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* Our tactical positioning is based on the rebalancing of our latest portfolio recommendation against the EMBIG Index’s weights of the credits we track. For more on this, please check LatAm and Caribbean Fixed Income Strategy: “Home-grown factors back on the front burner”, 10 February.
ARGENTINA (CCC+/Ca/CCC-) OVERWEIGHT *
Argentina and IMF agree to reduce the reserves target for 2023
Argentina and the IMF Staff reached a Staff-level agreement on the fourth review under the ongoing External Fund Facility arrangement (EFF). The official press release confirmed that all quantitative targets were met last year and that a revision of the reserve goal was requested for 2023. The new target was not yet disclosed. Nevertheless, it is expected to be around USD10.1bn, USD2bn lower than the previous goal, according to daily Ambito. Currently, we estimate net reserves at USD3.6bn, accumulating a fall of USD4.1bn YTD. As regards the primary deficit and monetary financing ceilings for this year, the IMF Staff confirmed that they remain unchanged at 1.9% and 0.6% of GDP, respectively. Finally, the agreement is subject to approval by the IMF Board, which is expected to meet in the coming weeks. Completion of the review will give Argentina access to about USD5.3bn, according to the Staff.
In spite of the change in the reserves target, the official statement does not include any additional measures to address the impact of the drought that currently hits the country. In this context, the IMF Staff only stated that authorities would continue implementing the segmentation of energy tariffs, by eliminating subsidies for higher income residential users starting in May and commercial users by end-2023. This suggests that authorities would intend to tackle the fall in export taxes stemming from the drought with a more frontloaded reduction of energy subsidies in 2Q. Given the proximity of the August primary elections, we are sceptical about this strategy and reinforce our view that deviations from the fiscal targets are likely. Indeed, the IMF called for early actions to sustainably offset the fiscal cost of the recently approved pension moratorium. Finally, the statement also noted that authorities were committed not to using international reserves or issuing short-term external debt instruments to intervene in the parallel FX markets. It is noteworthy that the government has already breached this commitment, as it has been intervening steadily in the parallel markets since the launch of the dollar bond buyback last 18 January.
Capriles against the privatisation of PDVSA
Former Miranda State Governor Henrique Capriles reiterated on Monday his rejection to a potential privatisation of PDVSA, as proposed by presidential candidate María Corina Machado. Capriles warned about the belief that “everything public (state-owned) is bad, and everything private is good”, citing the recent downfall of Silicon Valley Bank as an example of a badly managed private business. The leader of First Justice (PJ) emphasised that the key is in the management of these firms, underlining that there are examples in the world of well-managed state-owned enterprises that can provide well-being for its people. In any case, Capriles noted that such a proposal would require a constitutional amendment, as the current legal framework establishes the state ownership of the company. Regarding the electoral process, the PJ’s candidate indicated that administrative restrictions imposed over his capacity to run for the presidency “are part of a wider negotiation agenda”, but that he will noy be waiting arms crossed for the lifting of such constraints.
Sources told Reuters that the US governemnt is not discussing a prisoner swap involving Saab
Two officials from the Biden administration informed Reuters that the US government is not discussing a potential swap of prisoners involving Maduro’s ally Alex Saab. The possibility of a prisoner exchange had been assessed in a Newsweek article last week, based on a letter and video sent to Joe Biden by a relative of one of the American prisoners detained in Venezuela. A US State Department spokesperson told Reuters that talks on prisoner swap involving Saab might be possible after his trial ran its course.
Former Russian stake in Petrozamora awarded to GazMin
According to Bloomberg, the government of Nicolás Maduro awarded a 40% stake in the oil joint venture Petrozamora to GazMin International, a relatively unknown firm based in the United Arab Emirates. The equity participation had been obtained from Russian hands last September, when the state-owned Gazprombank (unofficially) ceded its stock holdings to PDVSA. Petrozamora, located in the Western oil fields of Venezuela, was producing around 30.0k bpd at the end of last year, approximately a fifth of its potential.
THE BAHAMAS (B+/B1)
Government expects to be dropped from the EU´s blacklist by the end of the year
Attorney General Ryan Pinder commented that authorities expect to have The Bahamas off the European Union´s blacklist of non-cooperative tax jurisdictions by the end of the year. At a press conference, Mr Pinder said “the government is shooting for the last re-rating exercise of the year carried out by the EU, hoping for this jurisdiction to be found as compliant and struck from the blacklist”. As a reminder, the EU added The Bahamas to the list due to a “deficient economic substance reporting system”. In this sense, Mr Pinder said the government has signed a contract with the firm BDO to build a new system that the EU would find suitable.
Tourism industry facing capacity constraints according to the Bahamas Hotel and Tourism Association
Bahamas Hotel and Tourism Association (BHTA) president Robert Sands said that The Bahamas faces a “capacity challenge” and may not be able to fully meet tourism demand for 12 to 18 months due to a shortage of rooms. Mr Sands explained that several hotels have not reopened since the pandemic while others are refurbishing their facilities. Also, the BHTA president added that the length of stay was longer than pre-pandemic, which contributed to a decrease in room availability. In this vein, Mr Sands estimated that only by getting the available inventory of accommodation back online, the country could add up to 20% of capacity.
Central bank governor rules out devaluation
The central bank (BCB) informed it closed its first week of dollar sales with USD24.1mn sold in the provinces of La Paz, Cochabamba and Santa Cruz. In a statement, the BCB said that dollar sales were the result of measures taken by the bank to meet foreign currency demand of the population affected by “speculative process”. In this sense, the central bank stressed that sales “aimed at counteracting a speculative process brought by some people who are interested in creating uncertainty among the population”. Speaking to the local media, BCB Governor Edwin Rojas accused some exports of hoarding dollars outside the country. “What some exporters have begun to do has been to regulate or not allow dollars to flow to the country”, Mr Rojas said, adding that some entities in the financial services have collaborated with that. In this regard, he recalled that Bolivia has regulatory options to counteract this, although he did not mention any specific course of action. Finally, Mr Rojas stated the BCB will indefinitely maintain the direct sales of dollars to the public and ruled out a devaluation.
COLOMBIA (BB+/Baa2/BB+) UNDERWEIGHT *
President Petro says Clan del Golfo broke the ceasefire
President Gustavo Petro accused the Clan del Golfo, Colombia's largest criminal gang, of breaking a ceasefire by attacking an aqueduct during demonstrations by miners. The government reported that roadblocks connected to the protests affected up to 300,000 people across 12 municipalities in Colombia´s Antioquia and Córdoba provinces, resulting in shortages of fuel, food and medicine. The news comes amidst authorities´ expectations that Congress will pass a law approving surrender deals for criminal gangs, including benefits such as reduced prison sentences, in exchange for dismantling operations and paying reparations to victims, among other things. On another note, President Petro announced a second roundtable with dissident former members of the FARC guerrilla movement as part of his “total peace” policy.
Corruption scandal hits Petro’s approval rating
According to pollster Datexco, President Gustavo Petro´s approval rating fell to 34% from 36% a week ago. In turn, Petro´s disapproval rating increased to 55% from 53%. The deterioration of the President's support followed the corruption scandal involving his son, Nicolás Petro, who is accused of having received money from drug traffickers to finance his father´s presidential campaign. In this regard, 57% of respondents said Nicolás Petro (President Petro’s son) is guilty. On another note, 55% of those polled said they were against a peace negotiation with drug traffickers, while 36% were in favour. The survey was conducted between 9 and 10 March and polled 700 people.
Consumer confidence remains deep into negative territory
Fedesarrollo´s consumer confidence index (ICC) increased 0.8ppt in February to -27.8%. Despite the mild recovery, this was the second lowest print since May 2021. The tepid rebound was explained by the 3.7ppts increase in the Economic Conditions Index, which outweighed the 1.2ppts fall in the Consumer Expectations Index. According to Fedesarrollo, the willingness to buy houses, vehicles and other durable goods increased compared to January.
ECUADOR (B-/Caa3/B-) UNDERWEIGHT *
The trade surplus narrows slightly despite lower oil exports
The trade balance posted a USD24mn surplus in January, narrowing by USD86.3mn from a year earlier. The lower surplus was driven by a decline in oil and derivatives exports (-14.6% y-o-y), which offset the increases in banana (18.4% y-o-y) and shrimp exports (4.5% y-o-y). As a result, total exports fell 4.8% y-o-y to USD2.33bn. On the other hand, imports dropped 1.3% y-o-y to USD2.13bn led by the decreases in external purchases of raw materials (-14.2% y-o-y), capital goods (-1.1% y-o-y) and consumption goods (-1.1% y-o-y), which compensated for higher imports of fuels and oils (21.2% y-o-y).
EL SALVADOR (CCC+/Caa3/CC) OVERWEIGHT *
Bukele leads voting preferences with no opposition candidates in sight
According to the newspaper La Prensa Gráfica, 53.9% of the population would vote for the ruling party Nuevas Ideas in the February 2024 presidential elections. In this vein, voting intentions for President Bukele´s party have increased by 4.6ppts compared to the previous survey. The other parties only gathered 3.5% of the votes, while undecided voters remain high, accounting for 42.6% of respondents. The survey was carried out between 15 and 24 February and polled 1,500 people.
HONDURAS (BB-/B1) OVERWEIGHT
Secretary Barquero voices his dissent with the tax reform upheld by President Castro
Secretary of Economic Development Pedro Barquero revealed on Monday, during a debate on national TV, that he opposed the draft tax reform bill recently sent by the government to private sector representatives. Barquero disclosed that he expressed his dissent to President Xiomara Castro, indicating that the draft bill, if approved as it is, “would asphyxiate the economy and close it to the already scarce foreign investment that enters the country”. The Director of the Tax Administration Service (SAR) Marlon Ochoa regretted the comments by Barquero and labelled him as a “traitor” for opposing President Castro on this issue. The so-called Tax Justice Law already caused a negative reaction by the President of the Honduran Council of Private Enterprises (Cohep) Mateo Yibrín, who said that the reform “is a direct attack on employment and investment in the country”. Barquero’s public dissent might be a last-resort attempt from the cabinet’s most moderate member to make President Castro reconsider her stance. However, the strategy puts at risk his continuity in the government, a potentially negative outcome.
PARAGUAY (BB/Ba1/BB+) NEUTRAL *
Trade balance continued improving in February, despite declining soybean and by-products exports
The trade balance posted a USD121.3mn surplus in February, reversing the USD97.7mn deficit registered in the same period of last year. With February´s reading, the trade balance recorded its first surplus in nine months. The improvement in the trade balance was mainly explained by the increases in exports under the maquila regime (37% y-o-y), cereal exports (90% y-o-y), energy exports (20% y-o-y), re-exports (39% y-o-y), and other exports (207% y-o-y). Soybean exports rose 45% y-o-y but were offset by lower exports of soybean oil (-72% y-o-y) and soybean meal (-73% y-o-y), resulting in a 2.1% y-o-y fall in soybean and by-products exports. The 21.8% y-o-y decline in meat exports also dragged down total exports, which rose 17.1% y-o-y to USD1.16bn. On the other hand, imports fell 4.4% y-o-y to USD1bn, led by the plunge in intermediate goods (-28.6% y-o-y), which outweighed the rises in capital goods (14.6% y-o-y) and consumption goods imports (3.4% y-o-y). Finally, the trade balance accumulated a USD110mn deficit in the first two months of the year, compared to the USD440mn deficit registered in Jan-Feb 2022.
Our Latest Reports:
Argentina Flash Report: “Treasury leaks a misleading swap result, as private sector participation disappoints”, 10 March
Venezuela Economics and Strategy: “Our views on 9 critical issues for bondholders”, 9 March
Argentina Fixed Income Strategy: “Provincial fundamentals take the front seat”, 03 March
Ecuador Flash Report: “More pain to come”, 01 March
Panama Economics and Strategy: “The risk of fiscal mirage”, 28 February
Venezuela Economics and Strategy: “Moderation, the essential ingredient for a feasible transition”, 14 February
LatAm and Caribbean Fixed Income Strategy: “Home-grown factors back on the front burner”, 10 February
Peru Economics and Strategy: “Relative spreads to deteriorate further as politics remain unsupportive” 07 February
Ecuador Flash Report: “Reduce exposure on bonds as governability is set to deteriorate”, 06 February
Trinidad and Tobago Fixed Income Strategy: “TRITOB 24s: A story of overstated risks”, 03 February
Ecuador Flash Report: “Court rules to uphold tax reform and reduces fiscal uncertainty”, 02 February
Ecuador Economics and Strategy: “Political risk back to the spotlight”, 26 January
Venezuela Economics: “Chevron’s strong start and the outlook for the Venezuelan oil sector”, 23 January
Argentina Flash Report: "Massa pulls another rabbit out of the hat", 18 January.
Venezuela Economics and Strategy: “A key year for the opposition and for bondholders”, 16 January
Argentina Economics and Strategy: “The new elephant in the room”, 12 January
Argentina Flash Report: “Little upside on BUEAIR 27 from Supreme Court ruling”, 21 December 2022
2023 Year Ahead Outlook: “Lingering challenges”, 16 December 2022
BancTrust & Co. Research & Strategy Team.