Brazil is fine and dandy but is Argentina going to trigger a crisis AGAIN ?
April 25 (Bloomberg) -- Argentina's benchmark dollar bonds fell the most in nine months after Economy Minister Martin Lousteau resigned amid a surge in inflation and a dispute with farmers over an increase in export taxes.
Standard & Poor's cut the outlook on the country's debt ratings to negative from stable, saying Lousteau's resignation ``reflects the government's rejection of policies to correct the country's overheating economy.''
The yield on Argentina's benchmark 8.28 percent bonds maturing in 2033 jumped 65 basis points, or 0.65 percentage point, to 10.98 percent at 4:11 p.m. in New York, according to composite data compiled by Bloomberg. The bond's price fell 5 cents on the dollar, the biggest drop since July 26, to 75.5 cents. The price is the lowest since the government issued the security in December 2005.
``This is a negative development,'' said Cristina Panait, an emerging-market strategist at Los Angeles-based Payden & Rygel, which manages more than $50 billion in assets. ``Lousteau was seen as an orthodox economist who would have been more likely to address the inflation problem.''
Lousteau's resignation comes just four months after President Cristina Fernandez de Kirchner succeeded her husband, Nestor Kirchner. Shortages of products such as beef and poultry have surfaced in South America's second-biggest economy after farmers carried out a three-week nationwide strike last month to protest the export taxes.
Farmers are threatening to resume the work stoppage on May 2 unless there's progress in negotiations with the government.
S&P said accelerating inflation could ``fray social cohesion and lead to additional direct governmental interventions in the economy.'' S&P rates Argentine foreign debt B+, four levels below investment grade.
``If no corrections to the policies are made, the chances of a downgrade will increase,'' Sebastian Briozzo, an economist with S&P in Buenos Aires, said in an interview.
The risk of owning Argentine bonds increased to the highest since at least June 2005, according to Bloomberg data. Five-year credit default swaps based on the country's debt jumped 45 basis points to 620 basis points. That means it costs $620,000 to protect $10 million of the country's debt from default.
Annual inflation quickened to 8.8 percent last month, according to government figures. Economists say the government has been underreporting inflation after Kirchner appointed a political appointee last year to run the institute that compiles the data. Fernandez and Kirchner say the figures are accurate.
Bloomberg.com: Latin America