Argentina Debt Default Sours Access To Credit

Executives in Argentina are increasingly worried that tightening access to credit is slowing the expansion of their businesses and the economy following July's debt default, a survey said Friday.



The pill found 43 percent of executives are concerned about tighter access to credit, up from 20 percent before the default, the second in 13 years.



Also, 65 percent of business leaders expect the economy to worsen moderately or severely in the first half of 2015, according to the survey by D'Alessio IROL, a Buenos Aires market research and consulting company.



The poll of 165 executives comes as Latin America's third-largest economy contracts by an expected 2.5 percent this year, its first major downturn since a 2003-11 boom when growth averaged 8 percent a year ended with moderate growth in 2012 and 2013.



Martin Polo, chief economist at Analytica Consultora, said the economy is suffering a series of problems that the government is struggling to contain.



The biggest of which is the fiscal deficit that has grown to 4 percent of gross domestic product and is expected to worsen as the economic contraction cuts tax collections while at the same time export revenue sinks on falling prices of soybeans and other commodities, Polo said.



Argentina is a huge exporter of soybeans, a major source of dollar inflows that helped fuel the 2003-11 boom. But soybean prices have since fallen, reducing dollar inflows and tax collections.



To turn things around, most executives said the government must return to borrowing on global credit markets. This will require reaching a settlement with creditors holding a government-estimated $15 billion in bonds left over from a $100 billion default in 2001.



Of those polled, 50 percent said a settlement must be made with the creditors who held out of restructurings of the bonds in 2005 and 2010.



The so-called holdouts are suing the country to collect full repayment, far more than the 30 cents on the dollar accepted by 92 percent of the bondholders in the restructurings.



President Cristina Fernandez de Kirchner has refused to pay anymore, saying it would trigger more lawsuits by the restructured bondholders due to a clause that allows them to collect the difference of anything more paid to the holdouts, or up to 70 cents on the dollar. The rights-upon-future-offers clause expires at the end of the year.



Without settling with the holdouts, companies cannot easily tap international credit markets at low interest rates, making it harder to invest.



Indeed, executives said they only expect to invest 10 percent of their revenue in 2015, down from 11 percent in 2013 and 12 percent in 2012.



And 52 percent of those polled expect their profits to decline over the next 12 months from October.



In response to the survey, Cabinet chief Jorge Capitanich said executives should focus on diversifying markets and expanding exports instead of complaining about the economy and the government.



The executives "lack ideas" about how to improve their profits, he said during a televised press conference.



"Instead of analyzing theories, they should focus on new markets for expanding exports," he said.



The attack is a typical strategy for the government, said Federico MacDougall, an economist at the University of Belgrano in Buenos Aires.



"The government's message is, 'Think like I think and do like I do, or don't fight,'" he said.



The government, he added, slams business leaders also as a way to maintain votes from their support base, largely the poor – about one-third of the electorate.



He said the strategy is to hold onto enough support to try to keep seats in Congress after the next presidential election in October 2015, when most polls suggest a new party will win.



www.aa.com.tr/en - Buenos Aires