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Should Argentina Be Welcomed Back by the Capital Markets?

Porzecanski, Arturo C. (2010): Should Argentina Be Welcomed Back by the Capital Markets? Forthcoming in: University of Miami Center for Hemispheric Policy Perspectives on the Americas

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Abstract

Argentina has been making its way back to the international capital markets after being shunned for almost a decade following a catastrophic default and devaluation. The question of whether financial intermediaries and institutional investors in the U.S. and Europe should welcome Argentina back to the global capital markets is certainly relevant –- especially for those with short memories who may be tempted by the high yields on offer to rush in without a full understanding of the significant risks involved. At first sight, it would appear that Argentina has come a long way from its troubled past: it has recorded major gains in real GDP, employment growth, and various financial ratios that usually buttress creditworthiness (e.g., tax revenues, export earnings and international reserves). However, it would be naïve to rush to the conclusion that Argentina is a creditworthy or relatively safe place in which to invest. Notwithstanding an impressive economic recovery, the country’s ability to service its financial obligations remains quite limited, and the government’s attitude toward official and private creditors, as well as toward court judgments and arbitral awards, remains one of contempt. The country is ranked uniformly low in various measures of the business climate, competitiveness, transparency, corruption and economic liberty. Therefore, Argentina –- including its sovereign, sub-sovereign and most corporate issuers –- is classified correctly as a very risky, single-B credit by the leading rating agencies. Indeed, the country remains an outlier in the community of nations. It is the only nation in the G-20 group of countries that is in protracted default on its financial obligations to its fellow members. It is the only country in the G-20 that refuses to abide by its treaty obligations to the International Monetary Fund. It is the only member of the G-20 to have received a "thumbs down" from the leading governmental organization that sets and monitors standards to combat transnational financial crimes. And it is the G-20 member with by far the most investor claims against it in the world’s premier dispute resolution center.

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