Economic and Political Dynamics in Argentina under the New Administration
Japanese Chamber of Commerce and Industry in Brazil
By Rodolfo G. Villalba Managing Partner Sao Paulo – Nov 22nd 2019 Fructus Capital SAS
1 A Simple Story of Argentina
2 Contact: [email protected]; [email protected] Total Consolidated Public Expenditure (% of GDP - Galiani)
• From 2002 and 2015, 13 years of Populism almost double Public Expenditure from 22.4% to 42.2% of GDP • Macri reduced it down in 4 years by more than 5% percentage points of GDP
Source: Foco Económico – Sebastián Galiani, Secretary of Economic Policy at Ministry of Economy 3 Contact: [email protected]; [email protected] Argentine Population and Income Earning Workers
• As of July 2019, private productive activity by 20% of total population provides financial support for 45mm people, reflecting social plans, unconventional pensions and unnecessary public employment created by 13 years of populism Working Population as Percentage of Total Population of 45MM citizens 3182,3 Others: Social Plans, Elderly, Child, 7% Non-working Public Sector Employees
Private Salaryman 6083,9 14% House Services Employees Only 20% (8,9mm 499,1 people) generate Independent 1% Monotributo/Authonomos financial resources to supporta populaton 32892,8 2341,9 73% 5% of 45MM
Source: Prepared by Fructus Capital based on information sourced from Secretary of Labour
4 Contact: [email protected]; [email protected] GDP Growth
• Argentina has high growth potential reflecting competitive advantages in various sectors • However, 13 years of Populism have severely affected growth mechanisms and left a country with serious problems including high taxes and unproductive labor capital 12,00% 10,13% GDP Growth 10,00% 8,85% 9,01% 8,05% 8,00% 6,00% REM Sep 6,00% - 2,9% (2019E) 4,06% 4,00% 0,6% 2,41% 2,73% 2,67% 2Q YoY 2,00% 0,24% 0,00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -2,00% -1,03% 1H YoY -2,08% -2,48% -4,00% -2,51%
-6,00% -5,92% -8,00%
Source: Prepared by Fructus Capital based on information sourced from INDEC
5 Contact: [email protected]; [email protected] Key Selected Sectors Driving the Future of Argentina
Agricultural, Mining, Fishing, Energy and Transportation sectors leading a solid and sustainable path towards growth 18% 17% Valor Agregado Bruto 2015 2016 2017 2018 2019 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Pesca Salud
Ind. Manuf Enseñanza Construcción Elec gas y agua Hoteles y Rest. Minas y Canteras Inmob. y Alquiler Transp y ComunicInterm. Financiera Comercio May y Min Agric Ganad Caza Silvic Adm. Pública y Defensa Serv. Comunity Sociales Source: Prepared by Fructus Capital based on information sourced from INDEC Hogares con Serv Doméstico
6 Contact: [email protected]; [email protected] Central Bank Condition and Foreign Exchange
7 Contact: [email protected]; [email protected] Evolution of International Reserves
• Since populism left power in Dic 2015, International Reserves have grown by 4 x to a peak of almost USD 80bn, to fall thereafter to USD 40bn level due to political uncertainty. • The question is … are Reserves sufficient to support the Peso?
International Reserves in USD `000 90.000.000,00 $ PASO elections August 11th 80.000.000,00 $ End of CFK Macri Administration 70.000.000,00 $
60.000.000,00 $ Market FX (Ar$/USD) 50.000.000,00 $
40.000.000,00 $ International Reserves (USD)
30.000.000,00 $
20.000.000,00 $
10.000.000,00 $
- $ 7-jul-17 7-dic-17 7-jun-15 7-oct-18 7-feb-17 7-abr-16 7-sep-16 7-ago-19 7-ene-15 15-jul-15 7-nov-15 31-jul-16 23-jul-18 7-mar-19 15-dic-15 23-dic-18 7-may-18 23-jun-16 15-oct-16 31-oct-17 15-jun-18 30-jun-19 23-oct-19 15-feb-15 29-feb-16 23-feb-18 30-abr-15 23-abr-17 15-abr-19 30-sep-15 23-sep-17 15-sep-19 23-ago-15 15-ago-17 31-ago-18 23-ene-16 23-nov-16 15-ene-18 15-nov-18 31-ene-19 23-mar-15 15-mar-17 31-mar-18 15-may-16 31-may-17 23-may-19 31/12/2016 (*) 31/12/2016
Prepared by Fructus based on Central Bank of Argentina 8 Contact: [email protected]; [email protected] Evolution of Wide Monetary Base and Adequacy of International Reserves
• International Reserves measured in AR$ grew since Dec 2015 faster than Wide Monetary Base • As a result convertibility risk of the Peso has declined significantly, and recently even more so since arrival of Sandleris to Central Bank, managing a controlled decline of reserves Wide Monetary Base and Internatinal Reserves 4.000.000.000 PASO elections 70,00 (AR$ ‘000) August 11th 3.500.000.000 End of CFK Macri Administration 60,00
3.000.000.000 50,00 Le quids Lebacs No bacs 2.500.000.000 Monetary Base (AR$) 40,00 Market FX (Ar$/USD) 2.000.000.000 30,00 1.500.000.000 20,00 1.000.000.000
500.000.000 10,00
0 0,00 7-jul-17 7-dic-17 7-oct-18 7-jun-15 7-feb-17 7-abr-16 7-sep-16 15-jul-15 31-jul-16 23-jul-18 7-ago-19 7-ene-15 7-nov-15 7-mar-19 15-dic-15 23-dic-18 7-may-18 15-oct-16 31-oct-17 23-oct-19 23-jun-16 15-jun-18 30-jun-19 15-feb-15 29-feb-16 23-feb-18 30-abr-15 23-abr-17 15-abr-19 30-sep-15 23-sep-17 15-sep-19 23-ago-15 15-ago-17 31-ago-18 23-ene-16 23-nov-16 15-ene-18 15-nov-18 31-ene-19 23-mar-15 15-mar-17 31-mar-18 15-may-16 31-may-17 23-may-19 31/12/2016 (*) 31/12/2016 Prepared by Fructus based on Central Bank of Argentina 9 Contact: [email protected]; [email protected] Evolution of FX Rate and Convertibility Risk
• Market FX rate started a dramatic increase towards the end of 2017, and only achieved levels above conversion rate under liquidity stressed conditions towards Dic 2018 during Sandleris governorship.
70,00 PASO elections August 11th 60,00 FX Conversion (Liquidity Stressed) Market FX (Ar$/USD)
50,00 End of CFK Macri Administration 40,00
30,00
20,00 Start of the Run on the Peso 10,00
0,00 7-jul-17 31/12/2… 7-dic-17 7-oct-18 7-jun-15 7-feb-17 7-abr-16 7-sep-16 15-jul-15 31-jul-16 23-jul-18 7-ago-19 7-ene-15 7-nov-15 7-mar-19 15-dic-15 23-dic-18 7-may-18 15-oct-16 31-oct-17 23-jun-16 15-jun-18 30-jun-19 15-feb-15 29-feb-16 23-feb-18 30-abr-15 23-abr-17 15-abr-19 30-sep-15 23-sep-17 15-sep-19 23-ago-15 15-ago-17 31-ago-18 23-ene-16 23-nov-16 15-ene-18 15-nov-18 31-ene-19 23-mar-15 15-mar-17 31-mar-18 15-may-16 31-may-17 23-may-19
Prepared by Fructus based on Central Bank of Argentina TDC (Liqidity Stressed) calculated as (Monetary Base + Leqids + Net Repos ) / International Reserves 10
Contact: [email protected]; [email protected] Securities Portfolio decline in Value
• Country risk premium performed a sudden rise from 700bp to 2500 bp after PASO • The value of Securities Portfolio dropped significantly as a consequence from AR$ 1.919 Tr to 0.962 Tr, representing a key source of negative equity, at level -5.7% of total assets
Título del gráfico AR$ ,000 2.500.000.000 20,0% PASO elections August 11th
15,0% 2.000.000.000
10,0% 1.500.000.000
5,0%
1.000.000.000 0,0%
500.000.000 -5,0%
0 -10,0% 7-ene-19 7-feb-19 7-mar-19 7-abr-19 7-may-19 7-jun-19 7-jul-19 7-ago-19 7-sep-19 7-oct-19 7-nov-19
Public Securities (Assets) Equity / Total Assets
Prepared by Fructus based on Central Bank of Argentina 11 Contact: [email protected]; [email protected] Securities Portfolio drop in Value brings Equity into Negative Territory
• Total Value of Equity dropped from AR$ 634 bn on August 7th to AR$ -366bn on November 7th, compared to securities Porfolio value dropping from AR$ 1.919 bn to AR$ 886 bn • To the extend that country risk premium remains at high levels central bank’s assets liabilities management will remain highly exposed and add pressure to the exchange rate
AR$ ,000 Public Securities (Assets) and Shareholders’ Equity
2,5E+09 PASO elections August 11th 2E+09
1,5E+09
1E+09
500000000
0 7-ene-19 7-feb-19 7-mar-19 7-abr-19 7-may-19 7-jun-19 7-jul-19 7-ago-19 7-sep-19 7-oct-19 7-nov-19
-5E+08
-1E+09
Prepared by Fructus based on Central Bank of Argentina 12 Contact: [email protected]; [email protected] Current Account Deposits in Foreign Currency at Central Bank
• Depositors current account reserves in foreign currency at Central Bank started to drop rapidly due to their withdrawals after PASO elections on concerns about Fernandez’s policies • Central Bank made available enough USD for depositors’ withdrawals, but at the end Foreign Exchange controls were imposed
AR$ ,000 International Reserves and USD Current Account Deposit Reserves 4E+09 (both in AR$ `000) PASO elections August 11th 3,5E+09
3E+09
2,5E+09
2E+09 Sep 1st, Exchange Controls 1,5E+09
1E+09
500000000
0 7-ene-19 7-feb-19 7-mar-19 7-abr-19 7-may-19 7-jun-19 7-jul-19 7-ago-19 7-sep-19 7-oct-19 7-nov-19 Prepared by Fructus based on Central Bank of Argentina 13 Contact: [email protected]; [email protected] Short Term Liquidity, A/L Management and Convertibility Risk
• Since Country Risk Premium has not eased since AF’s victory, Central Bank new administration may favor a drop of the peso beyond AR$ 71 AR$ to USD, to absorbed negative equity
AR$/USD Convertibility Risk Analysis PASO elections August 11th 80,00 $ AR$/USD
70,00 $ 70.90 67..58 60,00 $ 59.60 50,00 $ 56.76 Risk 40,00 $
30,00 $ 20,00 $ Balance 10,00 $
- $ 7-ene-19 7-feb-19 7-mar-19 7-abr-19 7-may-19 7-jun-19 7-jul-19 7-ago-19 7-sep-19 7-oct-19 7-nov-19
TCD LT FX (Ar$/USD) TDC (Liquidity Stressed) TDC (Liquity Stressed 2) Prepared by Fructus based on Central Bank of Argentina TDC (Liqidity Stressed 1) calculated as (Monetary Base + Leqids + Net Repos ) / International Reserves TDC (Liqidity Stressed 2) calculated as (Monetary Base + Lequids + Net Repos + Current Accounts in Foreign Currencies ) / TDC LT takes into consideration total Assets and Liabilities of Central Bank 14 Contact: [email protected]; [email protected] Foreign Exchange and Inflation Risk
FX restrictions helped to calm down market and private individuals, prevent a run on bank deposits and facilitate a transition to new presidency
Will there be enough reserves under a Peronist Government? 1. Convertibility Risk scenarios are manageable even considering negative equity of central bank, which has to be fixed soon 2. National Debt Service requirements in foreign currency represents an unsustainable source of risk, situation which shall be managed through debt rescheduling
Will inflation risk variables be controlled under a Peronist Administration? 1. If negative Fiscal Balances arise, they are likely to be financed through Monetary Expansion at least until Argentina regains access to financial markets 2. Leliqs interest payments covered in part with monetary expansion is a matter that has to be reviewed, for which a long term solution is required! • A potential conversion of Leliqs into monetary based - if pursued as a “unsuitable” solution - could be an additional cause of inflation.
15 Contact: [email protected]; [email protected] Fiscal Accounts and Debt Situation
16 Contact: [email protected]; [email protected] Evolution of National Government Primary Fiscal Spending
Drastic reduction of fiscal spending at national level is clearing the way to macro economic sustainability, however at a great political and social cost.
30,0% National Primary Fiscal Expenditure (% of GDP)
24,0% 24,0% 25,0% 23,2% 22,1% 22,6% 21,0% 19,7% 20,1% 18,9% 19,5% 19,6% 20,0% 18,1% 18,3% 18,8% 16,2% 15,4% 15,0%
10,0%
5,0%
0,0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan to Aug
Source: Prepared by Fructus Capital based on information sourced from INDEC (*) 2019 includes only January to August 17 Contact: [email protected]; [email protected] National Primary Fiscal Deficit
Elimination of Primary Fiscal Deficit at the cost of recession and increase of national debt. • 2018 2019 Recession: 2016/17/18 accumulated deficit represents 10.2% of GDP • Increase of National Debt: Such deficit is the main explanation of Gross Debt increase • Minister Lacunza estimates a final primary deficit for 2019 of -0,5% of GDP (in line with IMF guideline) 6,00% 01-08 2019 4,30% 0,2% (Gov) 4,10% 3,90% 4,00% Primary Fiscal Deficit 0,36% (Fruc) 2,70% 2,70% 基礎的出資 2,40% REM 2019 (E) - 0,75% 2,00% 1,00% 0,40% 0,00% 0,00% 2003 2004 2005 2006 2007 2008 2009 -0,20%2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Pr 2020 -0,70% PrIMF -1,10% -2,00% -2,30% -2,30%
-4,00% -3,40% -3,80% -4,20%
-6,00% -5,40% Source: Ministry of Economy of Argentina with additinos by Fructus 資源：経済財務省 Contact: [email protected]; [email protected] Central Government Total Gross Debt (prior to Reschedule)
• Central Government Gross Debt increased by approximately USD 68bn since 2016 primarily to finance primary fiscal deficit inherited from CFK at -5.6% in 2015. • Accumulated deficit for 2016-2019 was of 10.2% of GDP approx.
Gross National Debt Eligible for Payment President Mauricio Macri 350.000 332.192 140,0% 320.935 President Nestor Kirchner 310.478 118,1% 300.000 275.446 120,0% President Cristina Fernandez de Kirchner 250.000 239.326 240.665 100,0% 223.439 216.920 86,0% 84,8% 80,5% 192.294 197.154 200.000 70,6% 176.870 182.084 181.621 80,0% 165.111 170.133 154.270 62,1% 55,4% 56,6% 150.000 52,6% 53,1% 60,0% 43,8% 43,5% 43,5% 44,7% 38,9% 40,4% 100.000 40,0%
50.000 20,0%
- 0,0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Oct
National Gross Debt (USD MM) National Gross Debt (% of GDP)
Source: Ministry of Economy of Argentina. Outstandings 1Q 2019 資源：経済財務省. 残高１Q2019 19 Contact: [email protected]; [email protected] Gross Debt Stock as of Oct 31st 2019
Total Gross Debt of USD 310,478 Bn
Gross Debt of National Administration By Type Gross Debt of National Administration By Type of Instrument - 31/10/2019 (*) Legislation - 31/10/2019 (*)
LETRAS DEL TESORO 10% II- LEGISLACIÓN ORGANISMOS EXTRANJERA INTERNACIONALES 46% 22% ORGANISMOS OFICIALES I- LEGISLACIÓN TÍTULOS 2% ARGENTINA PÚBLICOS 54% 61% ADELANTOS TRANSITORIOS BCRA 3% OTROS Y PENDIENTE (*) Datos preliminares DE REEST. (*) Datos preliminares 2%
* Preliminary Information Note: USD/AR$ as of 30/06/2019 Source: Ministry of Economy of Argentina 資源：経済財務省 20 Contact: [email protected]; [email protected] Gross Debt Annual Maturities of Principal
Annual Principal Payments - Gross National Debt (USD MM ) 50.000
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050
2051-2117 2019 (10-12) Source: Ministry of Economy of Argentina 資源：経済財務省 21 Contact: [email protected]; [email protected] Gross Debt Annual Interest Payments
Annual Interest Payments - Gross National Debt (USD MM ) 50.000
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050
2051-2117 2019 (10-12) Source: Ministry of Economy of Argentina 資源：経済財務省 22 Contact: [email protected]; [email protected] Stock of Gross Debt at National Government – 31st of October 2019
NATIONAL GROSS DEBT - 2019 USD '000'000 - FX 31/10/2019 Octubre (*) Octubre % A- GROSS DEBT ( I + II + III) 310.479 100,00% B- GROSS DEBT (Excluded Reestructuring Pending I + II ) 308.053 99,22% I- Gross Debt under Regular Payment 307.949 99,19% Medium and Long Term 292.815 94,31% 1) Public Secuities 191.116 61,56% - Pesos 37.124 11,96% - Foreign Currency 153.978 49,59% 2) Treasury Bills (Letes, Lecaps) 25.157 8,10% - Pesos 6.298 2,03% - Foreign Currency 18.858 6,07% 3) Loans 76.048 24,49% Multilateral 67.948 21,88% FMI 44.019 BID 12.724 Official (Paris Club and Bilaterlas) 5.344 1,72% Commercial Loans 1.450 0,47% Loans with Guarantees, Pagare Notes and Other guarantees 1.305 0,42% 4) Transitory Advances to Central Bank of Argentina - Extraordinarios 494 0,16% Short Term (1) 15.135 4,87% 1) Transitory Advances to Central Bank of Argentina - Ordinarios 7.923 2,55% 2) Public Securities 0 0,00% 3) Treasury Bills (Letes, Lecaps) 7.211 2,32% - Pesos 6.699 2,16% - Foreign Currency 512 0,16% II- Gross Debt Under Deffered Payments 104 0,03% III- Eligible Debt for Reestructuring (2) 2.426 0,78% Source: Ministry of Economy of Argentina - 資源：経済財務省 23 Contact: [email protected]; [email protected] Total National Gross Debt Interest and Principal Maturities
Total payments due on yearly basis represent a heavy weigh on National Treasury Cash Flows, which can only be sustained through capital markets refinancing. Debt Rescheduling will put off such burden from fiscal accounts for a few period.
Total Debt Service (Principal and Interest) of Gross National Debt
(USD ‘000 - % of GDP) 25,56% 30,00% 132.444.917 140.000.000
20,00% 120.000.000 12,31% 9,66% 7,81% 8,85% 100.000.000 10,00% 5,56% 5,22% 3,34% 3,48% 80.000.000 0,00% 63.805.960 50.041.221 60.000.000 45.838.153 -10,00% 40.459.708 40.000.000 28.833.158 27.055.240 17.311.989 18.051.503 -20,00% 20.000.000
-30,00% - 2019 (Q4) 2020 2021 2022 2023 2024 2025 2026 2027-2117
Capital + Interest Capital + Interest Source: Ministry of Economy of Argentina 資源：経済財務省 Note: USD/AR$ as of 30/09/2019 24 Contact: [email protected]; [email protected] Total Interest and Principal Maturities
Interest payments due on yearly basis between 1% and 2.86% of GDP represent an indication of a required primary surplus to achieve fiscal balance. Debt rescheduling (interest included) will ease the way to fiscal balance for the time being. Total Interest of Gross National Debt (USD ‘000 - % of GDP) 10,00% 9,09% 140.000.000 8,00% 6,00% 120.000.000 4,00% 2,86% 2,23% 1,94% 100.000.000 1,54% 1,30% 1,18% 2,00% 1,07% 1,00% 80.000.000 0,00% -2,00% 60.000.000 47.085.413 -4,00% 40.000.000 -6,00% 14.838.184 11.541.170 10.063.120 20.000.000 -8,00% 5.519.668 7.999.674 6.746.947 6.132.525 5.172.588 -10,00% - 2019 (Q4) 2020 2021 2022 2023 2024 2025 2026 2027-2117
In terest In terest Source: Ministry of Economy of Argentina Note: USD/AR$ as of 30/09/2019 資源：経済財務省 25 Contact: [email protected]; [email protected] Total Interest and Principal Maturities
Heaviest debt service weight in 2020 -2023 representing 49.3% of total
Time Distribution of Debt Service Payments (Principal + Interest)
2027-2117 2020 32,6% 15,7%
2021 10,0%
2022 12,3%
2026 2023 2024 4,4% 11,3% 2025 7,1% 6,7% Note: USD/AR$ as of 30/09/2019 Excludes payments for 2019 Source: Ministry of Economy of Argentina 資源：経済財務省 26 Contact: [email protected]; [email protected] Monthly Foreign Currency Payments Due
Montly Foreign Currency Debt Payment Obligations run short above USD 2bn, between Nov 2019 and April 2020, which – worst case scenario - may be managed with Central Bank reserves while new administration negotiates rescheduling with IMF and private Debt holders Montly Payments of Principal and Interest Denominated in Foreign Currency (USD MM) 2019 nov & dic - 2020 9.000 9.000 8.095 8.000 8.000 7.000 Principal Interest Total 7.000 6.000 Total 2020: USD 30917MM 6.000
5.000 4.646 4.405 5.000 4.000 4.000 2.796 3.000 2.468 2.331 3.000 2.177 2.149 2.189 1.962 1.965 2.035 2.000 1.381 2.000 966 1.000 644 1.000 0 0 nov-19 dic-19 2019 ene-20 feb-20 mar-20 abr-20 may-20 jun-20 jul-20 ago-20 sep-20 oct-20 nov-20 dic-20 (11&12) Source: Ministry of Economy of Argentina 資源：経済財務省
CONFIDENCIAL 27 Contact: [email protected]; [email protected] Rescheduling as the Best Available Option
1. USD 100bn Debt re-profiling • Required to attend a liquidity situation caused by sudden change in capital market’s conditions after PASO election of August 11th
2. USD 44bn IMF Stand -by facility • To be renegotiated into an Extended Fund Facility (EFF) • Some structural reforms will be required 3. National Government solvency risk is declining • Based on current account surpluses, federal public finances, competitive FX, key sectors moving into long term growth, better managed central bank and improved liquidity due to first small rescheduling • Political uncertainty is the key risk component! 4. New Administration has to maintain fiscal financial balance • Required for feasible policy, debt sustainability and return to capital markets
28 Contact: [email protected]; [email protected] Summary Observations
1. Foreign Currency Payments Due between December 2019 and April 2020 represent USD 12bn approximately. • If this payments were to be made with Central Bank Reserves, we would be looking at a USD well above 95 AR$/USD (coeteris paribus for other variables). The effects of Central Bank´s negative equity need to be added to this • Foreign Currency Payments go up heavily in May 2019, making any payments out of Central Bank reserves unsustainable, highly disrupting for the whole economy and therefore unlikely to happen. • So… Negotiations for rescheduling with IMF and private debt holders MUST take place and BE CONCLUDED well before May 2020
2. Good News is that both IMF and Private Debt Holders have strong incentive in favor of a successful rescheduling of principal and interest for at least next 4 years
3. If Rescheduling is successfully achieved, the next key challenge will take place on the political front, to at least maintain primary fiscal balance • It needs to be considered uncertainty about when capital markets will reopen again
29 Contact: [email protected]; [email protected] Power Struggle and Beyond
30 Contact: [email protected]; [email protected] October 2019 General Elections Result
Alberto Fernandez won elections with 48% of votes (38% of the electorate) • Kirchnerism/PJ has control of Senate but not of Deputies
Balance of Power may be secured whereby Cambiemos leads a strong opposition to prevent uncontrolled Populism • Cambiemos 40% of votes is an excellent results well above expectations • Other forces such as Lavagna, Gomez and Espert may accompany rational propositions • Possible cooperation between AF and Cambiemos at some future
Alberto Fernandez and CFK sustaing opposing views about the future • Alberto Fernandez is in a Power Construction process • CFK claims victory for herself - unless proven otherwise • Massa holds a portion of the votes 31 Contact: [email protected]; [email protected] CFK - Alberto Fernandez Unsustainable Association
CFK Radical Populism • Neglecting republican and democratic principles, with manipulation of constitution CFK-AF Association was intended to win • International alliance with radical populist elections state and possible confrontation against western democracies • But the real Alberto Fernandez has openly Radica Socialist Economic Policy confronted CFK’s radical populist policies Alberto Fernandez Social Democratic AF also looks to lead key group within Populism Peronism, pursuing a transformation into a • Maintenance of republican principles Republican Democratic Party • International associations based on common economic interest • Keynesian style Social Market Economic policy
32 Contact: [email protected]; [email protected] Chamber of Deputies – Nobody holds Quorum or Majority
1. Kirchner/PJ Increased by 10 seats to total 120 • Requires 9 more votes to obtain quorum/majority
2. CFK and Traditional Peronism as separe forces Total 257 • Máximo Kirchner to head the Kirchner/PJ ’s block against strong opposition from non-CFK deputies
3. Cambiemos Increased by 10 seats to total 119 • Requires 10 more votes for quorum/majority
4. Massa holds power to pivot between AF, CFK & Cambiemos! • President of the Chamber • Has at least 13 deputies of his own and growing
5. Other forces to pivot support as suitable
33 Contact: [email protected]; [email protected] The Senate – Kirchnerism/PJ with Quorum and Majority
1. Kirchnerism/PJ has obtained absolute majority • Won 6 additional seats and has Total 72 Senado (Nuevo) 1 2 2. AF to construc his power at the Senate to 3 compete agains CFK • Build strong ties with Governors, • Already has suport of 14 Senators – and growing • Carlos Caseiro will lead this block • May pivot with Cambiemos following his needs 37 29 3. CFK will also put all energy in Senate • She is the formal President of the Senate • José Mayans will lead CFK’s block
Kirchnerismo Cambiemos Peronismo no K Consenso Federal Otros
34 Contact: [email protected]; [email protected] Key Appointments for Transition
FRIST decision made by Alberto Fernandez to incorporate 2 key members to the transition team highlights his drive for Transparency
Gustavo Beliz • Ex Minister of Justice under Nestor Kircher • Advocate of republican anti-corruption practices had to resign due to his convictions • Moved to Washington as Officer of IDB
Vilma Ibarra • Previouly Senator and Deputy at national level • Advocate of republican anti-corruption practices • Critized CFK policies including corruption practices on her book Cristina vs Cristina • Closed personal friend of AF, somehow provides a reference about Alberto’s ethical principals
35 Contact: [email protected]; [email protected] Cabinet Reveals itself as Rather Moderate Peronism
Economy Legal Secretary Guillermo Nielsen? Vilma Ibarra
Production: Chief Cabinet Minister Matías Kulfas Santiago Cafiero
Secretary of Presidency Energy Eduardo Valdez Sergio Lanziani Foreign Relations Central Bank Felipe Solá Miguel Pesce
Public Works Interior Gabriel Katopodis Wado de Pedro
YPF Defense Jorge Sapag? Agustin Rossi
Contact: [email protected]; [email protected] Foreign Policy
1- Relations with USA • Argentine is fully dependent on US relations, primarily due to Foreign Debt situation. Confronting against USA on Bolivia matters is highly negative for Argentina
2- Relations with Brazil • Confrontation between AF and Bolsonaro is leading into conflicting decisions affecting both countries • Bolsonaro won’t attend AF Presidential Assumptioon Ceremony- First time in 17 years! • Also extended a import quota to USA in conflict with Argenitna’s interest • Brazil is pushing for reduction of import tariff from 13.5% to 6% or 4% within 4 years term). This puts Mercosur at serious risk
3- Relations with Mexico • Look to counter balance past relationships with Cuba and Venezuela, working closer with Mexico socialist populism, which is a friendly to USA • Looks to position an alternative relationshi to counter-balance preasure from Brazil
37 Contact: [email protected]; [email protected] Foreign Policy (continued)
4- Grupo de Puebla • Looks to counterbalance Cuba-Venezuela radical poulism axis in Latin America • Show leadership to fix the problem of poverty in Latam
5- Relations with China • China is building full strategic alliance with Brazil, which is top commercial partner, and first investment in Brazil • Huawei announced investment in Brazil primera planta y en 2020 5G en Brazil
6- Relations with Europe • AF visited Spain and Portugal in September and will travel to Europe (Farnce, Germany, italy) before December 10th • Wants to obtain support for IMF negotiation and show leadership facing Latam stress conditions • FTA with Europe is under review for the moment
7- Relations with Japan • AF is likely to support strong ties with Japan, given limited exposure to down side risks of economic association 38 Contact: [email protected]; [email protected] Final Remarks
• Cambiemos obtained a high 40.37% of votes which allows as the key opposition force to achieve a good balanced of institutional power including Congress
• Alberto Fernandez is likely to pursue a moderate social market economy policy and makes an excellent first move announcing key team members which are strong in republican transparency credentials
• Battle between CFK’s radical populism and AF’s moderate social market model is starting to unwind
• The Transit to a sound economy – resolutoin of debt, inflation and growth - is the breaking point!
• Events in Latin America have the potential to feed back to Argentina and cause social ignition
39 Contact: [email protected]; [email protected] Outlook
40 Contact: [email protected]; [email protected] Decision Making Conditioned by Few Factors
1- Fiscal deficit is not a feasible option due to lack of financing means • Signals indicate that fiscal balance is to become a key objetive • Debt rescheduling is a must for such policy • Higher spending shall be financed with tax increases • Higher tax expected for personal assets and export taxes for certain products
2- Sovereign Debt • Negotiation with IMF and Debt holder will start soon • Outcome is expected to be in favor of rescheduling
3- Foreign Exchange and Reserves • New FX controls provide some room of action for the incoming cabinet, while containing possible market reactions, primarily by residents and local companies • Monetary Base expansion shall be kept under control (on a base case) following new yet to be agreed targets with IMF under rational fiscal management • Central Bank negative equity and leliqs problem has to be fixed at some near term • Any payment of debt services with Central Bank reserves will have a negative impact on peso exchange rate
41 Contact: [email protected]; [email protected] Decision Making Conditioned by Few Factors
4- Inflation and Interest Rates • Declining Leliqs interest rates and expected inflation for upcoming months is the starting point • This is in conflict with possible financing of fiscal expenditure with Monetary Expansion in future • Conversion of Leliqs into Monetary Base could represent an important risk if it happens • Some ideas for DesIndexation of the economy creates risk scenarios
5- Sources of Growth • Vaca Muerta will be secured as a recipient of Foreign Investments and as the KEY to the future of Argentina as a source of growth and forein exchange • Energy in general, agribusiness, mining, fishing, technology, transportation and infrastructuring… and related sectors to these mentioned here - will be the key drivers
6- Short Term Political Environment • Elections results show institutional balance of power in Congress to control Populist policies • General Economic and Social Agreement is a key tool for goverannce of real politik • Social conflict in Latam may inpact in Argentina igniting claims of social movement
42 Contact: [email protected]; [email protected] Possible Scenarios
Primary Surplus & Primary Fiscal Balance Primary Fiscal Deficit Fiscal Financial Balance Political Weight Possible Highly Possible Underweight
IMF Renegotiate into EFF and Renegotiate into EFF and Unclear due to IMF accept reform accept some reform possible conditions Debt Reschedule Principal Reschedule Principal and Unsuccessful attempt to payments Interest payments Reschedule fully Fiscal Surplus Primary surplus to sustain Primary balance possible Incompatible with interest payment under debt reschedule extreme populism Fiscal Spending Freeze and reconfigured Reconfigured and Increase as needed increase Tax Increase Possible to achieve primary Required to finance As possible surplus increase in spending Monetary Expansion Controlled Limited As needed
International Reserves Increase due to current Stable. Possible increase Freeze with capital and FX account surplus and if twin surplus of current controls, due to current selected capital inflows account/primary balance account deficit
43 Contact: [email protected]; [email protected] Risks and Opportunities
Risk Opportunity
Political • CFK sustaining Political Power • Dismemberment of CFK-AF-Massa • Latin American Crisis enhancing social • The Birth of Repuclican Peronism conflict in Argentina • Alliance AF/Cambiemos in Congress Economic • Capital controls preventing inflow of • Competitive FX rate to help drive growth Growth capital • Encapsulated Vaca Muerta • Social unrest • Activation of unemployed Human Capital Fiscal • Escalation of Fiscal Spending • Drive from Fiscal balance into surpluses Conditions • Increase of Taxes Monetary • Monetary expansion for fiscal financing • Monetary consolidation under • Conversion of Leliqs into Monetary Base international reserves expansion • Negative equity value for Central Bank • Decline of country risk premium • Un-indexing of the economy • Declining inflation expectations IMF • CFK not to accept EFF conditions • EFF conditions to be implemented with support of Peronism Debt • Collapse of rescheduling of Principal and • Successful rescheduling of Principal and Interest due to political and fiscal Interest conditions • Regain access to capital markets
44 Contact: [email protected]; [email protected] Thank You!
45 Contact: [email protected]; [email protected] Rodolfo G. Villalba
Mr. Villalba is Founder and Managing Partner of Fructus Capital S.A.S. in Buenos Aires and Founder and Managing Director of Alma Huayra S.A. Private Equity Firm, specialized in Mining Exploration and Development.
Between April 2016 and January 2018, he was Executive Vice President at the Argentine Agency for Investments and Trade, responsible for Asia region, helping to articulate inbound Foreing Direct Investments from Asian Investors into Argentina, and develop trade relationships with the region.
Between 2005 and 2016 he was Managing Partner of Fructus Management Financial Advisory in Tokyo and later in Buenos Aires and Managing Director of Alma Huayra S.A.
Between 2002 and 2004, Mr. Villalba was Executive General Manager at Mitsubishi Motors Co. Japan (during DaimlerChrysler capital alliance). He held positions as Head of Investor Relations and Value Based Management.
Between 1994 and 2001 he was an Investment Banker at JP Morgan Chase & Co. Between 1999 and 2001, he was Vice President and Head of the Automotive Industry in Asia, with office in NY, Hong Kong, and later Tokyo. Between 1995 and 1999 he was a Vice President and Client Investment Banker for Japanese Corporations in Europe based in London. After joining in 1994 and completing a 6 month Investment banking training in New York, he became an Associate and Capital Markets Officer, working in Emerging Markets with base in New York and later Tokyo.
Since 2008, Mr. Villalba is a Professor at the Master of Finance of CEMA University in Buenos Aires teaching Corporate Restructuring, Mergers and Acquisitions, Theory of Corporate Finance and Value Based Managements.
Mr. Villalba holds a Master degree from Sophia University in Tokyo, speicalizing Business Administration. He also holds a Master in International Relations from Belgrano University in Buenos Aires. He obtained a Diploma of Law from National University of Cordoba, and a B.A. in Political Science and International Relations from Catholic University of Cordoba in Argentina.
He is a native Spanish speaker, fluent in Japanese and English, and has command of German. He studied Japanese at Osaka University of Foreign Studie.
Mr. Villalba was a Monbusho (Japan Ministry of Education) Scholarship Student between 1991 1994. He was also an exchange student in Japan for one year at Sophia University Tokyo in 1986, and exchange student in Germany for one year in 1983.
He is married to Stella Maris and they have a little son named Salvador. 46 Contact: [email protected]; [email protected] Team
Mariano Lopez Associate at Fructus Capital Buenos Aires Cel/Whatsapp: (54 9 342) 5080555 [email protected]
Msc in Finance (UCEMA) and Bachelor in Business Administration (UNL)
Previously, he has participated as a “Business Development & Project Analyst” at Despegar.com in the Loyalty Program management during 2018 and 2019.
Also, he has worked as a “Senior Consultant in Project & Integration Management” working for Paradigma Consultores Asociados (2016 and 2018) and as a “Consultant in the Management Consulting Practice” for Price Waterhouse Coopers (2015 to 2016). During 2014 and 2015, he participated in the “process re- engineering” for the city of Avellaneda in Santa Fe province.
Mariano participated in the foreign trade course lectured by the Chamber of Foreign Commerce of Santa Fe and in the Business Simulator course of the Karlsruhe University of Applied Sciences, Germany.
Since 2019, he is an Assistant at the Master of Finance of CEMA University in Buenos Aires teaching Theory of Corporate Finance.
47 Contact: [email protected]; [email protected] Team
Vanesa Parma Kopp Associate at Fructus Capital Buenos Aires Cel/Whatsapp: (54 9 342) 5134253 [email protected]
Msc in Finance (UCEMA) and Bachelor in Accountant (UNL)
Previously, she has participated as an Accounting & Reporting Senior Analist at Shell C.A.P.S.A during 2017 and 2018.
Previously she has worked as a Senior Auditor working for Ernst&Young for oil and gas industry during 2016 and 2017.
She has also worked as Accounting Intern at Estudio Contable Altamira, Santa Fe Province during 2015.
Since 2019, she is a Professor at CEMA University in Buenos Aires teaching Business Finance and she is an Assistant at the Master of Finance teaching Theory of Corporate Finance.
48 Contact: [email protected]; [email protected] Team
María Belen Marolla Associate at Fructus Capital Buenos Aires Cel/Whatsapp: (54 9 249) 4521320 [email protected]
Msc in Finance (UCEMA) and Bachelor in Accountant (UNICEN).
Previously, she had participated as Head of External Audit at Estudio Videla S.R.L. from 2017 to the present, mainly in the area of health and agriculture.
Before, she was Senior External Audit Analyst at Pistrelli, Henry Martin and Asociates (Ernst&Young) (2015 to 2017), for companies in the energy - oil and gas sector.
Msc in Finance (UCEMA) and Bachelor in Accountant (UNICEN).
Since 2019, she is a Professor at CEMA University in Buenos Aires teaching Business Finance.
49 Contact: [email protected]; [email protected] Contact
Rodolfo Gabriel Villalba Mariano Lopez Fructus Capital S.A.S. Associate Managing Partner Cel/Whatsapp (54 9 342) 5080555 Cel/Whatsapp (54 9 11) 5827 7007 [email protected] [email protected] www.fructusmanagcapital.com.ar Vanesa Parma Kopp Associate Cel/Whatsapp (54 9 342) 5134253 [email protected]
Maria Belen Marolla Associate Cel/Whatsapp (54 9 249) 4521320 [email protected]
50 Contact: [email protected]; [email protected]