Home' Trinidad and Tobago Guardian : January 1st 2015 Contents JANUARY 2015 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
REGIONAL | BG17
Bad economic ideas will start to catch
up with Latin America in 2015. For four
years, the region has seen growth rates
below the world average. The IMF predicts
that won t change any time soon. Yet while
most Pacific-facing countries will shine,
Brazil, Argentina and Venezuela will suffer.
With a couple of exceptions, misguided
policies are finally coming home to roost.
Though the past four years have been
humdrum, believers in free-market eco-
nomics gritted their teeth for several years
from 2007 to 2011, as Latin America s
growth in GDP of around 3.8 per cent
topped global growth rates.
Argentina under Nestor Kirchner and
his wife Cristina Fernandez, Evo Morales
Bolivia, and Rafael Correa s Ecuador are
among the economies that grew more rap-
idly than the rest despite unorthodox poli-
Conversely, the economically careful if
institutionally rigid Mexico grew at only
1.8 per cent, while Chile, the continent s
star, merely matched the region s average
growth. Only Peru of the more market-
oriented economies significantly outper-
formed the continental average.
Next year should mark a decoupling of
the unorthodox from the conventional.
While Latin America as a whole is expected
by the IMF to grow by 2.2 per cent, lagging
the world s average 3.8 per cent, the Argen-
tine and Venezuelan economies will both
shrink. Brazil, where state-meddling Dilma
Rousseff won a second term, will grow at
only 1.4 per cent, as she continues to adopt
free-spending budget policies and the
country finds it more expensive to bor-
Conversely the generally market-friendly
quartet of Pacific Alliance nations, Chile,
Colombia, Mexico and Peru, ought to
shine, with Juan Manuel Santos Colombia
and Peru---under surprising President
Ollanta Humala---ahead of the regional
In the case of Argentina and Venezuela,
bad times seem likely to worsen, as both
governments are entrenched and the
money is running out, with Argentina hav-
ing defaulted, at least technically, and
Venezuela on the verge.
Notable exceptions among the region s
socialist-leaning states are Ecuador and
Bolivia, which the IMF also sees outpacing
The fly in the ointment may be falling
energy prices, which could force both to
curtail outsized public spending. And
though weakening demand for commodi-
ties will also affect Colombia, Peru and
Chile, their more conservative budget poli-
cies can better withstand further declines
in energy and metals prices. In Mexico,
the recent breaking of logjams in energy,
telecoms and education may begin to bear
fruit in the coming year.
Overall, 2015 will be a divergent one for
Latin America s economies. But the lessons
learned should propel the region to more
consistent and sustainable growth in the
Martin Hutchinson is a Reuters Break-
ingviews columnist. The opinions
expressed are his own.
Crunch time for Argentina fixing
its debt default will almost
certainly not be January, as
many investors had hoped, but
a year later once the country s
next president takes office and
tries to get the ailing economy moving again.
The South American country is locked in
a battle with a group of US hedge funds over
unpaid debt. Despite a US court order to fully
repay the US$1.3 billion debt plus interest,
Argentina insists the hedge funds accept
The standoff has put a chokehold on invest-
ment in Argentina as the economy stagnates
under the weight of tough trade and currency
In July, Argentina tipped back into default,
as President Cristina Fernandez vowed never
to pay the face value of the bonds to the funds
she derides as "vultures". The funds, in turn,
have declined her offer of payment under
terms of the bond swaps that followed Argenti-
na s record default in 2002.
The debt restructuring contract contains a
clause that Fernandez has invoked to refrain
from hiking the payment offer. Expiration of
the RUFO clause on Dec. 31 would allow her
to boost the offer in 2015, but she remains
opposed to the idea.
That leaves Argentina s presidential election
in October as the next likely turning point in
the decade-long dispute, as the constitution
prohibits Fernandez from running for another
"They said that after the RUFO clause was
no longer an issue on January 1 we would run
back to talks. But these vultures are losing
their feathers," Fernandez told thousands of
supporters shortly before the Christmas hol-
"And you know what, I reckon they re going
to end up looking more like clowns than vul-
tures," she said in a speech laced with frothy
Since the July default, government inter-
vention in the economy has reversed a sharp
weakening of the black market peso and shored
up foreign reserves. This could give Argentina
enough financial flexibility to limp through
until the October 25 vote.
While an attempted dollar bond top-up
flopped this month, it underlined Argentina s
willingness to pay a high price to ease a liquidity
crunch rather than settle with the funds.
Some believed Fernandez s unwillingness
to negotiate may be posturing ahead of the
RUFO clause s expiry in a bid to force con-
cessions from the holdout investors led by
billionaire Paul Singer s NML Capital Ltd and
Aurelius Capital Management.
But a source in the economy ministry who
asked not to be named said: "Nothing is going
to change on January 1, nor on January 2. Or
the 3rd. Or the 4th."
So expectations for a settlement have shifted
to after a new Argentine president is installed
in December 2015.
"No deal with holdouts under Fernandez.
Soonest is the next administration," said Siob-
han Morden, head of Latin America strategy
at Jefferies. "It would have to be a crisis to
motivate (her) and even then I m not sure she
wouldn t try to find other alternatives to avoid
Next government's problem
Wall Street views the front runners, Daniel
Scioli, Mauricio Macri and Sergio Massa as
more market-friendly than Fernandez and the
holdout investors may be tempted to hunker
down and wait for the new administration.
All three aspirants favor a deal to revive
investment. But they have been cautious about
criticising Fernandez, since many voters agree
with her view that the funds are out to cripple
the Argentine economy in pursuit of huge
Another factor is the US judge at the center
of the courtroom battle and his appointed
Judge Thomas Griesa appears to have few
means to force Argentina to obey his orders
even after the RUFO clause expires. He has
already ruled Argentine in contempt, to little
But he has authorised mediator Daniel Pol-
lack to grant a seat at the negotiation table
to other investors who spurned the 2005 and
2010 bond swaps. This could mute Argentina s
argument that it must settle with all holdouts
and not one small group.
If Argentina is seen as dodging negotiations,
it faces the risk of exchange bondholders
demanding the accelerated payment on the
principal and interest due on their invest-
Still, bondholders may hesitate in pulling
the trigger. An acceleration could leave the
country facing claims of up to US$30 billion,
almost all its foreign reserves. This would
hugely complicate efforts to put its decade-
long debt woes to rest.
"It is not clear who is going to blink first,"
said Stuart Culverhouse, head of research at
Exotix, a frontier markets broker in London.
"It therefore probably becomes the next gov-
ernment s problem."
Bad ideas catching
up with Latin
America in 2015
Argentina's debt crisis seen
rumbling on until 2015 election
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