Investors crying over Argentina crisis
Maltese and Gozitans invest Lm37 million in Argentina

By Kurt Sansone
The Malta Financial Services Centre would not divulge the amount of funds from Maltese and especially Gozitans, invested in crisis - hit Argentina but an estimate obtained by The Malta Financial and Business Times from sources close to the government puts the figure to the alarming tune of Lm37 million.

Asked by this newspaper, the MFSC confirmed that a ‘workable approximation of the funds invested’ in Argentine securities has been compiled. But the financial services regulator added that it did not feel it "appropriate or correct to divulge these amounts, which were given to the authorities on a confidential basis."

The MFSC also confirmed that many Maltese investors have invested directly in eurobonds issued by Argentina denominated in a reputable currency, such as the euro, dollar and sterling.

But true to the Maltese investor’s risky tendency, a smaller number had invested in collective investment schemes, which in turn invest in emerging market debt.

Though no fingers are being pointed, some local stockbrokers are being blamed for dishing out misguided advice.

Argentina has a total public debt of USD132 billion, including about USD95 billion of bonds. The government estimates international investors hold about USD38 billion of the bonds, but a number of international banks such as Credit Suisse put the amount as high as USD55 billion.

These bonds are by nature high risk and the MFSC highlighted the tendency for Maltese investors to invest a large proportion of their savings in such instruments for the sake of earning the high interest payments offered by the bonds.

The MFSC said that high risk collective investment schemes either concentrated in bonds issued by one sovereign state or bonds issued by the various countries in the Latin American segment. According to the MFSC the latter can hardly be considered to be diversification.

However, the financial services regulator said that what happened in Argentina depended on the particular social, economic and political backdrop of that country. It stressed that the legitimate concerns about the events in Argentina should not apply to all other investments.

When asked whether the MFSC has received any complaints from investors about ‘bad’ advice given to them by their investment advisors over the Argentinean crash, the regulator said that a number of enquiries and complaints lodged recently, were predictably related to Argentinean securities.

The MFSC receives complaints and enquiries from investors regarding the quality of investment advice given to them by licensed intermediaries. The complaints are investigated and the consumer affairs manager tries to provide explanations and offer assistance as to how best to proceed. Where circumstances so warrant, the matter is raised with the investment services intermediary himself.

The MFSC expressed its hope that the Argentinean crisis will help investors to focus their minds on the need to exercise caution and prudence and to the fact that emerging market bonds are highly risky and may lead to loss.

In 1992 Argentina had issued about USD 25 billion of so-called Brady bonds in exchange for debts accumulated in the late 1970s and with the Argentine economy looking bullish at the time, many foreign investors rushed in with their cash. But while other countries such as Mexico, which was also grappling with high debts, restructured and cut spending to reduce dependence on foreign capital Argentina’s fiscal and economic policies went haywire.

The crisis, which came to a head in November last year had long been coming and the recovery is expected to be very slow and painful. Only last week Argentina asked the European Union to increase its quotas of agricultural imports to help the crisis-hit economy recover. Argentina is trying to boost its exports, which account for less than 10 per cent of its economic output.