MercoPress. South Atlantic News Agency

Wall Street back steps on the risks of an Argentine default

Wall Street investment banks downplayed the risks of an Argentine default even with lower soy prices, a slowing down of the economy and soaring inflation. The announcement from Morgan Stanley, UBS and Barclays Capital follows weeks of speculation that Argentina was technically on the verge of another financial disaster.

The main concern was or is centered on Argentina's possibilities of honoring its debts, capital and interests in 2009. This was particularly exacerbated since commodities prices begun falling internationally which could have an impact on the revenue generated from grain and oilseed export duties, the high level of government expenditure and the persistent manipulation of inflation indexes by the official statistics office, Indec. Furthermore last month the risk rating agencies Standard & Poors and Moody's downgraded Argentina's debt rating. According to Daniel Volberg, who is credited with the joint report, since 41% of Argentina's 150 billion US dollars debt is linked to the inflation index, there were growing concerns about the willingness of the Argentine government to comply with agreements. But Volberg also points out that Argentina authorities still have margin and concerns are "exaggerated". Apparently the banking system has savings totaling 10 billion US dollars, plus the 47 billion in international reserves at the Central Bank; pension funds can provide probably 3 billion US dollars through bonds' purchases and "the government could also proceed to begin cutting back on subsidies". In a crisis scenario with soy falling another 30%, the Argentine economy expanding 4.7% and inflation at 23%, the primary surplus would still be equivalent to 9 billion US dollars, which means "only 2.1 billion US dollars short of capital and interest for 2009". UBS Javier Kulesz is quoted saying that markets "over reacted" and "default considerations excessive". Actually default is not an option because it would be "associated with the collapse of the Kirchners' development model and their own political future". "It is an extended belief among Latin American leaders that the idea of a strategic default is closely linked to the political death of whoever sponsors it or can't avoid it", said Kulesz