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Argentina political risk (from IKN153, dated April 8th)

All of a sudden my mailbox is getting “What’s your thoughts on this Argentina thing?” type mails and as I’m feeling particularly torpid and soporific this fine morning, I’m going to answer said inquiries here and also by simply pasting out the note on Argentina political risk from The IKN Weekly issue 153, dated April 8th (two editions ago). It’s been very slightly redacted and I’ve highlighted the “bottom line” bit because that’s all you need to know (we also note that your author’s “maybe/maybe not” thoughts on YPF have now been answered), but what you see is what subscribers saw 10 days ago.
 Here it is (and btw, kudos on a good call at the Canaccord Energy desk). I’m off to make myself another coffee.

Argentina political risk perception growing in the North
The important word in the title is “perception”, because whether or not it’s deserved the World’s Free Press™ seems to have decided to go on an anti-Argentina spree, with the two prongs of attack the business climate, test case being YPF, and political freedom climate, test case being The Falklands/Las Malvinas. In the last 72 hours your author has read English language analysis and opinion from Canaccord’s energy desk cutting who recommend cutting exposure to Argentina due to political risk (the PDF title line being “Oil and Gas, International -Downgrading Argentina outlook – Be afraid, be very afraid — Target prices reduced”), some libertarian goldbug nutcase named Pater Tenebrarum (apparently he’s very widely read and I’m supposed to have heard of him before…sorry ‘bout that) who wrote a long, stupid, ignorant-gringo, highly cherry-picked article (14) that cobbles together the whole range of current affair issues to get to its point of accusing Cristina Fernandez de Kirchner of fascism, newswire stories bouncing between Bloomberg and Calgary (15) about imminent nationalizations, British banks being frozen out of Argentina if they support anything that goes on in The Falklands/Las Malvinas (16) and (of course, regular as clockwork) the warnings about how Argentina is on course for imminent economic collapse because of high interest rates and the way the country uses its Central Bank funds as a piggy bank and the weakening Peso all the other arguments the world has used against the country for roughly eight years…ever since Argentina had the temerity to throw out the IMF and its austerity plans, go it alone and do an excellent job of recovery from a financial meltdown largely caused by listening to overseas experts in the 1990s, in fact.

Because the issues lie well outside our fields covered by The IKN Weekly, we’re not going to get into the difficult and politically charged issues surrounding YPF right now (it might happen, might not), nor the pros and cons of the Falklands/Malvinas spat (you’ll note my neutrality by the way both names are given), nor whether Argentina really deserves a new round of criticisms or exposure downgrades from people who have absolutely no idea about the country (strange how countries like Argentina and Venezuela can stay constantly on the brink of collapse for a decade, while others like Iceland, Greece, Ireland get AAA ratings and warm plaudits). What we’re pointing to here is the perception, above all. It’s likely that this current Argentina-as-piñata fashion will continue (for as long as the country makes noises that threaten the back pockets of wealthy people up North, probably) and that perception is enough, most of the time at least, to get people running for cover and abandoning investment ideas that hinge on the country.

Our ‘Stocks to Follow’ list currently holds no exposure to Argentina, which is something that may change if we take the eventual plunge on [named removed] for its limited exposure to the country but apart from that there’s nothing in the active pipeline, if memory serves. This isn’t a coincidence as even in the best regions Argentina isn’t a plain sailing place in which to do mining business, while in the worst regions it’s simply impossible. Added to the bureaucratic levels that range between not easy to nightmare, inflation isn’t helping any company that earns in Dollars but pays for its mining in Pesos. The bottom line is that you tell me Argentina is a tough place to do business and I’ll agree, because it’s always been that way. You tell me that perception of Argentina in the eyes of the industrialized nations is degrading and I’d agree. Not only that, it’s probably an important development in our style-over-substance modern world. You tell me it’s some new Fascist State and I’ll laugh in your face and tell you to learn Spanish before trying to form an opinion about the place next time.

UPDATE: This morning Abel does a good job of gauging Argentine and international press and media reaction to the YPF news in this post right here.

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