The deterioration of the peso exchange hit foreign reserves in Argentina
Facing investment funds Emerging countries ’bonds have huge losses during the current year, due to the increasing number of bankrupt countries that have so far been unable to service their debts or are on the way to stop paying, due to the weak economic and financial structure, the return of the Corona outbreak and the increase in the number of injuries that amounted to 27 million injured, until the end of Last week’s holiday.
According to The Wall Street Journal, the Ashmore SICAV Fund to invest in Emerging markets, A subsidiary of the British Ashmore Group, it lost about 17% of its investments in the 12 months to July.
The fund had placed about 40% of its investments in three countries that went bankrupt, namely Lebanon, Argentina and Ecuador. The Ashmore Fund is only one of the global funds that suffered heavy losses in the debt bonds of African countries and economically weak South American countries.
The Argentine bond crisis had struck investors even before the outbreak of the Corona pandemic. Many funds were forced to sell their investments with heavy losses in the money markets during the past year, and some bonds that expired at the beginning of September were sold at a price of 41 cents to the dollar, meaning that the $ 100 bond was sold at about $ 41. Bonds maturing in 2021 around 50 cents per dollar.
Meanwhile, Lebanon stopped paying its debts and is awaiting assistance from the International Fund and the international community, to help it overcome the financial ordeal it has been going through since the middle of last year.
According to the data of the National Institute of Statistics and Census in Buenos Aires, Argentina’s GDP in the first quarter of this year was 25.3 trillion pesos (about 327.38 billion dollars), while the total external debt reached 274.247 billion dollars at the end of March. However, its GDP fell by 5.4 percent in the first quarter, following the COVID-19 lockdown measures that have disrupted parts of the economy.
Regarding Argentina, a prominent Argentine economist emphasized that despite the country’s restructuring efforts, it is still burdened with high debt burdens amid the faltering global economy and local growth, which calls for thinking about traditional financing mechanisms.
Jorge Marchini, a professor of economics at the University of Buenos Aires, said in comments carried by the Chinese news agency Xinhua that Argentina chose a mobile trade strategy, which attracts short-term capital while raising interest rates for the local currency and stabilizing the currency exchange, and this strategy cost the country a lot.
He explained, “The external indebtedness was not linked to the issue of restructuring production or infrastructure projects, but above all it was linked to financial movements. The source of the indebtedness was not foreign direct investment, but short-term financing. This internal and external flow of capital is very unstable. In the long run it is very expensive. ” “The country will have to put in place policies to stop the recurrence of this phenomenon,” he added.
According to Marchini, at the present time, it is difficult to estimate the size of the external debt and its percentage of GDP due to many factors, including the continued depreciation of the peso, the wide disposal gap, and the decline in GDP due to the Covid-19 epidemic, “which may reach To 10 percent by the end of the year. “
“The important thing is that the external debt has not increased, because Argentina, in default, does not have access to new credit and cannot access the international capital market. Its loan from the International Monetary Fund has been suspended,” he noted.
Marchini stated that although the Corona epidemic worsened Argentina’s economic outlook, and also inflated the fiscal deficit, negotiations with creditors over external debt had improved the country’s financial outlook.
“Most importantly, the negotiations led to a kind of resettlement of the debt issue, which resulted in a much lighter repayment structure than was previously planned,” he said. He added that another positive aspect is that “Argentina has always had the ability to generate foreign revenues through its primary production.”
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