Templeton Funds: “Argentina suffered a speculative attack but is now recovering”

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The head of the largest investment fund in Argentina attributed the dollar crisis to misinformation in the financial markets.

One of the biggest investors in Argentina said that the financial crisis is ending, and he blamed the chaos that hit the market this summer a “massive speculative attack” and the exaggerated reaction at a local level.

The funds controlled by Michael Hasenstab, a major fund manager of Franklin Templeton, invested about 4.6 billion dollars in Argentine debt, betting that the government of Mauricio MACRI manages to improve one of the eternal cases Lost in Latin America.

“There was a lot of misinformation spread by people selling the currency short.”

Those bets were buried by the worsening of Argentina’s crisis this year, which halved the value of the peso against the US Dollar, cut the prices of the Bonds forcing the government to resort to an International Monetary Fund financing program for USD 50 billion and caused the deepest economic downturn since 2008.

But the IMF’s willingness to revise and even increase the size of its rescue package for a record amount and the government’s promise to tighten the belt and the Central Bank’s initiative to raise interest rates to a painful 60% brought stability to Argentine markets, which have now begun to recover.

“In a crisis, you want to see Orthodox policies, and that’s what was done in Argentina,” said Hasenstab in an interview with the Financial Times. “A very important recovery is now being observed.”

“The speculative attacks of August-when there is no one around due to summer holidays-immediately managed to take advantage. Also, they were vulnerable because it takes time to rebuild trust in the country after years of mismanagement”

Bounce Back

Argentina’s currency rose from a historical minimum of approximately $40 per the US dollar to $37.22, the index Merval rebounded 37% from the end of August and the Argentine bonds recovered part of their losses, which lowered returns after the peak of summer.

Hasenstab said the gravity of the sell-off It was exacerbated by the turmoil in emerging markets as a result of Turkey’s awkward response to its own crisis, a local population affected by the country’s many past crises–in which they used to protect themselves by converting pesos to dollars–and i Foreigners investors who make large bets that exaggerate the current vulnerabilities of Argentina.

“In Argentina, a huge speculative attack was launched, and there was a lot of misinformation then spread by people who sold the currency short.”

“The speculative attacks of August-when there is no one around-immediately manage to take the advantage. Argentina was vulnerable because it takes time to rebuild confidence in the country. “

“What Argentina did is an example of sensible and orthodox policies, which is not so common in today’s World”

In short, “It was a perfect little storm” for Argentina, said Hasenstab, director of investment for Franklin Templeton’s global team.

MACRI’s government pledged to eliminate the primary fiscal deficit next year–the gap between spending and revenue, not counting debt service–against the previous goal of reducing it to 1.3% of GDP. The fiscal deficit was 3.9% in 2017, and the target for this year is 2.7%.

The Central bank’s data indicate that Argentines ‘ haste to convert their deposits into dollar pesos also slowed down, alleviating one of the main pressure points against the local currency.

The IMF is also expected to finish revising the funding program for Argentina shortly, perhaps this week, which probably generates an initial concentration of money disbursements and possibly an increase in the programme.

Although many investors distrust that the deficit can be eliminated so quickly and fear that the austerity might cause the overthrow Macri in next year’s elections-even some former IMF officials criticized the program for being too generous with Argentina-, Hasenstab argued that the fund must have–and will–trust.

“I don’t know what else they could have done,” he said. “What Argentina did is an example of sensible and orthodox policies, which is not so common in today’s world.”

Source: La Cronista

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