Forget steak and wine: is debt Argentina's new delicacy? Matthew Hardeman reports
Argentina issued a 100-year dollar-denominated bond this week - a highly unusual move for an emerging market, and a remarkable turn of fortune for a country that had been fighting investors since it defaulted on $100 billion of debt obligations in 2001.
The bond - of which $2.75 billion has already been sold - marks a bullish step for a relatively new and market-friendly administration in Buenos Aires, which joins only a handful of sovereign borrowers that have issued century bonds. The issuance also suggests a renewed enthusiasm for emerging markets securities more broadly.
Most unusual perhaps is the presumption of political change forecasted within the move. While President Mauricio Macri’s appointment has enticed international investors with his pro-business, reformist agenda, Argentina isn’t out of the woods yet: the country only removed currency controls in 2015 and has yet to secure an investment-grade rating (the ratings agencies currently the country a single B rating).
Argentina has defaulted on its debt eight times since 1816 (the 2001 default being the world’s largest at the time), a regularity that should put things into perspective for the uninitiated investor. It issued $16.5 billion of debt in a landmark return to the market in April last year, after Mr Macri agreed a deal with creditors, who refused to sign off on a restructuring of the defaulted debt.
With a yield of just under 8 per cent, buyers will reclaim any investment in approximately twelve years, while an improvement in Argentina’s fortunes could easily see the yield fall as the price rises.
Finance minister Luis Caputo insisted the sale could only be made possible by renewed confidence in Argentine credibility: ‘We are closer to countries like Belgium or Mexico [both states have issued century bonds] than Venezuela,’ he said. ‘It is a hallmark of confidence not only in this administration but also in the future of the country.’
What kind of country will Argentina be in 100 years’ time though? (And does it matter when you’re making your money back after twelve years?) It's tough to make predictions, especially about the future, as Yogi Berra once said – but discounting the radical shifts that will inevitably occur over a full century, Argentina is looking good by Latin American standards. It has made progress compared to many of its neighbours, which remain saddled by populist fervour, corruption, kleptocracy and myriad other economic lethargies: enough progress in the eyes of investors for the government to issue a 100-year bond at least.
Let’s not forget that Argentina is also one of the most fertile, resource-rich nations on earth, as well as being one of the inherent powers of Latin America: a continent that increasingly benefits from its isolation from the kind of geopolitical threats becoming abundant elsewhere. Meanwhile, Argentina’s young, growing population have created investors hungry for its debt – even debt that takes a full century to mature.
For Buenos Aires, the stage seems set for remarkable progress in the years ahead. The challenge lies with its promise to avoid the spectacular defaults that have plagued it in the past – and its foray into the future as a reformed, investor-friendly gateway to a corner of the globe.
Matthew Hardeman is Senior Researcher at Spear's