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Argentine default fears will not subside this year

Thursday, July 4, 2019

Significance

Despite exchange rate stabilisation in the last two months, the country risk premium had remained above 800 basis points since early April, reaching a peak of 1,008 on June 3. This reflects investor fears of a new sovereign debt default after 2020, when IMF financing will not be enough to cope with a burdensome debt-service schedule.

Impacts

  • Default fears could prove self-fulfilling if a sell-off of assets drives currency depreciation and a deeper recession.
  • The 2020 financial programme is optimistic; if fiscal and debt rollover assumptions are not met, restructuring will become more likely.
  • Though Fernandez has promised to honour sovereign debt, an eventual restructuring involving longer maturities seems likely.
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