Argentine markets soar after announcement of debt agreement with IMF

By Walter Bianchi and Hernan Nessi

BUENOS AIRES, Jan 28 (Reuters) – Argentine markets closed with significant improvements on Friday, encouraged by the announcement that the country had reached an agreement with the International Monetary Fund (IMF) to restructure a debt of some 45,000 million dollars, although traders remained cautious about the future.

After the confirmation of the agreement, carried out by the Peronist president Alberto Fernández and ratified by the IMF, the asset market soared and the exchange pressures that sank the Argentine currency dissipated.

“We had an unpayable debt, which left us without a present and a future, and now we have a reasonable agreement that will allow us to grow and meet our obligations through our growth,” Fernández said in a television message.

For his part, the Minister of Economy, Martín Guzmán, explained that the deal, with a duration of two and a half years, involves a “gradual” reduction of the fiscal deficit so that it reaches 1.9% of the Gross Domestic Product in 2023 already 0.9% by 2024, while forecasting that international reserves will grow by 5,000 million dollars in 2022, without any exchange rate jump.

Analysts consulted did not doubt the benefits of the agreement but were cautious for the medium term.

“The macrofinancial picture shows deep imbalances and pervasive distortions that make a gradual policy tightening strategy inherently risky,” said Alberto Ramos of Goldman Sachs & Co.

* The country risk prepared by the JP Morgan bank fell 63 units, to 1,841 basic points towards 2000 GMT, after marking a historical maximum level of 1,969 units at the beginning of the week.

* “Argentine President Fernandez’s announcement that the government has reached a new agreement with the IMF, the 22nd in its history, will provide some relief to international bondholders in the short term,” Capital Economics said.

“This is just the beginning of a long journey to correct Argentina’s macroeconomic imbalances, and there are still many things that could go wrong in the coming years,” he added.

* Sovereign bonds in the local over-the-counter market gained an average 5.8% led by dollarized issues given their attractive returns, operators commented.

* “Today’s announcement is undoubtedly an advance, since it implies an agreement on the main macro pillars of the program and clears up short-term doubts about a default,” commented Roberto Geretto of Fundcorp.

“For the medium term, it runs the risk of serving so that the macro does not destabilize, but being too ‘light’ to radically change expectations. In short, agreeing with the IMF is a necessary but not sufficient condition to resolve macro imbalances “, he claimed.

* The peso in the informal or “blue” segment appreciated by a strong 4.71% to 209.5/212.50 per dollar, after marking the day before a historical minimum level of 220.5/223.5 units per dollar, traders commented.

* “The positive initial reaction was also present among the financial and free dollars, which exhibit a moderate contraction after the upward readjustment as a result of the uncertainty,” said the economist Gustavo Ber.

* The peso in the informal segment trades with a worrying exchange rate gap of 102.70% compared to the official price.

* In the interbank segment, the peso depreciated a slight 0.07%, to 104.83/104.84 per dollar, with liquidity regulation from the central bank (BCRA), which had to part with some 80 million dollars of its reserves to supply the demand for foreign currency.

* The BCRA accumulated in the week foreign currency sales of its reduced reserves for about 190 million dollars, commented operators.

* In the alternative exchange segments, the stock market “cash with liquidation” (CCL) appreciated to 226.50 pesos per dollar and the “MEP dollar” quoted on the rise to 216.10 units.

* For its part, the stock market improved by 2.68%, to a provisional closing of 88,269.83 points in its leading index S&P Merval, with which it accumulated an increase of 5.56% in the week. The improvement was led by well-liquid companies in the financial and energy segments.

* “The improvement of the Merval is “cushioned by the contraction of the implicit exchange rate since the main ADRs of banks and energy companies exhibit higher rallies,” explained Ber.

(Reporting by Walter Bianchi; Editing by Lucila Sigal)

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