Analysts Weigh Chance of Argentine Default

Argentina may be doing well in the World Cup, but a survey by RBC shows clients believe it is the second most likely G20 country to default on its sovereign debt, after Italy. Although RBC says the prospects of another moratorium are relatively low, almost one-third of respondents place the odds of this occurring at 50% or more. The study polled 440 senior executives from around the globe last month on their outlook for the future of capital markets, and Mexico was also highlighted as a risk. Respondents included 229 senior executives from commercial and investment banks, hedge funds and private equity firms and 211 executives from non-financial companies active in capital markets. Separately, Morgan Stanley believes Argentina will be able to meet its financing needs over the next 18 months, even if the global economy relapses. The shop explains that if the world were to experience a downturn similar to that of 2008-09, fiscal deterioration would add about $12bn in financing needs over the next 18 months, which could put Argentina’s funding requirements at almost $32bn for 2010-11. However, it says that the government can count on the $29bn in excess reserves expected by the end of 2010, as well as $18bn in public sector deposits and the near $2bn-$3bn in potential debt purchases that local banks could make to make ends meet. Bulltick also considers an Argentine default highly unlikely to take place in the forthcoming years. It notes that the nation is immersed in economic acceleration, and funding options remain widespread. This should mean higher tax revenues, which coincides with an ample trade surplus, a large pool of external reserves, high enough public sector savings, and the fact that the government has the control of the pension savings of the country. Bulltick predicts GDP growth to be over 6.5% for 2010, higher than the central bank’s forecast of 4.5%.