Argentina CDS update by jbchevrel, December 13, 2021
Emerging-market CDS have been scrutinized ahead of a Dec 15 FOMC which market participants expect like another hawkish turn, relative to 20/21policy. The weakest balance sheets are the most vulnerable, and today Argentina 5-year CDS widened +1pt to 50.75%. it had tightened more than -5pt in the previous ~10 sessions. Last Friday, after our € close, an IMF statement on Argentina was published. The IMF teams acknowledged the stronger-than-expected rebound in economic activity and investment this year, and the importance of a policy framework to sustain the recovery. It seems that the IMF is prepared to accept gradual adjustments, but it will require shifts in both monetary and fiscal policies in Argentina. The statement also suggests that it may take some time until the IMF and the Argentinian government agree on what needs to be done. The statement noted that “Tackling persistent high inflation requires a multipronged approach involving a reduction of monetary financing of the fiscal deficit, appropriate monetary policy with positive real interest rates.” This also holds true out of Argentina, although that’s not in the statement. Furthermore, the IMF assessed that Argentina needs to pursue policies to build international reserves, including by encouraging foreign direct investment and exports, which grew this year. On a positive note, the IMF noted progress was also made on steps to develop the domestic capital market, increase the effectiveness of public spending, and improve monetary policy operations.