Is the Argentine economy reversing the tango?


Argentina conjures up images of tango, football, gauchos … and a terrible economy, one of the worst in the world.

Its economy is expected to show weak or negative growth this year. Argentina is still in debt to American hedge funds, affectionately known as “vultures” in the country. And he remains the poster child of nations that default on their loans.

But there is new optimism in Argentina, mainly driven by the presidential elections coming later this year.

Its stock market is picking up and investors are buying countries’ debt (incredible news, given the country is mired in a recession and another default.)

“The economy seems to be steadily declining,” said Eugenio Aleman, Argentinian and senior economist at Wells Fargo Securities. “There are a few more positive waves going around.”

Related: Disagree: Argentina at fault as talks collapse

Elections bring economic hope: Lionel Bollini noticed the best vibrations. He owns La Dama de Bollini, a historic bar in Buenos Aires where Argentina’s most famous writer, Jorge Luis Borges, once mingled with his friends.

Rising taxes and inflation are tough for small business owners, but overall Argentina is starting to move in the right direction, Bollini says. More tourists visit his bar now than in years past.

“The economy is still struggling, but it’s a bit more practical, more honest for me,” says Bollini, 47. “Things are improving.”

Argentinian bollini
Lionel Bollini in his bar, La Dama de Bollini, in Buenos Aires. He is optimistic about Argentina’s economic future.

Argentina’s Merval stock market is up 45% this year, more than Europe’s stellar performance and way above the S&P 500.

Even everyday Argentines, battered by soaring food prices and electricity bills, have been feeling better lately. The country’s consumer confidence index is up more than 40% from a year ago, according to Torcuato di Tella University, a private university in Buenos Aires.

The presidential elections in October give hope that any administration could improve the country’s economy more than President Cristina Fernandez de Kirchner and Minister of the Economy Axel Kicillof.

Related: Five Reasons Venezuela Might Be The World’s Worst Economy

Kicillof, a frequent tweeter with Elvis-style favorites and loathing for ties, recently reported that Argentina had sold $ 1.4 billion in public debt.

This is a good sign for a country plagued by inflation and a currency that is losing value. Argentina paid a high price for selling the debt, offering a much higher interest rate on its dollar-denominated bonds than other Latin American countries.

“$ 1.4 billion will not solve all [debt] payments, but it’s better than nothing, “says Daniel Artana, senior economist at the Latin American Economic Surveys Foundation (FIEL) in Buenos Aires.” You can have a small economic recovery in the short term.

But the steak and wine party ends there.

Related: Scandalous History of the Boom in Brazil

The “vulture” problem: Argentina’s major problem stems from its $ 95 billion default in 2001, the largest of any country in history.

“I remember it was chaos,” says Bollini, the bar owner. Compared to 2001: “Everything is better now. [Last year’s default] was not the same. ”

US hedge funds, led by billionaire Paul Singer and his NML Capital fund, bought the country’s defaulted debt for very little money after the default.

Now they want to be paid back in full for $ 1.5 billion. New York judge Thomas Griesa agrees with hedge funds and ordered Argentina to pay. It is important to note that NML is a small minority looking for a full refund. The majority of Argentinian creditors have already accepted a steep discount.

In July, Griesa prevented Argentina from repaying its debt to its non-recalcitrant creditors before settling with the refractories, which ultimately forced Argentina to default.

Argentina and the hedge funds say they are always ready to negotiate. But NML urged Argentina to reopen talks in January after a key clause in the bond contract expired – the main reason Argentina refused to pay them. Argentina never responded to the invitation, according to the mediator of the case, Daniel Pollack.

Related: China’s Big Chess Stunt Against the United States: Latin America

No more ugly problems: Because Argentina refuses to pay the recalcitrant, it cannot access foreign investments. It is a huge problem. A huge oil field in Argentina remains intact because the country does not have the money to drill.

Experts say the only way Argentina can get investment from abroad is to settle with the holdouts.

It’s getting worse. Argentina’s economy is based on commodities like petroleum and soybeans. The prices of these two have fallen over the past year, although they have recently leveled off.

Add to this that the country’s two main trading partners – Russia and China – have slowed down this year, and it’s easy to see a rocky road for Argentina.

Yet the promise of a new president brings hope to Argentina.

“Everything is going well because there is an ending on the site and in December anyone can sing the ‘Wicked Witch is Dead’,” says Russ Dallen, Managing Partner at Caracas Capital Markets.

CNNMoney (New York) First published May 7, 2015: 8:14 a.m. ET

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