巴黎银行-拉美地区-投资策略-阿根廷：熊市观点和长期保护策略强化-20181213-14页_585kb

Argentina: Bearish View and Long Protection Strategy Reinforced

Core Content Overview

This document provides an in-depth analysis of Argentina's current economic and financial situation, focusing on monetary and fiscal dynamics, debt maturities, and the implications for the financial system. The report is authored by Banco BNP Paribas and outlines the risks associated with the country's monetary policy and its impact on inflation, liquidity, and financial stability.

Main Points and Key Findings

Monetary Dynamics and Systemic Risks

• Monetary Base Target: Argentina shifted its monetary policy regime to target zero growth in the monetary base, aiming to anchor inflation expectations.
• M3 Growth: Despite the monetary base remaining stable, M3 (a broader monetary aggregate) has shown unsustainable growth, rising 56% year-over-year.
• Leliqs Mechanism: The central bank (BCRA) is using Leliqs (short-term liquidity instruments) to meet reserve requirements, rather than using pesos. This has led to a significant increase in Leliqs as a percentage of total deposits, from 7% to 30% since July 2018.
• Time Deposits: A large portion of M3 growth is attributed to time deposits, which are being used to fund Leliqs. This shift is not benefiting the private sector, as credit growth has slowed, and the central bank is increasingly relying on Leliqs to maintain liquidity.
• Systemic Risk: The reliance on Leliqs creates a potential systemic risk, especially if there is a sudden reversal in deposit behavior or a disorderly capital flight. The country's international reserves are estimated at less than USD15bn, which could be insufficient to meet the demand for dollarization.

Fiscal Implications

• Quasi-Fiscal Deficit: The increase in Leliqs has led to a rise in the quasi-fiscal deficit, estimated at ~2.5% of GDP, which is not officially reported.
• Primary Fiscal Balance: While the primary fiscal balance appears to have improved due to increased property income and capital revenues, these gains are largely due to non-core factors such as state-owned bank profits and government revenue from loans to provinces and retirees.
• Net Property Income: When property income is excluded, the primary fiscal deficit remains high, with an improvement of only 9% year-to-date, not the 33% suggested by including it.

Debt Maturities and Roll-Over Challenges

• Critical Debt Maturities: December 2018 and March, April, May 2019 are highlighted as critical months due to significant USD and ARS debt maturities.
• Total Debt Maturities: Around USD9.4bn in Letes (short-term government debt) will mature within the next 90 days, with USD5.2bn in dollars. By June 2019, USD20bn of Letes will mature, USD12.2bn of which is in dollars.
• Roll-Over Risks: The government and IMF expect a minimum 60% roll-over ratio, but there are risks of lower roll-over and higher interest premiums, especially ahead of the presidential elections in October 2019.
• Interest Payments: Interest payments alone are projected to reach USD12.1bn by Q4 2019, with 70% related to hard currency debt.

Economic Outlook and Recommendations

• Bearish View: The report reiterates a bearish outlook for Argentina, citing the lack of sustained economic growth and the risks associated with the current monetary and fiscal policies.
• Long Protection Strategy: It reinforces the recommendation for a long protection strategy, including a 5-year CDS (Credit Default Swap), to hedge against potential risks.
• Policy Continuity: The authors expect increased downward pressure on the ARS and potential inflation risks if policy continuity is not maintained.

Key Figures and Tables Summary

• M3 Growth: 56% year-over-year.
• Leliqs as % of Deposits: Increased from 7% to 30% since July 2018.
• International Reserves: Less than USD15bn, which may not be sufficient to meet potential capital flight demands.
• Debt Maturities (2018-2019):
  • December 2018: USD8.4bn
  • March 2019: USD3.3bn
  • April 2019: USD4.9bn
  • May 2019: USD4.6bn
  • Total by June 2019: USD20bn
• Quasi-Fiscal Deficit: Estimated at ~2.5% of GDP.
• Interest Payments by Q4 2019: USD12.1bn, with 70% related to hard currency debt.
• Roll-Over Ratio: Expected to be at least 60%, but risks of lower ratios and higher premiums exist.

Conclusion

The report highlights the growing risks in Argentina's monetary and fiscal environment, particularly the unsustainable growth of M3 due to the reliance on Leliqs and the potential for a sharp rise in inflation and financial instability. It underscores the importance of maintaining policy continuity and suggests that investors should adopt a long protection strategy to mitigate these risks. The upcoming presidential elections are seen as a key factor that could influence the financial landscape, with potential for increased capital flight and reduced liquidity.