LNG is simply natural gas that has been cooled to a liquid state so it can be loaded onto special ships and transported across oceans. For India, the world’s third-largest energy consumer and heavily reliant on imports, securing long-term LNG supply from Argentina matters strategically. It diversifies the Latin American country’s energy sourcing away from the volatile Middle East, where much of its current supply originates.

The contract was awarded by Southern Energy SA, jointly owned by Norwegian energy firm Golar LNG and Argentine oil producer Pan American Energy. APSEZ won the deal through a global competitive bidding process, partnering with Argentine firm Meridian Group. The two have formed a joint venture called Meridian Transportes Maritimos SA to carry out the work, backed by an estimated investment of USD 70 million.

In its first phase, the project is expected to produce 2.45 MT of LNG annually, equivalent to approximately 28 cargoes per year, making it Argentina’s first operational LNG export project.

Mr. Ashwani Gupta, whole-time director and chief executive officer (CEO), APSEZ, said, “This project reflects our growing capability to support large-scale energy infrastructure projects across geographies. With marine operations in 12 countries and a growing fleet of marine assets supporting ports, LNG terminals, national oil companies, refineries, and offshore facilities, we bring deep operational expertise to complex maritime environments. By combining these capabilities with strong local partnerships, we are helping create reliable maritime ecosystems that enable new energy trade corridors and strengthen long-term supply resilience.”

The team will handle all ship-related support needed to get LNG safely loaded and dispatched, including operating tugboats that guide massive tankers into and out of port, providing offshore supply support, and ferrying crew to and from the floating facility. Four specialized tugboats, one supply and anchor-handling vessel, and one crew boat will be deployed for the purpose.

The gas will be liquefied aboard a floating platform called the Hilli Episeyo, anchored in the San Matias Gulf off Argentina’s Patagonian coast. Commercial operations are expected to begin in September 2027, with the project initially producing around 2.45 million tonnes of LNG per year, equivalent to roughly 28 shipments annually.

The timing reflects Argentina’s broader economic ambitions. The Latin American country has been aggressively monetizing its vast Vaca Muerta shale gas reserves under market-oriented reforms, and this project is the first concrete result of that push reaching international markets.

Argentina already has agreements in place to export up to 10 million tonnes of LNG annually to India from 2027, making the Southern Energy project the opening chapter of a supply corridor that could reshape how the South Asian giant powers itself in the decades ahead.

The post Adani Ports secures marine services contract for Argentina’s first LNG export to India appeared first on International Finance.

With its abundance of natural resources, Argentina was undoubtedly one of the richest countries in the world a century ago. However, following the Great Depression, successive governments adopted unsustainable, populist spending plans that led to years of political and economic instability, exacerbated by corruption, record inflation, and the country’s designation as the largest debtor to the International Monetary Fund (IMF). The nation was crying out for change due to a suppressed economy and 27 million people, or 57.4% of the total population, living in poverty.

Enter Javier Milei, a libertarian, revolutionary professor of economics.

He declared, “We are the only political force with a specific plan to end inflation, unemployment, issues related to health, education, food, housing, and all the debts Argentine democracy owes the Argentines.”

What exactly is libertarianism?`

Libertarianism is defined as “a political philosophy that takes individual liberty to be the primary political value,” according to the Encyclopaedia Britannica. To put it another way, individuals are in complete control of their lives and are held accountable for their decisions.

“Private property, markets free from state intervention, free competition, and the division of labour and social cooperation, in which success is achieved only by serving others with goods of higher quality or at a better price” are the fundamental tenets upon which libertarianism is built.

Putting a radical concept into action

Javier Milei’s election manifesto centred on radical changes to end Argentina’s economic instability, including a complete overhaul of the state, a 15% GDP cut in public spending and tax cuts, the elimination of the central bank, and “dollarisation” of the economy to stabilise inflation.

He also proposed the closure or privatisation of state-run businesses and organisations that he claimed “serve as shelters for people receiving salaries without contributing meaningful work,” as well as a reduction in business red tape.

His anti-establishment rhetoric, which positioned him as an outsider, struck a powerful chord with the disenchanted electorate, particularly those living outside major cities, who felt ignored by the political establishment and were tired of the status quo and the legacy policies of former President Juan Perón.

They regarded Milei’s promises of radical economic transformation and his pledge to overthrow a “corrupt and inefficient state” as a ray of hope against skyrocketing inflation and falling living standards. His support varied demographically, even though he defeated his closest opponent by a margin of 55.7% to 44.3% and won in 21 of the 24 provinces.

With the most support from younger men and significant backing from middle- and upper-class voters, his libertarian, free-market views were especially appealing to younger voters who thought the current economic crisis was endangering their future. However, his socially conservative views on abortion and other matters worried many women voters, who were less sympathetic.

Has much changed in a year?

Regrettably, not quite yet. No star will be born and no miracle will happen overnight, no matter how bold the claims are. Economies are not like Broadway shows. However, a few days after taking office, Milei got to work addressing Argentina’s financial issues and shrinking the state, which he believed were essential to reaching his objective of a budget surplus.

He lowered state subsidies for transportation and gasoline, cancelled all new public works contracts, terminated 30,000 public jobs, depreciated the peso by 54%, and trimmed the number of cabinet departments from 18 to 9. This led to the first budget surplus since 2008, at 275 billion pesos ($284 million) in Q1 2024, or 0.2% of GDP. As of the time of writing, Argentina has had a government budget surplus every month of 2024.

Additionally, the IMF has provided $4.7 billion in loans to assist these budgetary measures, even though Milei has had to temporarily back down on his election pledges to dollarize the economy and dismantle Argentina’s central bank. Investor confidence has been bolstered by this turn to more conservative economic policies, as evidenced by the 7% increase in Argentina’s international bonds due in 2041 that followed his victory and the 60% rise in index-level bonds by March 2024.

Austerity measures and currency depreciation have contributed to the economy’s continued decline into depression. Milei did caution that things would probably get worse before they got better when he took office, and despite these seeming early victories, he has nonetheless had a difficult first year. Even with consecutive monthly declines, the core inflation rate is still more than 200%, having peaked at 300% in March 2024.

Over 60% of Argentines now live in poverty, up from 41.3% in the second half of 2023, according to the Instituto Nacional de Estadística y Censos República Argentina (INDEC).

According to August 2024 figures, the cost of a total basic basket (CBT), which includes food and non-food essentials, has increased by 230.1% year-over-year. As if that weren’t enough, government data released in September revealed a third quarterly drop, further contributing to the economy’s decline into depression as a result of the currency devaluation and austerity measures.

Argentina has witnessed severe social upheaval, occasionally involving violence, mostly from left-wing parties and marginalised people who are frustrated with Milei’s cuts to welfare programmes and the closing of public agencies like the official news agency. Continuous opposition challenges, however, are not entirely the fault of Milei and his initiatives.

The largest obstacle to his intended reforms has been the opposition of adversarial politicians in both houses of the Argentine government. Although he garnered a sizable majority of the presidential vote, his party, La Libertad Avanza (LLA), only secured seven of the Senate’s 72 seats and 15% of the Chamber of Deputies’ seats.

He bypassed the Chamber of Deputies and expedited the measures he believed were needed to “consolidate economic stability” by issuing an emergency decree (DNU 70/2023) ten days after taking office in December 2023, while Senate confirmation was still required.

Deregulation of energy, transportation, healthcare, and other sectors; the elimination of price controls; the removal of workers’ rights (including the right to strike); and the facilitation of the privatisation of state-owned companies were among the more than 300 legal revisions included in the decree.

Along with a strong legal and political backlash, this led to widespread voter protests. Javier Milei claimed that senators were more focused on safeguarding their own interests than advancing Argentina’s chances when the Senate rejected DNU 70/2023 in March 2024. He insisted that the decree remain in effect until the lower house rejected it or the courts ruled it unconstitutional. His omnibus bill, which was also proposed in December 2023, was a considerably more comprehensive legislative reform package that had over 600 articles aimed at restructuring Argentina’s economy through fiscal restraint, deregulation, and privatisation. Both houses rejected it in its original form after it generated significant controversy.

Just 45 days into Milei’s administration, it also sparked a 12-hour general strike in Buenos Aires in January 2024, organised by the General Confederation of Labour (CGT), the umbrella union, in protest of the proposed reforms. After extensive revisions, the bill passed the Chamber of Deputies in late April.

While it still aimed to curtail the role of the state in the economy, in line with Milei’s libertarian philosophy, it had fewer articles—just over 300—and some of the measures—particularly those pertaining to the labour market—were loosened. A political standoff resulted from the Senate’s ongoing deliberations in a tumultuous political environment.

Javier Milei presented the May Pact, a 10-point agreement that promised additional tax changes and provincial fiscal balance, in an attempt to garner support. After the Senate passed the trimmed Omnibus Bill in June, Milei finally signed the May Pact in July. He unveiled his 2025 budget ideas in September. The zero-deficit approach aimed to stabilise the economy by focusing on determining the available funds before allocating them. However, to accomplish this, he also suggested making large cuts to public spending, especially on social programmes and subsidies, which alarmed opposition parties and social groups.

Despite Argentina’s current recession, the budget also projects a 5% GDP growth in 2025 and a sharp decline in annual inflation from the current 230% to 18.3% by the end of the year, with monthly inflation falling to 1%.

The administration believes that fiscal restraint and these austerity measures will hasten the economy’s recovery. Don’t weep for Argentina’s Milei. While investors have reacted warily to the idea, with many seeing it as a step toward restoring market confidence in Argentina, opposition parties have harshly criticised the proposals, accusing Milei of further harming the working class with large public spending cuts.

The public response has been mixed. While Milei’s supporters welcome the proposed measures, many are concerned about the potential impact of significant spending cuts on society. Despite the attention his libertarian agenda has received in its first year, Milei has faced strong opposition from rival parties due to the absence of a government majority.

Unfortunately, public dissatisfaction has led to his early popularity with the electorate declining. Change cannot come quickly enough for the people of Argentina, and if given the chance, Milei’s reforms should have the intended impact, and things will improve.

El Loco gets a boost

On January 26, came the biggest endorsement of Milei’s radical reform policies, in the form of a credit rating upgrade by Moody’s. The Southern American country’s credit rating was raised on the back of improved government finances. Moody’s also raised its outlook on South America’s second-largest economy.

Moody’s now sees less risk of the Latin American economic major entering a debt default, thereby upgrading the country one notch to Caa3 from Ca and boosting its outlook to positive from stable. While Argentina’s new rating remains in junk territory, the upgrade represents the first in five years and most importantly, gives Milei a potent weapon against his detractors.

“Argentina’s credit fundamentals have improved over the past year, as a result of the effective and forceful policy adjustments that have led to a stabilisation of the macroeconomic environment,” Moody’s said, while noting other factors like cooling inflation, reduced government spending, and narrowing deficits.

These developments have brightened the debt outlook as well. After debt reached 156% of GDP in 2023, Moody’s estimated it sank to 77% in 2024 and predicted it would plunge further to 50% by 2026.

Javier Milei’s free-market shock therapy for Argentina, which has historically been plagued by high inflation, anaemic growth, onerous red tape, and debt defaults, has earned him the nickname “El Loco,” or “The Crazy One.” However, “El Loco” has found a new fan in the form of American tech maverick Elon Musk.

As he attended Donald Trump’s inauguration in January, Elon Musk boasted to the media about effecting massive spending cuts and government layoffs, apart from eliminating more than 900 regulations. Among these was the rule that guaranteed the children of some government workers their jobs after their parents died. Another cancelled regulation was one governing the sale of “normal” potatoes, which allowed vegetable stands to receive a bonus.

In September 2024, Musk even stated that his companies were looking for ways to invest in Argentina and support the South American country’s economic recovery.

Javier Milei established a Ministry of Deregulation and State Transformation, which may have inspired Elon Musk to later create the Department of Government Efficiency (DOGE) during the Trump administration. While Milei’s abrupt cuts to government spending initially caused the economy to contract by 3.5%, it experienced a swift rebound with a subsequent growth of 3%.

“A tax amnesty that helped bring USD 20 billion in assets from abroad and new measures to attract foreign currency inflows have allowed Argentina to build up its international reserves,” Moody’s added.

“The forceful shift in fiscal and monetary policies, the stabilisation of external finances, and the adoption of market-oriented reforms have boosted domestic private sector confidence and rekindled dynamism in domestic credit and financial markets,” the ratings agency noted.

However, Moody’s pointed to the easing of capital controls without sparking sudden volatility in inflows or outflows. Too much optimism could also overstimulate the economy and create other imbalances. Still, a new deal with the International Monetary Fund (IMF) would further bolster investor sentiment and help diversify Argentina’s funding sources, which could feed into key growth sectors of the economy.

“An acceleration of foreign investment inflows related to various projects in the energy sector to tap into the country’s vast natural hydrocarbon resources would improve Argentina’s medium-term export and growth prospects, further strengthening the sovereign credit profile,” Moody’s said.

Worries remain

Javier Milei’s cost-cutting drive to achieve economic efficiency for the Latin American major has come at a cost: a punishing recession, an increase in unemployment, and a fall in real wages across both the public and private sectors.

Poverty surged to 53% in the first half of 2024, up from 40% in 2023, the highest recorded jump in two decades. It has since dipped slightly to 50%, although the number of people estimated to be living in extreme poverty remains above 6 million. Nearly seven in ten Argentinian children are growing up poor, up slightly compared with 2023, according to UNICEF. And one million boys and girls are going to bed every night on an empty stomach.

Sergio Chouza, the economist behind local consultancy Sarandi, said, “Nothing about the current disinflationary dynamic has much bearing on the quality of life for families or the purchasing power of workers.”

Demand at food distribution centres and soup kitchens has surged across the country. Meanwhile, working-class Argentinians continue to be battered by the elimination of energy and public transportation subsidies, which has led to ballooning bills.

Will things improve? According to the World Bank, consumer spending and manufacturing are showing gains. In September 2024, wage growth outpaced inflation for the sixth consecutive month. Overall, it is estimated that 2025’s recession will give way to a 5% economic expansion.

“This is Argentina. The country is still in a tough situation. But you have to understand what the baseline was. The economic crisis inherited by Milei was like a bomb waiting to explode,” said Juan Ignacio Carranza from Aurora Macro Strategies, while interacting with Aljazeera.

“Economic activity and purchasing power from citizens haven’t improved yet… It’s still a very fragile situation. But now we at least have a path [forward],” he added.

Notably, Milei’s approval ratings remained relatively stable throughout his first year in office, a luxury that his three predecessors didn’t have.

According to pollster Poliarquia, Milei concluded his first year as president with 56% approval, up from 52% a month prior.

Javier Milei has been able to push through his policies despite his party having only a small minority of federal lawmakers, while not having provincial governors countrywide. The passing of a signature legislative package in 2024 aimed to boost growth and raise revenue required political pragmatism, with Milei backing a watered-down version of the original bill to get support from other parties.

“How he is managing the political situation has been the most surprising thing for all of us. Being in a really weak position with no support in Congress… I think that’s been his biggest success,” Carranza added.

However, Milei’s economic achievements in his first year are not necessarily indicative of future growth, as, in the words of Camilo Tiscornia, an economist and the director of the Argentine consultancy C&T Asesores Económicos, “The end result in terms of productivity, consumer spending, and investments all depends on how the private sector reacts to the new political economy. In other words, the government can’t decide when the economy will grow.”

The coming years will determine whether Milei’s gamble pays off. If inflation drops and growth returns, he may be vindicated. However, if economic pain continues without clear improvement, disillusionment could lead to political instability or a reversal of his policies. Libertarianism, in theory, champions free markets and individual prosperity, but its real-world application in Argentina remains uncertain.

Ultimately, Javier Milei’s success will depend on whether his vision can translate into tangible improvements for the Argentine people. If his reforms take hold and economic conditions improve, he may be remembered as a transformative leader. If not, his presidency could be seen as another chapter in Argentina’s long history of economic turmoil.

The post Has Argentina’s risk of libertarianism paid off? appeared first on International Finance.

This analysis explores the renewed interest in SCDIs, evaluates their benefits and challenges, and considers the broader implications of their use in debt restructuring, drawing on recent examples from countries like Ukraine, Sri Lanka, and Zambia.

What Are State Contingent Debt Instruments?

State Contingent Debt Instruments (SCDIs) are a type of bond that links debt repayment conditions to specific economic or fiscal metrics. Unlike conventional bonds that offer a fixed interest rate and principal repayment schedule, SCDIs offer flexibility by tying repayments to variables like GDP growth, revenue from natural resources, or other economic performance indicators. SCDIs aim to balance the risk and reward for both borrowers and investors, offering potential gains when a country outperforms and relief when it underperforms.

The resurgence of SCDIs comes at a time when numerous countries are struggling with unsustainable debt burdens, worsened by global economic pressures, political instability, and the impact of COVID-19. The recent cases of Zambia, Ukraine, and Sri Lanka demonstrate both the potential of these instruments and the challenges they present.

Flexibility And Alignment With Economic Performance

SCDIs offer several advantages that make them an appealing tool for managing sovereign debt. Their primary advantage lies in their ability to align debt repayment obligations with a country’s economic performance. When a country’s economic conditions are favourable, payments can increase, thus rewarding investors for their risk.

Conversely, in times of economic distress, payments decrease, reducing pressure on the borrower. This flexibility can make SCDIs particularly useful for countries facing uncertain economic futures.

For instance, Zambia’s restructuring process incorporated SCDIs linked to the country’s economic performance, specifically its debt-carrying capacity, exports, and fiscal revenues. According to Zambia’s Ministry of Finance, these instruments provided immediate repayment relief while creating a conducive environment for economic development. This approach allowed Zambia to allocate resources toward essential public goods and services while meeting its debt obligations.

Ukraine also leveraged SCDIs during its wartime debt rework in August 2023, integrating GDP-linked bonds that incentivised investors with potential payouts if the economy grew faster than anticipated.

By using these flexible instruments, Ukraine managed to swiftly re-engage with bondholders, effectively bridging the gap between market expectations and economic realities. However, it should be noted that wartime economic forecasts are inherently unpredictable, which brings significant risks for both investors and the issuing country.

Complexity And Investor Reluctance

While SCDIs can be powerful tools for speeding up debt restructurings and providing much-needed economic relief, they are not without their challenges. The complexity of these instruments often makes them difficult for both issuers and investors to navigate. Investors may be deterred by the complicated nature of SCDIs, which can lead to increased borrowing costs for the issuing country.

One major issue with SCDIs is the potential for investor reluctance, especially regarding pricing and trading on secondary markets. History provides several cautionary tales. Argentina’s use of GDP-linked warrants in 2005 led to significant legal disputes, as hedge funds accused Buenos Aires of manipulating economic data to minimise payouts.

Similarly, Ukraine faced billions of dollars in obligations for GDP warrants that lacked a cap on investor payouts, creating substantial fiscal challenges. According to a report from the Bank for International Settlements (BIS), contingent instruments issued by Argentina, Greece, and Ukraine carried a “high and persistent” premium, ranging between 4.24% to 12.5% above standard bond yields, highlighting the risks perceived by investors.

A History Of Mixed Success

The concept of SCDIs is not new. Latin American countries first used these instruments in the form of Brady bonds during the late 1980s to manage the regional debt crisis. Since then, various countries have experimented with SCDIs, with mixed success.

Argentina’s GDP-linked warrants and Greece’s 2012 debt restructuring both included contingent instruments. While these instruments provided a reprieve from crippling debt obligations, they also introduced new complications in the form of legal disputes and elevated borrowing costs.

The mixed success of these historical examples reveals the importance of sound design and clear criteria for contingent debt instruments. The experiences of Argentina and Greece underscore the risks of flawed structuring, which can lead to disputes, market distrust, and adverse economic outcomes.

This historical context provides crucial lessons for countries like Sri Lanka and Zambia, which are looking to utilise SCDIs more robustly and transparently.

Sri Lanka’s Experiment With Macro-Linked Bonds

Sri Lanka’s recent decision to incorporate macro-linked bonds into its debt restructuring strategy is noteworthy. These bonds link debt repayments to performance indicators such as GDP growth, which allows the country to adjust both principal and interest payments based on economic performance.

Such an approach provides the Sri Lankan government with “breathing space” during periods of economic stress. This approach is still evolving, and its long-term success will largely depend on how well Sri Lanka’s economic growth aligns with IMF forecasts and how transparent the process is.

However, concerns have already been raised regarding the stronger-than-expected growth forecasts released by the Sri Lankan government. Analysts have questioned whether these optimistic projections could lead to an overestimation of the country’s ability to meet its repayment obligations, potentially resulting in fiscal strain if economic growth does not materialise as predicted.

Role Of International Institutions And Market Benchmarks

International financial institutions play a pivotal role in the success of SCDIs. The Global Sovereign Debt Roundtable—which brings together representatives from borrowing countries, private lenders, the World Bank, and the G20—has highlighted the potential of SCDIs to address the rising number of sovereign debt defaults. By fostering dialogue between all stakeholders, the Roundtable aims to create a framework that can make these complex instruments more accessible and beneficial.

One of the significant challenges that new SCDIs must overcome is ensuring their eligibility for inclusion in major financial benchmarks like JPMorgan’s Emerging Market Bond Index (EMBI). Instruments that fail to qualify for these benchmarks may struggle to attract investor interest, thereby driving up borrowing costs.

Zambia’s recently issued SCDI, linked to its debt carrying capacity, exports, and fiscal revenues, aims to meet benchmark eligibility to keep borrowing costs manageable. By relying on IMF assessments instead of government statistics, Zambia hopes to mitigate some of the risks associated with data manipulation, as seen in previous examples like Argentina.

While SCDIs offer an enticing option for countries in distress, they are also a double-edged sword. The experiences of Argentina and Ukraine serve as cautionary tales, highlighting the risks of flawed design, legal disputes, and increased borrowing costs.

For SCDIs to truly be effective, they must be well-designed, transparent, and aligned with internationally recognised benchmarks. The role of international financial institutions in fostering a supportive framework for SCDIs cannot be overstated, as their involvement will be critical in ensuring that these instruments serve both issuers and investors effectively.

As more countries turn to SCDIs to navigate their debt challenges, it will be crucial to learn from past experiences and refine the structure of these instruments. If successful, Sri Lanka’s experiment with macro-linked bonds could set a new standard for how countries approach sovereign debt restructuring in the 21st century. The future of SCDIs hinges on finding the right balance between risk and reward, ensuring that they provide the necessary relief to borrowers while maintaining the confidence of investors.

The post IF Insights: The renaissance of state contingent debt instruments appeared first on International Finance.

According to the Argentine media, President Javier Milei will be preparing to issue an emergency decree to create a framework that would regulate the operation of these, putting it under the oversight of the national securities watchdog (CNV).

Argentina was placed on the FATF grey list from 2010 to 2014 due to its lax money laundering policies. The upcoming visit of the financial watchdog to assess the country’s money laundering countermeasure may be behind the latest government measure.

Under the new decree, all cryptocurrency service providers will have to register with the national cryptocurrency watchdog and operate under a license that will be provided by the authority even if these digital currency players are not based in the Latin American country.

Also, these ventures will have to provide information to the national intelligence unit to comply with anti-money laundering laws, forcing cryptocurrency services lenders to produce risk reports and report suspicious movements.

“Implementing such measures could lead to consolidation in the crypto environment, given that large cryptocurrency providers in the country would be able to comply with these requirements from day one. Small exchanges and peer-to-peer (P2P) markets could be forced to withdraw due to their inability to comply,” reported Bitcoin.com on the matter.

The executive order will likely come before March 2024, coinciding with the FATF visit to Argentina. Milei, known for his liberal stance and support for Bitcoin, introduced a bill translated as “Law of Foundations and Initial Measures for Argentinian Liberty” earlier in 2024. While the proposed legislation aims to alleviate taxes across various industrial sectors, it omits any provisions regarding cryptocurrencies, thereby effectively eliminating their tax declaration.

Earlier, crypto owners had the privilege of declaring their holdings, benefiting from a favourable fixed tax rate (no tax for holdings below USD 100,000 and a 15% tax for those exceeding this amount).

Critics stated that the bill pushed by Milei contradicted his “support for cryptocurrencies,” while labelling the tax policy as unfairly biased. Minister Guillermo Francis, however, pointed to a lack of consensus among political factions as the reason behind this controversial decision.

Should the proposed legislation pass, holding cryptocurrencies in Argentina will not incur taxes, said accountant Marcos Zocaro, while interacting with the CCN.Com.

“Tax obligations will arise only from capital gains generated through sales, and that too below a specific threshold. In the case of an individual, for the simple act of buying what the law calls digital currency, no tax is paid. What is taxed on profits, is the profit made from the sale and there is also a minimum below which no tax is to be paid,” the expert stated further.

As per the crypto industry insiders, international transfers of digital currencies will be subject to a tax rate ranging from 5 to 15%, a strategy designed to attract foreign investments.

The bill also proposes a provision for the declaration of cryptocurrencies without necessitating evidence of their origin.

Diana Mondino, the Argentine Minister of Foreign Affairs, stated that cryptocurrencies would continue to play a role in Argentina’s financial landscape, while following certain frameworks.

Cryptocurrencies in Argentina are known to be a potential bulwark against inflation, helping to safeguard individual earnings. Businesses also get the opportunity to have streamlined international transactions through digital currency.

The post After removing tax on bitcoins, Argentina announces its next ‘crypto’ move appeared first on International Finance.

A free market is one where voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, with little or no government intervention. The President of South America’s second-largest economy wants to cut all welfare programmes, and make the Dollar the only legal tender in Argentina, by replacing the Peso and opening up to trade with capitalist countries.

Most populist leaders are great showmen. Javier Milei takes the game to a whole new level. He has an eccentric persona and came to an election rally with a chainsaw, symbolically hacking away the state and its corruption, earning him the nickname “Chainsaw Man.” He comes dressed up as a lion and even a superhero called ANCAP or Anarcho-Capitalist Man. His rallies are more akin to Comicons than political gatherings and are mostly supported by the youth of Argentina.

Investors, on the contrary, were over the moon with Javier Milei’s victory. Argentine stocks and bonds went up strongly in New York. The value of YPF, an energy company that is mostly owned by the government, went up by 40%. Jorge Piedrahita, the founder of Gear Capital Management, told Bloomberg, “This is the chance for a new start.”

Does Argentina need a start?

Argentina’s GDP was about the same as many Western European countries a hundred years ago after steamships made it possible to send beef and other fresh goods to Europe and North America.

However, it is now very far behind them. It has missed three payments on its national debt since 2000. Long-lasting droughts have been terrible for the country’s agriculture over the past couple of years. There is no more money in the market, and the rate of inflation has risen to 142.7%. The value of the Argentine Peso has dropped over 90% against the US Dollar in the last four years. This means that 40% of Argentines are living in poverty.

Javier Milei, the economist, first got people’s attention by showing up on a late-night TV show. He was mostly angry at the centre-left Peronist parties that have been in power for most of the last twenty years, but he also said that Mauricio Macri’s centre-right government, which was in power from 2015 to 2019, wasn’t strict enough. He told voters that if he won, he would cut taxes and government spending, remove most government agencies, including the Central Bank, and burn all government rules like a bonfire. At his victory party, he said, “Today is the end of decadence in Argentina.”

Some compare Javier Milei with Donald Trump, saying that both of them are right-wing nationalists who like to rule by force. The comparison, however, doesn’t work when it comes to business. Both Milei and Trump indeed call themselves economic nationalists, but Milei doesn’t agree with Trump’s ideas of protectionism.

Milton Friedman and Robert Lucas, two famous economists from the University of Chicago, and Murray Rothbard, a less well-known New Yorker who helped bring the Austrian school of free-market economics to the United States, are some of Milei’s main intellectual influences. Five English mastiffs belong to Milei. Four of them are named Milton, Robert, Lucas, and Murray, and the fifth is named Conan after the Barbarian.

Javier Milei lived in Buenos Aires as a child. After playing goalie for the professional football team Chacarita Juniors for a short time, he switched his focus to economics, getting two master’s degrees and working for several banks, including HSBC.

In a very honest interview with The Economist in September 2023, Milei talked about how reading an article by Rothbard, who died in 1995, turned him into an “anarcho-capitalist.” An “anarcho-capitalist” is someone who thinks that the economy should be based only on private contracts and that the welfare state is “the enemy.”

Javier Milei said that he was still an anarcho-capitalist in his mind, but he was also aware of some of the problems that come with putting this theory into practice. He believed that the state should be as small as possible by only doing security and law enforcement. This is what it means to be a “minarchist.”

When it comes to Latin America, Milei is the ‘son’ of General Pinochet’s Chicago Boys, who opened up Chile’s economy with the barrel of a gun in the 1970s and 1980s, and Domingo Cavallo, who was Argentina’s neoliberal economy minister and tied the Peso to the Dollar in the 1990s. But it’s one thing to support extreme ideas as a person who writes about the economy or runs for office to protest. Another thing is putting them into action, which is hard to do in a country like Argentina that is so split.

The tough road ahead

Since Milei doesn’t want his policies to be put into effect by presidential order, he will have to get them through the two-house legislature, which is mostly made up of centre-right and centre-left parties. Milei would still need to win over some Peronists in the Senate, even if Macri’s party, Together for Change, agreed with Milei’s plans in the lower house. That doesn’t look likely.

Milei might find it hard to get the harsh austerity policies he wants to see passed. There are also real concerns about his main policy idea, which is to make everything worth a Dollar. He says that one of the main reasons for Argentina’s inflation problems is that politicians often use the printing press to solve economic issues. He says that dissolving the Argentine Central Bank and making the US Dollar the only legal currency would stop inflation and drive the government to balance its books.

Javier Milei talks about what happened in Argentina in the early 1990s, when Cavallo, who was president at the time, dealt with hyperinflation by making the Peso fully convertible and putting up a currency board to protect the peg. The inflation rate dropped from over 1,000% to less than 20% in just a couple of years.

One of the most basic problems with Milei’s plan is that Argentina doesn’t have the Dollars it would need to dollarize its economy right now. Analysts say that the country’s Central Bank has negative net foreign exchange funds. This means that it owes more money in foreign currencies than it has.

Emilio Ocampo, an economist and historian who is helping Milei, says that the lack of Dollars is more of a show than a real problem.

“Argentines have more than $200 billion in bills hidden in bank safe deposit boxes or under the mattress at home,” Ocampo wrote not long ago.

Even though Javier Milei has a lot of Dollars on hand, most experts think that his plan would only work if his government borrowed a lot of Dollars from other countries.

Milei told the Economist, “If someone comes and gives me the $30 billion in cash, I can fix it in one day. I won’t be able to solve it in one day if they don’t give me the $30 billion cash.”

How could Milei get the money he needs? The International Monetary Fund and Argentina already owe a total of over $40 billion, with most of that money coming from Macri’s presidency. So, at best, it looks like a long shot that the Washington-based lender will agree to fund the plan to make the Dollar the official currency.

China has also given Argentina a lot of hard cash, but Javier Milei wants to build a bridge between Argentina, the US and Israel. He also says he has thought about becoming a Jew from a Roman Catholic.

As Cavallo’s Dollar peg was still in place in the late 1990s, the value of the Dollar (and, by extension, the Peso) rose sharply. This made Argentina’s products less competitive on world markets. The economy fell into a deep slump, and money began to leave the country.

When Cavallo came back to power in 2001, capital flight sped up. Eventually, he told banks to limit cash transfers. Riots happened in Buenos Aires and other places in December 2001. Cavallo quit his job. He did the same thing as President Fernando de la Rúa. Later, Argentina stopped paying its debts and finally gave up the currency peg.

In the decades after the First World War, when they insisted on bringing back the gold standard of the 1800s, many Western countries learnt this lesson. Even though rigid monetary systems may work well to stop inflation, they make it harder for countries to deal with economic shocks from inside and outside the country. When Argentina fully adopts the Dollar, it will lose its Central Bank, which is a lender of the last option. This will make the country’s financial system even more fragile.

“Dollarisation is a potentially dangerous ‘no exit’ strategy,” wrote Mark Sobel in an article about Milei’s plans. Sobel used to be a top official at the US Treasury Department and a US representative at the IMF.

The article says, “It could set the stage for a big contraction and crash while taking attention away from the hard work of fixing the economy.”

A progressive think tank in Washington has a specialist in Latin America named Mark Weisbrot. He wrote that even though Argentina had serious economic problems, “a crazed, economically suicidal approach would only make things worse—and as Argentina has experienced, things can get a lot worse.”

According to Michael Stott, the Latin America editor of the Financial Times, Milei’s plan to make all money in Dollars is unlikely to be implemented in the short term. This is because Milei lacks support in the government for many of his ideas. Therefore, it remains to be seen whether or not his plan will come to fruition.

Will someone like Javier Milei, who ran for office with a chainsaw, submit to the leaders he has called ‘thieves”’? This man told The Economist that if the government doesn’t agree with his plans, “then we plan to go to referendums for structural changes that we consider fundamental.” It looks like Milei won’t easily change his mind about his bold plans.

The post The rise of ‘anarcho-capitalist’ Javier Milei appeared first on International Finance.

Angolan Finance Minister Vera Daves spoke with World Bank Group Ex-President David Malpass on how the economic fallout from COVID-19 and Russia-Ukraine has impacted their country’s revenue and debt. Kevin Watkins, CEO of Save the Children, and K.Y. Amoako, President of the African Center for Economic Transformation, described how unsustainable debt can slow countries’ progress and divert resources that could otherwise be used to invest in health, education and more.

Citi’s Julie Monaco and World Bank Chief Economist Carmen Reinhart both referred to the debt crises of the 1980s and 1990s and the lessons this challenging era can offer.

Last year, Sri Lanka defaulted on its external debt (excluding debt to multilateral organizations such as the World Bank) and in July 2022 saw the resignation of an Executive President for the first time in Sri Lanka’s history. The country faced a shortage of fuel, cooking gas, medicines and many essential goods.

At the same time, the country faced a massive political crisis that sparked island-wide protests that led to the resignation of Mahinda Rajapaksa as prime minister in May last year. Two months later, President Gotabaya Rajapaksa Mahinda’s brother also had to resign.

The island nation has defaulted on its $51 billion foreign debt for the first time since gaining independence in 1948 as it grapples with its worst economic crisis. The South Asian country was grappling with soaring inflation of 17.5%, a 12-hour power outage, and dwindling foreign reserves.

While many experts have pointed out that excessive government spending, tax cuts and the first and second waves of COVID-19 worsened the country’s economic crisis, others believe Sri Lanka’s close ties with China have fueled the country’s debt crisis. However, Sri Lanka is not the first country to default on its debts. Over the past century, several countries have defaulted on one or more occasions. According to the World Economic Forum, 147 countries have ‘sovereign defaulted’ on their debt since 1960.

What is the sovereign default?

Sovereign bankruptcy is the failure of a national government to repay its debts. Governments are typically reluctant to default because it is likely to lock the country out of debt markets for years to come and make borrowing more expensive, at least for a period when it becomes possible again. Lenders have limited recourse in the event of a sovereign debt default, as no international court can force a country to pay, although it can claim the defaulted borrower’s assets abroad. Countries borrowing in their own currency can always print more as an alternative to sovereign default. and may also avoid doing so by generating more tax revenue.

Private investors investing in the sovereign debt of other countries closely study the economy, public finances and politics of a bond-issuing country to assess and assess its risk of default. Other countries and multinational lenders such as the International Monetary Fund (IMF) and the World Bank lend to states to achieve policy goals ranging from improving the borrowing country’s governance to boosting the lender’s exports, and may be able to insist on their repayment even if the borrower defaults on other debts.

Government bonds issued in local currency may also attract private foreign investors, but are often primarily bought by the country’s banks and private individuals. A default by a sovereign in its own currency is easier to avoid and can be more politically painful than a default on external debt. Because a national bankruptcy entails a number of costs and economic risks, it is usually used as a last resort. Severe economic downturns, financial crises and political unrest can trigger a national bankruptcy. For example, Russia’s default in June 2022 was the result of economic sanctions imposed on the country for its invasion of Ukraine, including a freeze on Russia’s foreign exchange reserves abroad.

Types of sovereign default

Experts say, a nation may have momentarily defaulted if it temporarily delays interest payments on a small number of its bonds for administrative reasons unrelated to its capacity or willingness to repay debt, as the US Treasury once did in the 1970s. So long as the repayment snag is quickly ironed out, such a ‘default’ is unlikely to have any long-term consequences, or to be widely viewed as one. For instance, amid one of the US government’s recurring episodes of debt ceiling brinkmanship, the United States continues to be among the highest-rated sovereigns in the world, despite Standard & Poor’s downgrading its long-term rating for US national debt from AAA to AA+ in 2011.

Governments that are already generally believed to be likely to take that course of action may occasionally negotiate a bonds exchange, exchanging their previously issued and frequently severely discounted bonds for new ones of lower value, in order to prevent this outright default. In exchange for the sovereign’s promise to continue making lower debt payments, the bondholders effectively take a ‘haircut’ (a risk of the underlying asset) on the money they have already lent. Lenders agree that such an exchange is the least terrible choice available to them. This is an implicit default because the exchange can only take place if the sovereign’s ability to honour its commitments to previously issued debt is severely questioned by creditors. With the assistance of its European partners, Greece made a number of similar settlement offers to bondholders during the European sovereign debt crisis.

Consequences of a sovereign default

For the defaulting government and its citizens, the consequences of a sovereign debt default vary depending on factors such as the state of the economy and public finances, the degree of dependence on external financing and the likelihood that creditors will return in the future.

Credit markets tend to be large countries with exploitable natural resources like Russia to be more open and forgiving than small low-income countries, which are often dependent on IMF loans and aid. Meanwhile, Russia defaulted on its loan commitments in 1918, when Lenin’s government rejected the Tsarist Empire’s debt, and again on its ruble-denominated commitments in 1998, although it continued to make payments on its external debt after a brief moratorium. If a country is highly dependent and promotes foreign creditors to finance investments, the consequences of the sovereign default are likely to be slower economic growth, making the situation more difficult for consumers and businesses.

The sovereign debt bankruptcy will also lower the net asset value of all bond mutual funds holding the defaulted debt and its market value will fall. Conversely, a sovereign default could present an opportunity for distressed debt investors, who could buy the bonds at deep discounts to face value in the hope that they might be worth more later after a debt restructuring. Sovereign debt defaults also create winners and losers in the market for credit default swaps, which are financial contracts that pay out like an insurance policy in the event of a default. Credit default swaps allow bondholders to hedge against the risk of default and allow speculators to bet that a default will occur.

Countries that defaulted

In 1557, Spain became the first country to default. Notably, this European country defaulted on its debt 15 times between the 18th and 19th centuries. Argentina defaulted on its $132 billion in loans in 2001. As a result, the South American country defaulted again in 2016 and 2020.

Russia defaulted in 1918 and 1998. After the breakup of the USSR, Russia inherited a $100 billion foreign debt in 1993 at the request of creditors in exchange for promised financial assistance, according to the International Monetary Fund. Amid international sanctions imposed on the country for invading Ukraine, experts have warned that Russia could default on $117 billion worth of loans again.

Ukraine defaulted on its loans in 1998 and 2020. Between 2017 and 2018, the Latin American country of Venezuela defaulted on its $60 billion worth of loans. Greece twice defaulted on its $1.7 billion and €456 million debt in 2015. Ecuador defaulted on payments in 2008 and 2020. Mexico defaulted in 1982 and 1995. In 2010, the African country of Jamaica defaulted on its $7.9 billion debt.

In 2020, amid the pandemic, two Latin American countries, Argentina and Ecuador defaulted. Argentina adopted a take-it-or-leave attitude towards creditors, often leading to public dissent and dramatic breakdowns in negotiation. But in each round of negotiations, the country gave the creditors ground. Argentina started the process with support from the International Monetary Fund (IMF), whose economists backed Argentina’s calls for a generous restructuring.

However, Argentina’s final agreement with creditors included a 45% discount on interest payments and a six-month grace period, in contrast to the government’s original requirement of a 61% discount and a three-year grace period. Argentina also reluctantly agreed to change the collective action clauses in its bonds, a legal innovation aimed at minimizing so-called hold-outs that emerged from the protracted litigation that followed Argentina’s 2001 debt saga.

In contrast, Ecuador emphasized transparency and quiet consensus-building. Unlike Argentina, Ecuador agreed early on to grant bondholders special legal protections in the event of future restructuring. It also secured financial support from the IMF and received an emergency loan to deal with the public health and economic consequences of COVID-19.

In 2022, Belarus was declared bankrupt by Fitch Ratings and jointly announced with Moody’s Investors Service that Russia’s most trusted ally has officially breached the terms of its debt obligations to foreign investors. The eastern European country’s rating was cut to the default of RD by Fitch, below C. The credit checker cited the country’s failure to provide a dollar coupon payment on $600 million in US Dollar-denominated bonds, which is to be paid by 2027.

Moody’s said on July 14 that the incident constituted a default, but left its rating stable at CCC. Back then, the Belarusian Ministry of Finance accused the international rating agency Moody’s of a provocation which, according to Minsk, is intended to affect the Eurobond market.

The post World Bank & the never-ending sovereign default appeared first on International Finance.

According to the nation’s statistics office, inflation reached 102.5% in February 2023, which means that the cost of numerous consumer goods has increased significantly since 2022.

Argentina is known for its population’s long battle with economic hardships. The government too has capped the price of food and other necessary goods.

However, the most notable recent increase was in the food and beverage brackets, where prices rose by 9.8% in February 2023 over January.

According to Argentine media, this surge may be partially attributable to a dramatic increase in meat prices, which increased by about 20% monthly. A protracted heatwave and drought have added more pain to the ongoing crisis.

Although the symbolism of the inflation rate exceeding 100% is remarkable, such hardships are not new for Argentina.

In response to the increase in consumer prices, Argentina’s central bank announced in February 2023 that a new 2,000-peso (£8.13; $9.9) notes would be issued. In September 2022, demonstrators flocked to the streets to demand measures to combat the cost of living crisis.

Political conflicts have hindered long-standing efforts by the Argentinian government to control inflation.

As the nation’s economic crisis worsened last summer, three economy ministers were replaced within four weeks. President Alberto Fernández and his deputy, Cristina Fernández de Kirchner, reportedly disagree on addressing Argentina’s economic issues.

The International Monetary Fund (IMF) granted an additional USD 6 billion (£4.9 billion) in bailout funds in December 2022. It was the most recent payment to Argentina in a 30-month scheme with a USD 44 billion anticipated final payoff.

Why Is This Happening?

Nobel Prize-winning economist Simon Smith Kuznets once said, “There are four kinds of countries in the world: developed countries, undeveloped countries, Japan, and Argentina.”

Economists call it the ‘Argentine Paradox’. The country was set to be the world’s economic powerhouse during the first three decades of the 20th century. Argentina outpaced Australia and Canada in population, gross national product, and per capita till the 1930s. As a result, Argentina was nearly as wealthy per capita as the United States by 1913, as it was ranked among the ten most prosperous states in the world.

After the Great Depression of 1929, the country’s economy faltered, most notably due to a military junta overthrowing a 70-year-old constitutional democracy.

Since then, Argentina has seen periods of recovery and bust, defaulting nine times, with the most recent one happening in 2020. Argentines now believe they could be returning to a period of hyperinflation that plagued their country in the 1990s.

There are several reasons for the current economic disaster in Argentina, including unmanageable debt, the Ukraine war in Ukraine, and unprecedented drought.

It is worth noting that Argentina has a history of debt defaults and restructuring. In 2020, the country reached an agreement with its creditors to restructure USD 65 billion of debt, which provided some relief for the struggling economy.

However, the country’s external debt remains significant, and the government faces ongoing challenges in managing its debt obligations while promoting economic growth and stability.

Also, at the 2023 G20 conference in Bengaluru, India, Argentina’s Finance Minister Sergio Massa demanded that the International Monetary Fund (IMF) alter its surcharge policy, calling Argentina and other nations an “economic victim” of the Ukraine war.

The war in Ukraine had financial implications for Argentina; in 2022, energy subsidies were AR$1.79 billion, an increase of AR$587,934 million from 2021.

Imports of energy as a whole increased from 2021. Total fuel imports would have been USD 9.03 billion if prices were the same as in 2022. However, the report’s forecasts put them at USD 13.27 billion, a USD 4.24 increase in imports, and a rise in the nation’s needed foreign reserves, a valuable resource.

The war had also increased grain prices which would have been a great asset to the country’s agricultural economy if not for the worst drought experienced by it in the last 60 years.

This unprecedented natural phenomenon has decimated Argentina’s crops, escalating the country’s economic crisis, crushing farmers throughout the Pampas, escalating default fears, and jeopardising targets the International Monetary Fund (IMF) set.

Argentina ranks third in corn and first in processed soybean exports globally. However, the drought has drastically reduced these harvests, thereby putting farmers and the economy at terrible peril.

The nation is negotiating with the International Monetary Fund and is trying to recover. However, its citizens are tired of weak leadership that cannot curb runaway inflation.

Prices have skyrocketed, which has hurt wages and purchasing power, increased poverty to almost 40%, and hurt the governing Peronist coalition’s popularity as general elections draw closer. If the government cannot bring short-term relief and structural changes to the struggling nation soon, Argentina too, may go the Sri Lankan way.

The post IF Insights: Drought, debt & poverty in Argentina appeared first on International Finance.

Currently, the BRICS consists of five countries which include Brazil, Russia, India, China, and South Africa.

Argentina President Alberto Fernandez, who is presently in Europe, has recently reaffirmed his country’s intention to join the BRICS.

Jim O’Neill, a Goldman Sachs economist, first used the acronym BRIC to characterize the rapid ascent of Brazil, Russia, India, and China in 2001. In 2009, the BRIC nations met for the first time in Russia, and then in the following year, South Africa joined.

According to Iran’s Foreign Ministry spokesperson, Iran’s inclusion in the BRICS would add value. More than 40% of the world’s population and around 26% of the global GDP is contributed by the countries that are part of BRICS.

With an economy that makes up more than 70% of the USD 27.5 trillion combined economic power of the BRICS nations, China is by far the largest of the lot. According to IMF figures, India makes up around 13%, while Brazil and Russia each make up roughly around 7%.

It was Russian President Vladimir Putin’s first meeting with the leaders of major economies since the beginning of the invasion of Ukraine. He stated that cooperation is necessary to resolve challenges like conflicts.

Chinese President Xi Jinping emphasized that Beijing would like to cooperate with the group to operationalize the Global Security Initiative and urged for a stronger security partnership within BRICS (GSI).

The post Iran, Argentina submit applications to join BRICS appeared first on International Finance.

According to local media reports, Avianca Argentina managed to come to an agreement regarding 70 percent of its debt which is valued at $15.2 million. The carrier will pay off its debt in five years with a discount of 50 percent.

Avianca Argentina was born Synergy Group, the parent company of Avianca Holdings, acquired Argentina-based regional airline Macair Jet in 2016.

In July, the International Air Traffic Association (IATA) mentioned that setting up a reliable flight schedule in Argentina was becoming increasingly difficult as the country’s government tightened its regulations on international travel and allowed only 1000 passengers every day, all of who have to be the country’s residents.

This followed the Argentinian government’s announcement that it would only allow 600 international passengers per day. The government did increase the number of international passengers to 742 per day during July’s second week.

Last month, Brazil’s Gol Linhas Aéreas Inteligentes signed an agreement to buy 28 Boeing 737 MAX-8 aircraft that will replace 23 of its 737-800 NGs by the end of 2022. The airlines mentioned that the new planes will reduce unit costs by 8 percent next year and they will generate about $200 million in cash equity gains.

The post Avianca Argentina to make a comeback after going bust in 2019 appeared first on International Finance.

Other participants in the funding round included Soros Fund Management, funds managed by affiliates of Goldman Sachs Asset Management, Ribbit Capital, Greyhound Capital, Monashees and Endeavor Catalyst. New funds, such as D1 Capital Partners and 166 2nd.

This round is believed to be the largest private raise ever by an Argentinian company and brings Ualá’s total raised to $544 million since the company started in 2017. Ualá offers Mastercard branded prepaid cards and users have access to a plethora of financial services like sending and receiving money, online shopping, withdrawing cash at ATMs and requesting loans.

The company already has a headcount of 1,000 and plans to raise that number to 1,500 by the end of this year. In June, the company said it had issued more than three million Mastercard branded prepaid cards in Argentina and they are trying to expand through the acquisition of rival Wilobank, the first fully digital bank approved by the central bank in Argentina.

Founder and CEO Pierpaolo Barbieri said that his primary goal was to create a platform that would bring all financial services into one app linked to one card. At present, the fintech company has a complete financial ecosystem with a global Mastercard card, bill payment options, investment products, personal loans, installments (BNPL) and insurance.

They have also launched Ualá Bis that caters specifically to entrepreneurs and merchants and it allows selling through a payment link or mobile point-of-sales (mPOS).

The post Argentinian fintech Ualá valued at $2.45 bn after latest funding round appeared first on International Finance.