Argentine Congressional Vote Paves Way for Re-introduction to International Credit Markets

Argentina’s Senate has lifted one of the last hurdles to allowing the country access to international credit markets for the first time since 2001.

On Thursday, the Argentine Senate voted 51 to 16 for President Mauricio Macri to issue $12 billion in bonds, $4.65 billion of which will be used to pay U.S. hedge funds and end a years-long legal dispute, according to the Wall Street Journal.

Barring further legal barriers in U.S. courts, the vote will mean that financially struggling provincial governments and companies in Argentina will have access to desperately needed credit from abroad.

The lawsuit with U.S. creditors caused Argentina to default on its debt for the second time in 2014–the country had to pay about 9% to borrow money, which is about twice what neighboring nations have had to pay, the WSJ notes.

Having access to international credit markets comes at a fortuitous time for the South American country, as some economists anticipate the new political administration seeking more market-friendly regulations is likely to jump-start the economy in the near future.

According to a Wells Fargo report released today, Argentina’s GDP grew by 2.1% in 2015, though the economy struggled in the fourth quarter, posting a 0.9% growth rate in a preliminary reading.

Wells Fargo senior economist Eugenio Aleman cautions that this preliminary reading is likely to see significant revision after the results for the first quarter of 2016 are released at the end of June. That’s because “Argentina’s statistical institute is in the process of fixing all of the data issues left by the previous administration, which means the revisions are expected to be important,” Aleman wrote in the report.

Overall, commerce output increased just 1.3% in 2015. Agriculture and the cattle sector saw the strongest increases in 2015 with a growth rate of 6.4%, but it saw a 2.9% decline in the fourth quarter, Wells Fargo said. Still, the country’s new administration is expected to lower taxes on agricultural exports this year.

“Thus, expect a very strong performance by this sector as well as for exports during 2016,” Aleman said.

Argentina’s construction sector also showed strongly in 2015 with a 5% growth rate and Wells Fargo anticipates a boom in construction this year “as restrictions and regulations on real estate transactions are eliminated.”

- Nicholas Stern, NACM editorial associate

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