightly higher than the previous prediction, according to the survey of 45 analysts.

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