Argentina default to impact on RP’s spreads

Argentina’s decision to default on about $3 billion of its maturing obligations will have a short-term impact on the country’s spreads, but economic officials are optimistic that the initial shock would wear off quickly as investors decouple the Philippines from the rest of the emerging markets.

The fallout from Argentina’s financial woes, is likely to send shock waves across emerging markets according to Finance Secretary Jose Isidro Camacho. But he said the Philippines has long been separated from Latin America despite being in the same basket of emerging markets.

Camacho is currently in London drum up interest in the Philippines.

In a teleconference with reporters, Camacho said European investors were still optimistic about the Philippines despite the level of political noise that has started to build up towards the 2004 presidential elections.

Camacho said he has already met with delegations from the major fund managers in Europe, including Baret, the asset management company of Socgen, Axa, Meryll Lynch, GIC of Singapore and Blue Bay Asset Management - all major fund managers with vast investments in emerging markets.

According to Camacho, the feedback from investors has been favorable and despite the Argentinian crisis, he said the focus of investors had been the improvements in the country’s fiscal position and its relative success in keeping the deficit within the programmed level.

"I disagree that the crisis in Argentina makes us more vulnerable," he said. "Our economy is much stronger and even now, we are able to present ourselves in the way that would distinguish the Philippines from them."

"I am meeting with investors dedicated to emerging markets and they are able to dissociate the Philippines from Argentina and other emerging markets," he pointed out. "There will be an initial shock but it will not last."

According to Camacho, the market would be bearish on emerging markets over the short term but said that by the time the government is ready to go back to the credit market, this initial shock would have dissipated.

"There was an immediate reaction but shortly thereafter the nuances emerged and they were able to appreciate that our fundamentals are different and much more favorable," he said.

Camacho said Argentina’s default would have no impact on the country’s borrowing, adding that the government still had the flexibility for opportunistic borrowing. "If we borrow, it will be something that we will do because the conditions are right, not something that we have to do regardless of the conditions."

Camacho said the European feedback indicated that there was still unfulfilled appetite for Philippine bonds. He said maturities of 5, 7 and 10 years were still open and the US is still receptive for longer-term issuances.

For its part, the Bangko Sentral ng Pilipinas (BSP) said the effect of the Argentinian crisis should be minimal and self-correcting, considering the differences and the uniqueness of the Argentinian situation.

"The conditions in Argentina are rather unique to Argentina," BSP Governor Rafael Carlos Buenaventura told reporters. "What we are seeing is the fallout from the dollarization of its economy and the consequences of having a concentration of maturing foreign debt."