Argentina must take advantage of the exaggeration of the markets after the PASO

The week following the elections PASO in Argentina were a true "black swan", as the events of very low probability and high impact are called, for the financial markets and for the real economy. For many millennial traders it was the first market crash they experienced beyond books and anecdotes. On the other hand, those fundamentalists who sustain the divorce between the financial markets and the real economy were surprised to hear how suppliers and customers entered a stand by until there were some certainties about the future.

The high impact and the low probability that was assigned to a similar fall in capital markets was summarized by stating that, statistically, if the returns of public securities followed a Gaussian distribution, this was an event of 4 standard deviations, that is to say , that there was a 99.994% chance that it doesn't happen or a 0.006% chance that it will happen, as it finally happened. More serious was the loss in equity (shares), where the fall was 48% and there was an event of 17 standard deviations.

As if that were not enough, the panorama of confusion that reigned the days after that black Monday deepened when the rating agencies Fitch and S&P lowered the rating of the Argentine debt, going from B (speculative investment) to CCC (investment with substantial risk), stirring up the rumors of default and placing it in the same "club" as Congo, Gambia, Turkmenistan or Zambia.

Now, it is clear that the market reacted to an electoral expectation that it had at the time of closing the prices of the Friday before the elections, but there is no objective change in the macro variables and the "fundamentals" that support such a fall in value.

If the market exaggerated before the electoral results, Argentina is faced with an incredible opportunity to take advantage of it. It only takes consensus and strong leadership to carry it forward.

Argentina's external debt was –to 31/3 / 2019– of 324,898 million dollars, representing 88.5% of GDP. 35.9% of these commitments are in the possession of public sector agencies, 45.3% in the private sector and the remaining 18.8% in multilateral credit organizations.

The loss of value of Argentine securities constitutes an opportunity for repurchase by the national government in order to liquidate its own debt, improve its maturity profile and send a clear signal to the market. This is not new: a similar repurchase was already made in 2008, and in these days some companies announced the repurchase of their own shares taking advantage of the fall they had experienced.

Within the category of multilateral credit organizations, the IMF is the one that concentrates the greatest amount of credits. This is the only creditor that has real incentives to accept a refinance, since Argentina is its main debtor, and the impact of a refinancing on international organizations is significantly less than a debt restructuring in the hands of the private sector.

Debt maturities held by private parties (the most difficult to restructure and with the greatest impact) fall 34% in 2019-2020, 21.7% in the period 2021-2025, 31.3% in 2026-2035, and 13 % as of 2036. This implies a large concentration of maturities (51.7%) in the next 5 years, mainly for the Bonar 2020 (AO20) and the Bonar 2024 (AY24).

A negotiation with the IMF that allows access to a PPL (precautionary and liquidity line) assistance could be used to repurchase these securities, sending clear signals to the stabilization market, that is to say that "the floor was touched", and at the same time repurchasing the considerably cheaper debt.

An agreement with the IMF of these characteristics, including the deferral of its own maturities, could be made within six years according to the fund's manuals. The result is a win-win solution, since the worsening of Argentina's financial situation would not only affect the IMF because it is its main debtor, but the possibility of a contagion effect on other emerging and emerging markets has not yet been analyzed. border.

In this way, Argentina would liquify its debt, improve its maturity profile and send a signal to the blunt market. The IMF would ensure that its main debtor does not have incentives to breach its commitments and eliminate the risk of contagion to other markets. While the real economy would perceive signs of stabilization to be able to continue with its level of activity.

One last qualitative reflection. The results of the PASS left Alberto Fernández a few meters from the Rivadavia armchair, but the markets reacted as if the candidate with more votes had been the North Korean Kim Jong Un. It is clearly an exaggeration without any solid foundation as the foundation. Argentina learned that defaults only bring greater difficulties. It is only a matter of political decision and take advantage of the moments-moments of market irrationality.

The author is a lawyer, a graduate in Finance and works as a consultant. He previously served as director and vice president of Banco Chubut SA, deputy secretary of the province of Chubut, councilor of the city of Trelew and business advisor.