MercoPress. South Atlantic News Agency

World Bank warns of “great uncertainty” in Argentina; policy corrections needed

Augusto de la Torre, World Bank’s chief economist for Latin America

The death of former Argentine President Nestor Kirchner creates “great uncertainty” in South America’s second-biggest economy and a rally in stocks and bonds may have been unwarranted, the World Bank’s chief economist for Latin America said.

Augusto de la Torre, in an interview in Chile, said he does not know why stocks and bonds in Argentina rallied following Kirchner’s death of a heart attack on Oct. 27.

“The political dynamics following the death of Mr. Kirchner is a subject of great uncertainty,” he said when asked about the market rally. “Financial markets have been known to react quickly on little information.”

Bonds and stocks rallied last week on speculation the opposition could win next year’s presidential elections and reverse policies that curtailed foreign investment, kept the country out of foreign debt markets and led to the world’s third-highest inflation rate. Kirchner handed power to his wife, Cristina Fernandez de Kirchner, in 2007 after battling investors during the country’s 95 billion US dollars debt restructuring.

Yields on dollar bonds due in 2033 fell 50 basis points to 8.96 percent the day of his death, the biggest decline since June 18, according to JPMorgan Chase & Co. The Merval Index rose 3% in the two days following his death to a record 3,007.41. The volume of shares trading hands the day after he died was the most in two years.

Argentina must implement “important, but not tectonic” policy corrections to ensure sustained growth, de la Torre said. These include adjusting energy prices to attract new investments, he said, citing analysts.

“At least in some activities, particularly in agriculture for exports, Argentina is in a process of important modernization where further innovations can happen and could sustain long-term growth,” he said.

Argentina’s economy has rebounded faster than many of its neighbors from the global financial crisis as a result of record soy crops and higher domestic consumption. The International Monetary Fund forecasts the economy to expand 7.5% this year, matching the pace of growth in Brazil, according to an Oct. 19 report.

De la Torre was in Chile to present a report on how Latin America and the Caribbean can use natural resources to sustain economic growth. The region as a whole has improved fiscal and monetary policies, he said.

“We have opened a space for us to start discussing long- term growth because we have to some extent made quite a bit of progress on that macro vulnerability side,” he said.

De la Torre was Ecuador’s central bank president from 1993 to 1997. He worked at the IMF from 1986 to 1992 and has been at the World Bank since 1997. He earned his doctorate in economics from the University of Notre Dame in South Bend, Indiana.