Alejo Czerwonko is an Argentine economist who has lived in New York for more than fifteen years. There he works for the Swiss bank UBS and leads the team that manages the investment strategy in emerging markets. UBS is a strong bank in private banking, especially among the ultra-rich segment of the population. He spoke to Clarín while passing through Buenos Aires, a few hours after the central bank announced changes in the exchange rate bands, S&P announced an improvement in its debt rating and the IMF announced a meeting on the matter. Here is the summary of the talk.
-How much can country risk fall in Argentina and over what period?
-It can reach the range of 350 points between one year and 18 months, which is the average level of emerging countries in credit category B. With time, if the tasks are completed and if the government adopts a more conciliatory and negotiation-oriented attitude, Argentina can reach this level in a year or 18 months. We expect the economy to grow by 5% next year and inflation to fall to the 20% range.
-What are the reasons for such a loss to occur?
-Argentina is one of the very few countries of a certain size with a budget surplus. Only 15% of countries in the IMF database forecast a surplus this year, and Argentina’s size forecast is less than 10%. The country enjoys the honor and trust of the United States that one does not know how long it will take, but the truth is that a year ago something that seemed like pure rhetoric became tangible and today Argentina is probably the country facing the most aggressive reform process in the world. Against this background, there is room for additional compression of country risk.
-Do you think Argentina will return to the markets soon?
-The country has practically returned to the markets. The issuance was in pesos, in dollars, and if it wanted to issue today it could do so, of course perhaps not on the terms that the authorities would like to see.
-How do you analyze the changes in bands announced this Monday by the Central Bank?
-The immediate reaction from the international investment community was almost entirely positive. The exchange rate system could benefit from a little more flexibility and a significant commitment to the accumulation of international reserves. In addition, it helps to maintain a good relationship with the International Monetary Fund in view of the review that will take place soon (NE: the IMF will start analyzing the Argentine case this Thursday).
-How is Milei viewed from the US after the elections?
-Milei uses his political capital intelligently and aggressively at the same time. He seized the opportunity and learned from the mistakes of the past by putting on the table a structural reform plan that is almost unparalleled anywhere in the world. I think what’s more interesting than what the bands announced on Monday is what’s happening on that front: There aren’t many countries making changes in their economic structure in a market-friendly direction, and Argentina is at the top of the list, which is no understatement.
– Could it be because the rest of the countries have already implemented these reforms?
-It is true that Argentina has acted against the planet. But Latin America would benefit greatly if its countries implemented reforms in line with Argentina’s, and we currently see no one acting with Milei’s impetus in this sense. Frankly, the world is moving in the opposite direction to Argentina: more protectionism, more government intervention in the economy, less central bank independence.
-Are Milei and Trump very different or very similar?
-Trump and Milei share questions about style, theatrics and anti-woke sermons. But in economic terms they couldn’t be more different: international trade, the budget deficit, the independence of the central bank. I think the differences are more brand related than the similarities, because even what is called woke in the United States is very different from what is called here in Argentina.
-What doubts does Wall Street have about Argentina?
-The country inspires a combination of enthusiasm and background. The first is because they see what Milei has achieved in these two years and the second is because Argentina regularly defaults on payments. The last time Wall Street was excited about Argentina was during the Macri era and a lot of money was lost. So little time has passed since then that many of those who still sit on the boards of funds and banks have lived through this time. It is said that anyone who has been burned by milk sees a cow and cries. The memory of those who presented the story that Argentina had changed and that this experience not only did not succeed but caused great professional damage to those who bet on it remains in the memory. It is assumed that things could be different now because concrete results are on the table, for example the budget balance.
– In addition to fields and energy, what other sectors are attracting the attention of investors in Argentina?
-Without a doubt mining. Lithium, copper, critical minerals, rare minerals. And Argentina also has a lot to gain as a services exporter.
-How will the international context and region impact Argentina?
-For that. On a global level, the Federal Reserve’s monetary policy for our region will continue to be lax, the dollar will continue to weaken, and there will be good commodity prices. As for the region, I believe that Latin America is on the path to increasing insignificance in global finance and that this year represents a potential turning point. Latin American stocks rose an average of 50% in dollar terms. I understand that Argentine stocks are down 10%. But Latin American ones rose sharply. Brazil, Chile, Colombia, Mexico. The region provides energy and food security for the world in many ways.
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