A few days ago, in the aftermath of Argentina's shocking devaluation announcement, we showed the one most important chart [8]for the future of that country's economy: the correlation between the value of the Arg Peso and the amount of Central Bank foreign reserves, both crashing. And as we predicted when we, before anyone else, started our countdown of Argentina's reserves [9], once the number hits zero it's game over for the Latin American country. Or rather, game over again, considering the number of times in the past Argentina has defaulted. Unfortunately over the past week, things for the Central Bank have gone from bad to worse and were capped overnight with the following headline:
- ARGENTINE CENTRAL BANK SAYS RESERVES FELL $170M TO 28.1B TODAY
And this is what Argentina's reserve depletion looks like:
[10]
To summarize: Argentina has now burned through $2 billion in less than two weeks, the fastest outflow since 2006, and a trend which if sustained (and we see no reason why it would change), means it has just over half a year left of reserves projecting a linear decline. However, since the lower the amount of reserves, the faster the withdrawals will come, it is safe to predict that the endgame for Argentina will come far sooner, just as its suddenly crashing bonds [11]seem to have realized.
Which is perhaps why, as Argentina's La Nacion reports [12], the country is suddenly, and long overdue, scrambling to raise $10 billion to "counter the flight of capital" from the country.
Alas, it just may be too late.
According to the website, Argentina's economy minister Axel Kicillof secretly approached international banks, the same one he has been criticizing over the past months, with a simple request: please give me $10 billion. Alas, considering the country's track record of "honoring" its debt repayment promises, not even promising the required interest rate of +? will do much to generate interest in this particular offer banks can not refuse. Or, rather, can and will.
From La Nacion, Google translated [13]:
Nacion reporters say that the meeting was held in strictest confidence, just in the days before major upheaval in the exchange market. When asked about it, the Economy Ministry spokesman did not confirm nor denied the information, in ABA did not respond to calls from this newspaper.
It is imperative for Argentina to get the dollars that can counter the flight of capital, which in January alone cost the Central Bank (BCRA) U.S. $ 2.499 billion of its reserves. It was the biggest drop since 2006, when the country repaid its entire debt of more than U.S. $ 9 billion to the International Monetary Fund (IMF).
The minister confided bankers requesting leave to look for dollars abroad, either by issuing new debt or through commercial credit lines that banks could get. Some entities, according to sources consulted by the NATION, and would have set to work to organize a tour to Kicillof investment to New York this month.
In other words, Argentina will be meeting Goldman shortly. So, in the aftermath of the Denmark Dong affair, we can probably expect another government "overhaul" in a few months, mediated by everyone's favorite vampire squid who is about to make Argentina an offer it can't refuse. Or maybe even Goldman won't touch this any more:
The order of Kicillof, noted the sources, was debated this week between ABA bankers. Although they pledged to work in private they also recognized that it will be difficult in the current context for Argentina to access fresh funding at a reasonable rate of interest and, especially, in the amounts the Government needs, somewhere around U.S. $ 10,000 million.
It gets worse:
In addition, they assert, although the Government intends to solve their conflicts with the Paris Club and Repsol, the devaluation of 18.6% recorded in January, the highest in the last 12 years, quite complicated negotiations, and that sowed new doubts about the ability to repay debt Argentina.
Yes, well, losing 20% of your investment "gains" overnight due to an arbitrary decision by the government does kinda make one want to invest in said government for a bit to quite a bit. As for the inflationary panic that has already gripped the country, and which we already commented on [14], well - it's only just begun.
Still, all of the above is largely expected, and was perfectly predictable by anyone not caught up in overconsumption of hopium pills, or having their head stuck in the sand of denial. The one thing we did learn is something which will soon make the front pages of all serious media publications around the globe.
After sharp declines in recent weeks, a sovereign dollar bond Bonar 17 yielded 16.2% yesterday.... Several weeks ago Kicillof announced his intentions to return to the debt markets. The National Social Security Administration (Anses) began in early January to sell their bonds in the market Bonar 18 to contain the escalation of the "dollar bag" on one hand, but also to begin to make a curve in the medium term rates.
Curious what the BONAR is? Courtesy of this handy glossary of Argentine financial terms and acronyms [15], we now know that it is the formal name of an Argentina dollar-denominated bond issued under domestic law. Or, as in the case of Greece, precisely the instrument that will quite soon be crammed down due to non-existent covenant protection for creditors.
In other words, in a worst case for Argentina scenario, watch as hundreds of millions of BONARs suddenly deflate to nothing in a bidless market.