Argentine government shake-up could offer hope to disgruntled investors

By David Lindsay
The scores of Maltese investors who saw tens of millions of pounds in investments become all but worthless with the collapse of the Argentine economy may soon begin to see a ray of light at the end of the tunnel with the recent appointment of a new Argentine economy minister and a presidential run-off election scheduled for May.
At the heart of both the appointment and the election is the desperately needed regeneration of the once flourishing but now flailing South American economy.
Untold numbers of Maltese had invested an estimated Lm37 million in the country.
While many Maltese investors had put their money directly into eurobonds issued by Argentina - denominated in reputable currencies such as the euro, dollar and sterling - others had invested in collective investment schemes, which in turn invest in emerging market debt.
Others still had invested in ill-fated, now frozen Argentine government bonds.
Though no fingers were pointed at the time of Argentina’s fiscal fallout in November 2001, some local stockbrokers were blamed for giving misguided advice to their local clients.
At the time the MFSA had verified it had received complaints from investors about ‘bad’ advice given to them by their investment advisors over the Argentine economic crash, but the regulator said that a number of enquiries and complaints lodged were predictably related to Argentinean securities.
When turmoil struck the Argentine economy in late 2001, Argentine government bonds were the hardest hit and new economy minister Roberto Lavagna has his work cut out for him. His job of steering the country out of a desperate economic crisis will be avidly watched by the Argentine people, by the international investing community and undoubtedly by a number of Maltese, who will be observing Argentina’s fiscal performance over the coming months to see if the country will be able to meet its private debt obligations.
Indeed, one of the biggest challenges facing the Argentine government is what to do about the USD100 billion in frozen Argentine debt held by private investors, both foreign and domestic, which the government has done little about to date – instead giving priority to negotiating debt conditions with the International Monetary Fund and resolving severe problems faced by the country’s cash-strapped population.
However, former president and current presidential candidate Carlos Menem has promised creditors holding billions of dollars worth of defaulted Argentine bonds "hardly any haircut" in exchange for lower interest rates on the debt.
Four years of recession have left the Argentine economy in shambles. Its banking and financial system is in disarray, its currency sharply devalued, and its people are now strapped for cash after panic withdrawals last week forced a national bank holiday.
In 1992 Argentina had issued about USD25 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.
Today Argentina's unemployment rate hovers close to 20 per cent. Real wage levels are about 40 per cent lower than they were before the crisis. More than half of Argentina's 38 million citizens live below the poverty line and about one-third live in extreme poverty.