MercoPress. South Atlantic News Agency

Argentine president tough stance scares investors

For Mrs. Kirchner the battle with farmers is not yet over

Investors are bailing out of Argentine assets in response to tough talking President Cristina Fernández de Kirchner who since a press conference on Saturday has been defending her government's actions over a now defeated agricultural tax and inflation statistics.

Argentina was the biggest loser in the emerging market sphere at the beginning of this week underperforming on stocks, bonds and credit default swaps. Argentina's stock market Merval index lost on Monday roughly 3.78% to a near one-year low around 1,812.75. Mrs. Kirchner who was forced to ditch a controversial tax increase on grains and oil seeds exports, said her only mistake was to underestimate the opposition to her tax plan and that if given the chance she would not have changed her actions. She also defended government inflation statistics, widely discredited, which puts the consumer price index up about 9% a year versus private estimates of 20% or more. In the credit markets, Argentina's five-year credit default swaps illustrated investor fears that the political environment remains tense and the government recalcitrant in light of its defeat on the tax issue. At the same time, Argentina's government reported on Monday that it can meet its 2008 financing needs without issuing debt on financial markets and instead could tap its budget surplus or take intra-government loans from public agencies. The sale of debt to Venezuela, something it has done in the past, is also a possibility although no talks are under way. Venezuela said it was willing to buy more bonds, having purchased more than 6 billion US dollars in Argentine debt already. In the credit markets, the JP Morgan Emerging Markets Bond Index Plus yield spread over benchmark US Treasuries narrowed by one basis point to 286 basis points while Argentina's portion of the EMBI+ widened by 29 basis points to 654 basis points.