Speculation Argentina may earn a credit grade increase

Speculation Argentina may earn a credit grade increase after reaching a settlement of debt in default with the Paris Club is helping to reduce borrowing costs by more than 50 percent compared to countries with similar qualifications.

The extra yield investors demand to own Argentina's debt instead of bonds sold by the Dominican Republic, Belize, Jamaica, Ghana, Lebanon and Pakistan was reduced to 163 basis points, or 1.63 percentage points this week 331 June 30, according to JPMorgan Chase & Co. Like Argentina, the countries are rated B3 by Moody's Investors Service and B by Standard & Poor's.

An agreement with the Paris Club group of creditor nations, whose members are Germany, Japan and the U.S., more than about $ 7 billion debt to Argentina would move closer to the restructuring of almost all obligations dating back to the default record in 2001. Exchange of President Cristina Fernandez de Kirchner of $ 12.2 million in bonds earlier this year, in part, led S & P to boost Argentina's rating one level in September.

"An agreement with the Paris Club would be an event that could lead to an improvement in qualifying," said Igor Arsenin, head of Latin America strategy at Credit Suisse Group AG in New York, in a telephone interview. "There will be continued progress with the Paris Club."

Minister of Economy, Amado Boudou, met with representatives of the Paris Club last week as part of an effort to regain access to the financing of bilateral government agencies. Argentina is seeking a solution that will allow the country to maintain growth and the "reopening of the investment in the economy," Boudou said in Paris on 13 December.

Soybean harvest

the second largest South American economy grew by 8.6 percent in the third quarter after a record 55 million tons of soybean harvest metrics, statistics of the country and the National Census Dec. 17. Industrial production rose 12.8 percent in November from a year earlier, driven by a 36 percent jump in car production and 26 percent increase in vehicle exports, according to the Auto Manufacturers Association Argentina.

The central bank predicted the economy will grow by 9 percent this year, the fastest pace since 2005.

"Since September there has been an economic environment favorable for Argentina," said Sebastian Briozzo, director of Latin American S & P, in a telephone interview. "We are seeing a global positive external environment for commodity prices continue to rise and growth continues in Brazil, the main destination of the country's products."

Yield spread

The extra yield investors demand to hold Argentina's dollar bonds instead of U.S. Treasuries decreased 188 basis points from S & P raised the rating of the country from September 13-510, according to JPMorgan. The decrease in borrowing costs is the largest among emerging markets after Venezuela. Moody's last increase in the capacity of the country in June 2005.

"The perception in the market remains more conservative than our assessment is, despite the narrowing of spreads we've seen since the upgrade," said Briozzo. "The view is that Argentina is a relatively weaker credit than we think."

Moody's analyst Gabriel Torres did not return a phone call seeking comment.

An agreement with the Paris Club, would lead to increased ratings for Argentina, said Alberto Bernal, head of fixed income research at Bulltick Capital Markets, a brokerage firm based in Miami focusing on Latin America.

"A Paris Club agreement was always something to help the private sector in Argentina," he said in a telephone interview. "The ability to finance investments in infrastructure will be much better. If you see a higher level of investment in infrastructure, rating agencies will look at Argentina and see the prospects for sustainable growth."

The peso was little changed at 3.9753 per dollar.

Default Swaps

Guarantees linked to economic growth rose 0.2 percent to 14.5 cents.

The cost of insuring Argentine bonds against default for five years fell 13 basis points to 618, according to CMA DataVision. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fails to meet debt agreements.

Argentina's record 95 billion U.S. dollars debt default and the concern of the government's inflation underreports have damaged the country's credibility with investors. Fernandez says the government's inflation data is correct.

"Argentina has a lot of baggage," said Bernal. "It takes a lot of convincing, time, goodwill and new messages for you to start believing, and slowly people start to believe in Argentina."

The yield on the benchmark dollar bonds maturing in Argentina in 2017 fell 17 basis points yesterday to 8.15 percent. The notes produced 10.56 percent in September.

"The margins continue to fall," said Credit Suisse Arsenin. "It depends on how politics plays next year, but in the baseline scenario, the government will continue the same policies that have continued this year, and try to close the gap with the Paris Club."