CAPITAL MARKET
VII
Capital Market !In the first quarter of 2001, average prices of Argentine fi-
By the beginning of March, both indicators of tax co-
nancial assets increased slightly. Stocks recovered with respect
llection and industrial activity showed the persistence of reces-
to the average of the fourth quarter of last year, and the same
sion and the difficulty to comply with the targets agreed upon
did public securities, so the sovereign risk implicit in their prices
with the IMF. Besides, a financial crisis broke out in Turkey that
fell slightly. This modest advance took place within a more
provoked the rise of sovereign risk of emerging countries, with
favorable international environment. Face to a strong slowdo-
a particular effect over the Argentine economy. Then there came
wn of United States economy and the fall of American stock
two changes of Ministers of Economy, and finally the imple-
exchanges, the Federal Reserve implemented since January an
mentation of a program with a higher political consensus focu-
aggressive monetary policy that provoked, until June 2001, six
sed not just on public expenditure cuts. The Congress and the
successive reductions of short term interest rate. Said rate reduc-
executive power approved an emergency fiscal plan, whose first
tion was partially followed by Europe. However, at the closing
step included a Competitiveness Law, meant to improve eco-
of this Report, new reductions of corporate profits were an-
nomic conditions for the sectors producing tradable goods that
nounced in the United States, with a significant fall of the
were most affected by the crisis. For the sake of this, the gover-
growth rate expected for world economy this year. Within this
nment resorted basically to a tax on current account transactio-
environment, the fall of the technological stocks listed at the
ns, together with a series of tax deductions for sectors such as
NASDAQ continued. The domestic scenario was characterized by the absence of economic reactivation and the difficulties to close the fiscal gap. The year 2000 ended with a GDP fall of 0.5% y/y whereas the fiscal deficit amounted to U$S 6,900 millions, a little lower than the previous year, with a growing weight of interest within total Government obligations. In view of the problems to access external financing, in December, the government had decided to negotiate a contingent loan from the IMF with the aid of multilateral and bilateral agencies, known as the “financial shield”. As a consequence of this, during January and part
textiles, shoe wear, steel, automotive and other. Nevertheless, this series of measures was not enough and April’s fiscal and real indicators confirmed the persistence of the crisis. Thus, the government decided to implement a huge dollar public securities swap maturing in the next five years, for other series of securities with longer terms (between 7 and 30 years). This transaction allowed for the decompression of the financing needs for the next fifteen years by approximately 16,000 million dollars, with one total transaction that involved securities for almost 30,000 million dollars (Please see
of February 2001, expectations improved and since that there
Annex to this Chapter). Once it was completed, the govern-
was a significant recovery of bonds and stocks price.
ment decided to advance the enforcement of a system of wide 1
CAPITAL MARKET convertibility (by which the peso will be backed in equal parts
since January of 2001 the Federal Reserve implemented an
by dollars and euros). As well a tax reform focused on a reduc-
aggressive monetary policy through six consecutive decli-
tion of income tax, an increase of employers contributions to
nes (up to June 2001) of short-term interest rate, with the
social security and changes in the fuels tax. The plan seeks to
aim of avoiding recession. So, the federal funds rate decli-
improve competitiveness and encourage consumption; at the
ned from 6.5% at the end of 2000 down to 3.75% at the
time compliance of fiscal targets is guaranteed.
end of June this year. Said policy was accompanied by an also expansive fiscal strategy, since the American Congress
I. International outlook
approved a cut of income taxes, which would mean 1.3 billion additional dollars available for consumption in the next ten years. The fiscal effect of the measure for the se-
United States
cond semester of year is estimated to be 0.5% of GDP. Long-term rates of United States Treasury bonds
In the first quarter of 2001, the United States growth
gradually declined during the first quarter of 2001, thus
rate continued slowing down, with an increase of GDP of 1.2%
following the fall of short-term rates, but rose again in the
year-on-year. This figure was somewhat higher than the increa-
second quarter. Thus, the differential between short and
se of the previous quarter, but much lower than the first quarter
long term expanded in the last months, from less than one
of 2000, 4.8%. The GDP variation for the whole 2000 was
percentage point to a little more than two points. At the
5%, but for 2001, the main forecasts anticipate an important
closing of this report, the 30-year bond promised a yield of
slowdown (around 2.5%). Consumption continued growing
5.7% p.a. The fact that both in the United States and in
in the first quarter at higher rate than output (3.4%), particu-
Europe there is a controlled fiscal situation, in general, en-
larly durable goods, to the extent they account for a negative
courages a decline of rates. In the last year, the yield curve
savings of families. Exports fell slightly, but imports declined
of American Treasury securities returned to normal, adop-
significantly (-9%). Nevertheless, credit to consumption
ting the traditional shape as per the longer the term, the
continued growing more quickly than household income,
higher the rate (Graph 7.1).
which deteriorated their financial situation. The current account imbalance remains at 4% of GDP. In turn, unem-
American stocks had suffered strong falls during
ployment rate experienced a slight rise, up to 4.5%. Later
2000, partially reversing the appreciation of the previous
on, by the end of May, there was an acceleration of retail
5 years. In the first quarter of 2001, the main stock indexes
inflation, which amounted to 3.6% p.a., basically as a con-
continued falling. By March 2001, the Dow Jones index
sequence of price increase of fuels and electricity.
amounted to 9,500 points, with an accumulated loss of almost 20% from its peaks. In turn, the NASDAQ compo-
In the first quarter of 2001, the plunge of technolo-
site indicator, where mainly technological and Internet stoc-
gical stocks had started and in the first quarter of 2001 this
ks are listed, undergone a real plunge of 60% from its
process continued, which should impact as a moderation
peaks recorded in March 2000, down to levels near 1,800
of consumption during this year. Within that environment,
points. From then on, there was a certain recovery until
2
CAPITAL MARKET TABLE 7.1 International Capital Markets Indicators
End 1997
End 1998 End 1999 End 2000
31-Jan-01 28-Feb-01 30-Mar-01 30-Apr-01 31-May-01 22-Jun-01
Interbank Interest Rates LIBO US$ (6 months)
5.84%
5.08%
6.13%
6.20%
5.26%
4.91%
4.71%
4.30%
3.98%
3.73%
LIBO EUR (*) (6 months)
3.75%
3.22%
3.52%
5.07%
4.83%
4.64%
4.42%
4.74%
4.44%
4.32%
LIBO YEN (6 months)
0.77%
0.54%
0.23%
0.54%
0.44%
0.27%
0.13%
0.10%
0.08%
0.08%
US 1 year
5.49%
4.54%
5.91%
5.09%
4.93%
4.47%
4.17%
4.30%
4.12%
3.88%
US 10 years
5.74%
4.65%
6.37%
5.11%
5.11%
4.90%
4.92%
5.34%
5.38%
5.12%
US 30 years
5.93%
5.09%
6.48%
5.46%
5.50%
5.31%
5.44%
5.79%
5.75%
5.58%
EURO/US$
0.913
0.857
0.992
1.061
1.068
1.083
1.141
1.125
1.183
1.169
YEN/US$
130.1
114.9
102.4
114.8
116.6
117.4
126.33
123.5
119.2
124.4
SWISS FRANC/US$
1.456
1.386
1.594
1.611
1.635
1.668
1.743
1.733
1.798
1.773
STERLING POUND/US$
0.604
0.602
0.619
0.670
0.683
0.692
0.702
0.698
0.705
0.708
GOLD US$/Oz Troy (London)
289.8
286.9
287.8
272.3
265.9
267.2
265.9
264.1
265.9
274.0
Treasury Rates
Exchange Rates
Stock Market Indexes Dow Jones (USA)
7,916.0
9,316.3
11,452.5
10,786.8
10,887.4
10,495.3
9,878.8
10,735.0
10,911.9
10,604.6
NIKKEI (Japan)
15,258.7
13,842.0
18,934.4
13,785.7
13,843.6
12,883.5
12,999.7
13,934.3
13,262.1
13,044.6
FTSE 100 (United Kingdom)
5,132.3
5,882.6
6,930.2
6,222.5
6,297.5
5,917.9
5,633.7
5,966.9
5,796.9
5,665.7
DAX (Germany)
4,249.7
5,006.6
6,958.1
6,433.6
6,795.1
6,208.2
5,830.0
6,264.5
6,123.3
5,941.8
CAC 40 (France)
2,975.5
3,942.7
5,958.3
5,926.4
5,998.5
5,367.5
5,180.5
5,640.0
5,454.2
5,183.7
Argentina
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Brazil
1.12 8.12
1.21 9.94
1.81 9.48
1.95 9.62
1.97 9.68
2.05 9.69
2.15 9.46
2.20 9.24
2.38 9.17
2.32 9.07
Latin American Exchange Rates
Mexico
Latin American Stock Markets (in local currency ) MERVAL (Argentina) BOVESPA (Brazil) IPC (Mexico)
688
431
550
417
533
436
444
436
439
416
10,197
6,729
17,092
15,259
17,673
15,891
14,438
14,917
14,650
14,682
5,206
3,913
7,130
5,652
6,541
6,032
5,728
5,987
6,595
6,540
*Up to 12/31/98 these rates corresponded to libor in m arks Source: Public Credit National Office, Ministry of Econom y.
May, and both the Dow Jones and the NASDAQ increa-
indicated that the stocks decline would continue, in view of the
sed up to levels near 10,500 points and 2,100 points res-
successive warnings of lower returns of leading technological
pectively. However, at the closing of this report, perspectives
companies, including telecommunications.
3
CAPITAL MARKET GRAPH 7.1 Yield of US Treasury Bonds 7.0% 1 aæo
5 aæos
6.5%
30 aæos
6.0% 5.5% 5.0% 4.5% 4.0%
08/06/2001
04/05/2001
30/03/2001
23/02/2001
19/01/2001
15/12/2000
10/11/2000
06/10/2000
01/09/2000
28/07/2000
23/06/2000
19/05/2000
12/04/2000
10/03/2000
04/02/2000
30/12/1999
26/11/1999
22/10/1999
17/09/1999
13/08/1999
08/07/1999
04/06/1999
3.5%
Europe cents of dollar. This reaction diluted again by March, togeIn the first quarter of 2001, the pace of GDP growth in the zone of the euro amounted to 2.5% year-on-year, with a remarkable fall with respect to the variation of the same quarter of the previous year, when it was 3.5%. Simultaneously, the decline of unemployment rate seemed to stop, at levels near 9%. Wholesale inflation remained relatively high (5% p.a.), due to the weakness of the euro and the rise of oil price in the last year. Both exports and imports of countries outside the zone of the euro grew 12% p.a. After the general fall of European stock exchanges in 2000 (in Germany, the DAX index had lost 30% and technological papers more than 50%), in the last months, there is a certain generalized recovery (3-4%). By December 2000, in view of the fall of U.S. growth, the euro had recovered part of the place lost against the dollar in the last two years, exceeding the quote of 90
4
ther with the fall of world stock exchanges. Besides, the European Central bank reduced short-term interest rates by the end of May to 4.5% p.a., in view of the clearer evidences of slowdown in the main economies of the region. Thus, the euro went back to 86 cents of dollar by mid June. However, in the last meeting of June 7, the ECB decided to maintain interest rates constant, with the aim of defending the value of the euro in view of the fears of an acceleration of inflation. Retail prices grew 3.4% in May (from 2.6% in March), exceeding the limits established by the bank itself as target for the zone of the euro. In Germany, inflation recorded a peak of the last seven years. Recently, the labor government in Great Britain was re-elected and, consequently, the debate opened in said country about its future incorporation to the zone of the euro. This inclusion is particularly supported by big industrial corporations and the government, and resisted by
CAPITAL MARKET
GRAPH 7.2 Dollar Quotation compared to main currencies 1.2
1.1
1
0.9 0.8
0.7
Euro/U$S 22/06/2001
06/04/2001
19/01/2001
03/11/2000
18/08/2000
02/06/2000
17/03/2000
30/12/1999
15/10/1999
30/07/1999
14/05/1999
26/02/1999
11/12/1998
25/09/1998
10/07/1998
24/04/1998
06/02/1998
21/11/1997
05/09/1997
20/06/1997
04/04/1997
17/01/1997
01/11/1996
16/08/1996
31/05/1996
15/03/1996
29/12/1995
0.6
150.00 140.00 130.00 120.00 110.00 100.00 90.00
Yen / U$S
a great part of the population. Consequently, there was
22/06/2001
06/04/2001
19/01/2001
03/11/2000
18/08/2000
02/06/2000
17/03/2000
30/12/1999
15/10/1999
30/07/1999
14/05/1999
26/02/1999
11/12/1998
25/09/1998
10/07/1998
24/04/1998
06/02/1998
21/11/1997
05/09/1997
20/06/1997
04/04/1997
17/01/1997
01/11/1996
16/08/1996
31/05/1996
15/03/1996
29/12/1995
80.00
Brazil
a deterioration of the quotation of the sterling pound of 3% against the dollar, which amounts to 9% compared to one year before. It is estimated that the fall of the pound could continue in the event there is a voting about the adoption of the euro, and the definite incorporation could take place in two years’ time.
After a first quarter with a growth of 4.1% y/y of GDP, during the second quarter of 2001, the Brazilian government implemented measures to limit energy consumption, due to the lack of electricity derived from the drought in a great part of its territory. The country strongly depends on hydroelectric
5
CAPITAL MARKET production, and this shortage coincided with a period of
This unfavorable scenario is completed with retail
high cost of oil, of which Brazil is a big importer. Conse-
deflation (the only one case within developed countries)
quently, the forecast of GDP growth for 2001 decreased
and very low interest rates (0.15% p.a. for the discount
from 4.5% to 3%, and inflation accelerated from the begin-
rate), aside from a fall of the stock market of 20% in the last
ning of this year. By May, the increase of consumer prices
year. Nevertheless, in the last three months, the stock ex-
exceeded 7% p.a., and it is estimated that they will go on
change recovered 13%, although it continues to show his-
rising, pushed by transport and energy.
torically low levels of the last 15 years. Unemployment is still at 5%, although this modest result was achieved at the
The coexistence of inflation with high levels of ex-
expense of deepening fiscal imbalance up to 6% of GDP
ternal deficit and fiscal deficit (4% of GDP), aside from the
through successive expansive fiscal programs. According to
appearance of political problems within the ruling coalition,
IMF estimates, it would probably not prevent a new defla-
provoked important stock exchange falls (-28% in dollars in
tion during 2001, in spite of the increase of imported fuels
the last year). At the same time, there was a rise of country
prices.
risk up to 850 basis points in June, and the real plunged. The currency fell from R$1.96 per dollar in last December
The fiscal imbalance coexists with a strong external
down to less than R$2.45 per dollar in June, which would
surplus, since the current account excess amounts to 2.5%
mean a nominal fall of 25%. The Central bank had to take
of GDP. Traditionally, this excess is partly allocated to the
part selling dollars and securities indexed by the dollar. Ne-
purchase of American debt bonds. An important recovery
vertheless, industrial growth continues to be remarkable, for
of growth in the future seems improbable, since public debt
example in the case of automotive (24% p.a.). Argentina
amounts to 130% of GDP and many banks continue
took advantage of this bull market, and its exports of cars to
showing low solvency ratios, with non-performing loans for
Brazil increased approximately 50% in 2001.
more than 300,000 million dollars. The government refuses to reform the financial system, where foreign banks play
Japan
a much smaller role than in other developed economies. However, these irregular loans did not provoke any deposit flight crisis up to now, since the government guarantees all
In Japan, GDP growth had been moderate in 2000
placements.
(1.5%). However, in the first quarter of 2001, there was a trend switch, and GDP fell slightly (-0.1%). Economic
The yen fell constantly against the dollar during the
analysts estimate that the contraction will be repeated in the
last months, from near 100 yens per dollar at the beginning
second quarter, and that it would probably result in a nil
of 2000, to more than 120 by last March. In the last mon-
result for 2001. Thus, Japan would continue showing the
ths, it remained relatively constant, at 124 yens per dollar at
worst result within the main developed economies. It is
the closing of this report. With this evolution, it is probable
worth pointing out that Japan was the economy with the
that external demand continue to be the key of recovery, in
poorest performance within the G-7 during the last fifteen
an economy where big corporations are strongly focused on
years, with a growth of just 3% since 1996.
the world market.
6
CAPITAL MARKET
II. Evolution of the Argentine Stock Market
until again reaching lows of 400 points at the end of March. It is worth adding as explanation the persistence of the recession during the first quarter, when GDP went back again to 2.1%
In 2000, the Argentine stock market had shown a fall
y/y.
of business volume, continuing with the trend evidenced in 1999. In this process, stock transactions lost economic significance compared to the last years, accounting for only 5% of GDP. The average stock’s price also declined during 2000. In December last year, the indicator had not yet been able to take off the area of 400 points.
In almost all the second quarter, the indicator continued an erratic course. There was a soft recovery after the approval of the Competitiveness Law in April. Afterwards, the MERVAL fell again until the approval of the debt swap in June. Thus, the average of the local stock exchange during April and May still remained below 440 points. At the closing of this
In the first quarter of 2001, after obtaining the loan
Report, after the approval of the debt swap and the measures
known as “financial shield” and the better expectations, there
taken to advance wide convertibility to the external sector, the
was an important recovery, thus the MERVAL was near 540
index recorded 420 points, slightly above the 2000 close, but
points by the end of January. This rise was enough for the
some 20 points below the last day of March. A similar evolu-
quarterly average to be 471 points, 12% above the fourth quar-
tion followed the BURCAP indicator during the first quarter,
ter of the previous year. Nevertheless, at the end of February,
which with 790 points average in May was 14% below the
the stock exchange returned to falling, which became deeper
average of 2000.
after the Turkish crisis and the domestic political problems,
In the long-term, the evolution of the securities market
GRAPH 7.3 Merval Index Weekly closing 700
600
500
11/05/2001
23/03/2001
02/02/2001
15/12/2000
27/10/2000
08/09/2000
21/07/2000
02/06/2000
12/04/2000
25/02/2000
07/01/2000
19/11/1999
01/10/1999
13/08/1999
25/06/1999
07/05/1999
19/03/1999
29/01/1999
11/12/1998
23/10/1998
04/09/1998
17/07/1998
29/05/1998
08/04/1998
20/02/1998
300
02/01/1998
400
7
CAPITAL MARKET is strongly unfavorable, since the MERVAL had exceeded 800
the main Argentine securities.
points in the third quarter of 1997. However, in the last year, the evolution of international stock exchanges was,
The annual deterioration of Argentine sovereign
in general, also negative. In the first week of June, an-
risk is significant since, in the same period, the risk co-
nual falls of 28% for Brazil and 24% for Chile (in do-
rresponding to the group of emerging countries decrea-
llars) were recorded, as well as declines of around 20%
sed practically 100 points, as a consequence of the pro-
to 30% for most of Asian emerging markets. Also in the
gress made by some markets in Eastern Europe and Asia.
last year, stock exchanges in Germany, France, Italy and
This means that Argentina decreased some 300 basis
United Kingdom have stopped growing, and in some
points as a whole with respect to the average risk of
cases such as Japan, the plunge amounts to 30%. Only
emerging markets during the last year. In Latin America,
Mexico diverted from the general trend, with a 20%
the evolution was, in general, negative because Argenti-
profit in dollars (Table A 7.3 of statistical appendix and
na dragged the rest of the region, although the increases
Graph 7.3).
were much lower for Mexico and Brazil. In our country, the persistence of recession, the insufficient advances in
III. Evolution of Quotes and Public Debt Placements
the fiscal front and certain reserves on the part of international investors about long term fiscal solvency, provoked an important relative decline of public securities prices, as compared to the average of emerging coun-
1. Evolution of sovereign risk
tries. For example, the traditionally positive difference between Argentine and Brazilian sovereign risk reversed along the year, from 131 basis points in the first quarter
In the first quarter of 2001, there was in average a minimum decrease of sovereign risk 1 implicit in the price of public securities compared to the previous quarter. The indicator calculated by J.P. Morgan for Argenti-
of 2000 (lower risk for Argentina), until becoming negative in the first quarter of 2001 (lower risk for Brazil by 22 basis points). More recently, the latter trend becomes deeper.
ne securities (EMBI Argentina) decreased from 807 basis points in the fourth quarter of 2000 down to 752
By the end of last year, the government announ-
basis points. However, compared to the first quarter of
ced a contingent loan facility from the IMF and other
2000, there appears a strong deterioration of the index,
credit international agencies, plus the commitment of
which rose almost 37% in that period (200 basis po-
local banks for the renewal of debt. This fact was added
ints). Graph 7.4 and Table 7.2 show the evolution of
to the sudden fall of United States interest rate at the
1 Such indicators are defined as a spread between yield rates of the different dollar securities of the country and yield rates of the United States Treasury bonds of similar term.
8
CAPITAL MARKET
GRAPH 7.4 Sovereign Risk In basis points G LO BA L BO N D S RA 03
1200
RA 17 1050 900 750 600 450
12/30/99 01/19/00 02/08/00 02/28/00 03/19/00 04/08/00 04/28/00 05/18/00 06/07/00 06/27/00 07/17/00 08/06/00 08/26/00 09/15/00 10/05/00 10/25/00 11/14/00 12/04/00 12/24/00 01/13/01 02/02/01 02/22/01 03/14/01 04/03/01 04/23/01 05/13/01 06/02/01 06/22/01
300
BRA D Y BO N D S PAR STRIP 1,500 DISC. STRIP FRB
1,100
700
12/30/99 01/19/00 02/08/00 02/28/00 03/19/00 04/08/00 04/28/00 05/18/00 06/07/00 06/27/00 07/17/00 08/06/00 08/26/00 09/15/00 10/05/00 10/25/00 11/14/00 12/04/00 12/24/00 01/13/01 02/02/01 02/22/01 03/14/01 04/03/01 04/23/01 05/13/01 06/02/01 06/22/01
300
beginning of January, which allowed a soft fall of risk
the resignation of the minister of economy, expecta-
during January and February, together with the impro-
tions worsened and the Argentine EMBI exceeded
vement of the stock market and the fall of local interest rates. However, after certain real economy indicators and
1,000 basis points in the third week of March. The change in the economic management was not enough at the beginning to improve expectations, and after a
the fiscal collection of February were known, and after
slight decrease, the Argentine EMBI reached peaks of
9
CAPITAL MARKET TABLE 7.2 Evolution of sovereign risk In basis points DATE PRE 4 31-Mar-99 25-Jun-99 30-Sep-99 30-Dec-99 31-Mar-00 30-Jun-00 29-Sep-00 29-Dec-00 5-Jan-01 12-Jan-01 19-Jan-01 26-Jan-01 02-Feb-01 09-Feb-01 16-Feb-01 23-Feb-01 02-Mar-01 09-Mar-01 16-Mar-01 23-Mar-01 30-Mar-01 06-Apr-01 13-Apr-01 20-Apr-01 27-Apr-01 04-May-01 11-May-01 18-May-01 24-May-01 01-Jun-01 08-Jun-01 15-Jun-01 22-Jun-01
583 730 689 591 394 480 520 823 468 476 532 506 488 514 566 695 678 619 900 1758 1258 1223 1015 1065 1591 1401 1480 1247 1210 1545 1200 1253 1483
PAR STRIPPED
BRADY BONDS DISCOUNT STRIPPED
805 938 892 714 795 945 929 1048 916 933 929 896 898 939 934 1010 1015 988 1132 1381 1233 1116 1119 1300 1432 1268 1306 1164 1098 1223 1061 1130 1267
953 1,080 1,075 767 832 940 928 1066 943 959 948 918 941 973 937 1001 1003 979 1114 1384 1155 1135 1109 1138 1191 1254 1298 1223 1115 1142 1061 1187 1176
FRB
706 799 665 589 436 687 587 681 628 609 566 561 533 571 632 706 760 704 924 1318 1048 957 934 1418 1192 1160 1248 933 816 893 825 984 1127
GLOBAL BONDS RA 08 RA 17 RA 27
922 1012 1106
676 741 609 514 581 693 710 789 732 717 714 676 676 685 725 756 775 751 855 933 889 867 815 994 1137 914 1013 915 886 974 878 920 956
621 690 562 457 550 684 656 691 646 622 628 609 607 640 655 683 713 684 724 849 805 760 725 902 813 866 902 833 816 881 762 839 850
Source: Public Credit National Office, Ministry of Economy.
almost 1,300 points at the end of April, figures that
average of 994 basis points. After the implementa-
had not been recorded since the Russian debt crisis
tion of the debt swap, at the beginning of June, the
September of 1998.
EMBI fell 100 basis points in two days, although it then increased temporarily. At the closing of this
In May, the indicator remained high, with an
10
chapter, the indicator was still high, some 985 basis
CAPITAL MARKET TABLE 7.3 International market issues in 2001 Date of issue
Security
Currency
Amount Amount Term issued in d ollars -years-
(1)
Coupon rate
Spread
(2)
(3)
Global 12.0%/31 Euro 10.0%/07
31-Ene-01
USD
500
500
30.00
12.00%
656
22-Feb-01
EUROS
500
470
6.00
10.00%
586
Global 12.375%/12
21-Feb-01
USD
1,594
1,594
11.00
12.38%
720
Reop Global 12%/31
28-Feb-01
USD
250
250
29.90
12.00%
678
Reop Global 12%/31
30-Mar-01
USD
225
225
29.90
12.00%
768
Reop Global 12%/31
26-Abr-01
USD
200
200
29.80
Global 7-15,5%/08 Global 10-12%/08
19-Jun-01
USD
11,456
11,456
7.50
(a)
1,092
19-Jun-01
PESOS/USD
931
931
7.30
(b)
1,086
Global 12,25%/18
19-Jun-01
USD
7,463
7,463
17.00
12.25%
973
New Global 12%/31
19-Jun-01
USD
8,521
8,521
30.00
12.00%
913
Reop Global 12%/31
27-Jun-01
USD
300
300
30.00
12.00%
865
TOTAL
12.00%
734
31,910
(1) In m illions original currency (2) In m illions, as of the date and exchange rate of issue (3) Over U.S. Treasury Bonds of sim ilar duration (a) Coupon rate is 7% for the first 3 years and 15,5% for the rem aining ones (b) Coupon rate is 10% for the first 3 years and 12% for the rem aining ones Source: Public Credit National Office, Ministry of Econom y.
2. Public debt placements
points, although with a downward trend. It is estimated that, to the extent the fiscal situation is con-
International market
solidated and growth returns, sovereign risk should fall significantly.
Placement at the international market during
TABLE 7.4 Bond placements in the international market Year
Issues Volume
1994 (*) 1995 1996 1997 1998 1999 2000 2001 (**)
19 18 30 18 24 40 16 11
Amount in dollars (1)
2,600 6,370 10,413 10,214 11,664 11,869 12,359 31,910
Average Life (years)
Spread
3.3 4.0 8.2 14.9 13.3 7.6 11.8 16.9
238 371 395 310 429 594 536 973
(2)
(*) Excludes syndicated loan for U$S 500 millions (**) First semester (1) In millions, as of the date and exchange rate of issue (2) Over U.S. Treasury Bonds of similar duration Source: Public Credit National Office, Ministry of Economy.
11
CAPITAL MARKET TABLE 7.5 Public Debt Issues in the domestic market In 2001 Treasury Bills (LETES) Placement Date
Currency
Amount (1)
Term
Disc. Rate
N.A.Rate
Status
09-Jan-01 09-Jan-01 23-Jan-01 06-Feb-01 06-Feb-01 20-Feb-01 13-Mar-01 13-Mar-01 27-Mar-01 10-Apr-01 10-Apr-01 08-May-01 22-May-01 22-May-01 12-Jun-01 12-Jun-01
DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR DOLLAR
369.1 362.9 356.9 350.0 354.0 350.0 350.0 506.7 353.0 350.0 350.0 350.0 350.0 150.0 350.0 350.0
94 182 91 91 182 91 182 364 91 88 179 91 92 169 91 182
8.29% 8.76% 6.64% 6.60% 7.09% 6.74% 8.50% 10.50% 10.67% 10.09% 11.24% 12.06% 11.73% 11.75% 7.74% 9.43%
8.47% 9.17% 6.75% 6.71% 7.35% 6.86% 8.88% 11.75% 10.96% 10.35% 11.91% 12.44% 12.09% 12.44% 7.89% 9.90%
Cancelled Cancelled Cancelled Cancelled Cancelled Cancelled Outstanding Outstanding Cancelled Cancelled Outstanding Outstanding Outstanding Outstanding Outstanding Outstanding
TOTAL
5,602.6
Treasury Bonds (BONTES) Placement Date
Currency
Amount (1)
Term
Interest Rate
Spread
7-Feb-01 (*) 30-Mar-01
DOLLAR DOLLAR
2,608.1 420.0
5.2 4.1
11.75% 12.13%
657 982
Interest Rate
Spread
(2)+435 bp (3)
603 (3)
TOTAL
3,028.1
Other transactions ("Promissory notes" bonds) Placement Date
Currency
13-Feb-01 19-Jun-01
DOLLAR DOLLAR
TOTAL
Amount (1)
Maturity
150.0 13-Feb-04 2,060.4 19-Jun-06 2,210.4
(*) This BONTES issue was part of a securities swap transaction (1) Nominal value in millions. In LETES it includes an additional 10%, optional for market makers. (2) Monthly adjusted interest rate by the dollar deposit rate, every term (*) The interest rate applied is the highest of the one surveyed for US$, for 30 - 59 days’ terms plus 580 bp. and the Badlar rate in US$ plus 150 bp. Source: Public Credit National Office, Ministry of Economy.
the first half of 2001 amounted to U$S 31,910 millions, a
were made for U$S 3,539 millions (Table 7.3), including two
peak record for Argentina. This amount includes the swap mega
issues of Global Bonds for U$S 2,094 millions. Maturities of
transaction for U$S 28,371 millions, analyzed in detail in an
these debt instruments were agreed upon between 6 and 30
Annex to this chapter. Additionally, other placements of debt
years. In the first semester, the average spread of all these securi-
12
CAPITAL MARKET ties over American treasury bonds with the same term was 973
ve (reduction of United States rates, slight strengthening of the
basis points, with an average duration of around 16.9 years.
euro and better commodities prices) reinforced the fall of rates
This meant an average longer term of 5 years as compared to
at the beginning of January, when 90 days’ LETES declined to
placements made in 2000, although spread levels also increa-
8.5% p.a. And even more at the beginning of February, when
sed significantly (a rise of more than 300 basis points with
only 6.7% p.a. was paid for 90 days.
respect to the average spread of previous year) (Table 7.4). By the end of February, the Turkish financial crisis took Analyzing placements by type of currency, it can be
place and, after knowing our country’s fiscal and real results for
seen that more than 95% was denominated in dollars, and the
said month, expectations worsened again. In this environment,
rest corresponds to issues in euros and in pesos. This composi-
two ministers of economy changes took place and the percep-
tion was strongly influenced by the debt swap transaction,
tion of sovereign risk was higher, thus suspending the auction
which involved all the old series of bonds issued in American
of the beginning of March. In the auction at the end of March,
currency. The difficult conditions of the international debt
however, the 90-day rate was 11% p.a., somewhat lower than
market faced by our country in the new issues placement’s,
expected by the market, and even at the beginning of April,
partly derived from the delicate fiscal situation. As well, the rise
there was a new decline to 10.4%. Nevertheless, the lack of
of the sovereign risk implicit in the price of bonds during Mar-
economic reactivation and the scenario of fiscal fragility was
ch to June eventually provoked the swap transaction, which
translated into a fall of domestic confidence during May, when
had to accept high interest rates in dollars for longer terms than
the LETES rate exceeded 12.4% at the beginning of May and
the ones prevailing up to then.
remained at 12.1% at the end of said month. Finally, after a successful debt swap at the beginning of June, lower rates were
Domestic market
obtained in the last auctions: 7.9% for 90 days at the beginning of June, and 9.1% at the end of the same month.
During the first quarter, most Treasury Bills (LETES) auctions scheduled in the local market were performed, on a bi-
As regards the other placements in the local market, it is
monthly basis since 2000 (Table 7.5). According to the sche-
worth mentioning that during the first quarter of 2001 Trea-
dule, the auctions made at the beginning of each month, LE-
sury Bonds (BONTES) were issued for U$S 3,028 millions.
TES were placed at 91 and 182 days’ terms (except in March),
This debt was mostly used for the bond swap (U$S 2,608
and in the auctions made at the end of the month, bills’ term
millions), and the rest was place in cash. Finally, promissory
was 91 days.
notes discount during the months already elapsed of 2001 amounted to U$S 2,210 millions and, the same as for LETES,
Along the first quarter, interest rates showed an erratic
there was an increase of interest rates compared to last year.
course. As a consequence of the announcement of the IMF contingent loan, the rate in the December 2000 auction of LETES for 91 days had fallen to 11.8% p.a. (compared to the
IV. Private Pension Funds Investments
peak of 12.6% paid in November), and the one corresponding to 182 days did so to 12.2%. The best international perspecti-
As of April 30, 2001, the value of private pension funds
13
CAPITAL MARKET TABLE 7.6 Private pension funds investments In thousand Pesos % Limit (1) I. Cash and Cash Equivalents II. Investments
Public securities issued by the National govt. 50 Negotiable Publ. Sec. issued by Nat'l govt. Publ. Sec. issued by Nat'l govt. - Forward Securities issued by State Organisms 15 Negotiable Sec. issued by State Org. Sec. issued by State Org. - Forward Provincial Govt. Securities Municipal Govt. Securities Long term Corporate Bonds 28 Short term Corporate Bonds 14 Convertible Corporate Bonds 28 Fixed Term Deposits 28 Fixed Term Certificates Variable return fixed term deposits Prepayable Fixed term deposits Corporate stocks 35 Public companies stocks 14 Mutual Funds 14 Closed Mutual Funds Open Mutual Funds Financial Trusts Foreign sovereign securities 10 Foreign corporate securities 7 Foreign corporate stocks Foreign corporate securities Mutual Funds according to article 3 Instruct. 18/00 Regional Economies (*) Real Estate Mortgage bonds and bills 28 Futures and Options 2 Direct Investment Funds 10 III. Total Pension Funds
31-Dec-98 Amount % Fund 175,239 1.5 11,351,155 98.5
5,530,824 2,292,438 3,238,386 231,125 100,359 52,535 46,132 32,098 193,151 83,223 11,839 2,170,132 173,087 1,997,045
48.0 19.9 28.1 2.0 0.9 0.5 0.4 0.3 1.7 0.7 0.1 18.8 1.5 17.3
1,823,508 292,170 759,377 3,716 427,795 327,866 220 28,700
31-Dec-99 Amount % Fund 163,040 1.0 16,624,059 99.0
15.8 2.5 6.6 0.0 3.7 2.8 0.0 0.2
8,141,465 3,731,782 4,409,683 637,630 167,600 22,711 391,226 56,093 238,660 105,466 14,245 2,597,395 2,084,794 512,601 0 3,199,541 249,218 1,054,646 12,292 592,668 449,686 211 61,263
48.5 22.2 26.3 3.8 1.0 0.1 2.3 0.3 1.4 0.6 0.1 15.5 12.4 3.1 0.0 19.1 1.5 6.3 0.1 3.5 2.7 0.0 0.4
163,809 40,365 21,497
1.4 0.4 0.2
236,802 14,151 40,780 32,586
11,526,393
100.0
16,787,099
30-Apr-01 Amount % Fund 157,243 0.73 21,474,982 99.27
1.4 0.1 0.2 0.2
10,606,959 4,112,513 6,494,446 1,023,404 103,520 168 765,780 153,936 425,644 90,776 0 3,479,455 3,223,063 146,312 110,081 2,371,770 257,538 1,925,183 11,196 304,188 1,609,798 0 927,150 830,483 28,364 68,303 305,701 10,069 12,479 38,853
49.03 19.01 30.02 4.73 0.48 0.00 3.54 0.71 1.97 0.42 0.00 16.08 14.90 0.68 0.51 10.96 1.19 8.90 0.05 1.41 7.44 0.00 4.29 3.84 0.13 0.32 1.41 0.05 0.06 0.18
100.0
21,632,225
100.00
(* ) Th is type of in vestm ent o nly app lies to Naci n A.F.J.P. an d h as a m a xim um of 50% o f the total. (1 ) Maxim um percen tag e per in stru m ent th e p ension fund s is authorized to invest. So urce: Secretary of Econ om ic Policy, b ased o n S.A.F.J.P. [Pension fund Su perinten den t]
amounted to approximately $ 21,632 millions, around 7.6%
Historically, the average profitability of the system was 11.2%
of GDP. This represented a decrease of 1.5% with respect to
p.a. by the end of April of 2001, some two points less than one
the end of January 2001. Average profitability in April 2001
year before. It is worth pointing out that during the last three
compared to the same month of 2000 was just 2% y/y, some
years (April 1998 - April 2001) the average profitability of the
12 points lower than the previous year. This meager result is
system was somewhat lower than 5% p.a., due the fact that in
basically the consequence of the fall of stocks and public secu-
that period two years of bad results were recorded (1999 and
rities, due to the rise of country risk during the last two quarters.
2001) and only 2000 was clearly positive. The system’s con-
14
CAPITAL MARKET centration increased after the merger authorized last year, so the
for 49% of investments in April 2001 (values slightly higher
four bigger managers are now responsible for 73% of total
than the 48.5% recorded at the end of 1999). These percen-
funds of the system and 75% of contributors, and the rest is
tages are closer to the maximum allowed for this investment
distributed among nine companies. In the last months, there
category, namely 50%. Within these instruments there was a
have even been new acquisitions.
change in the different categories with respect to December 1999. There was an increase in the portion of these securities
During the last year, the number of registered persons
valued on an accrued basis and that will be kept until maturi-
of the private pension system increased by approximately
ty2 , which now account for 30% of funds, and a slight decrea-
480,000 persons, up to a total of 8.54 millions but, in contrast,
se of the share of negotiable securities (19%). Securities issued
the number of contributors remained practically the same (3.36
by state agencies (mortgage-backed, banks, provincial and
millions). This means that the relation between contributors
municipal governments securities) represented at the end of
and registered persons fell down to lows of 39.1% in April
last April 4.7% of total funds, with a slight fall over the figures
2001. It is worth highlighting the fact that 95% of contribu-
recorded at the end of January 2001.
tors are salaried workers, and only the remaining 5% are selfemployed. So, the average accumulated funds per registered person are slightly in excess of $ 2,500.
Stocks in their two categories (of corporations and privatized state-owned companies) continued losing share within managers’ investments. In April 2001, they accounted for just
Tables 7.6 and A 7.4 (the latter of the statistical appen-
12.2% of the total portfolio, going down to the third place
dix) and Graph 7.5 show in detail the composition of the
within managers’ preference due to both the fall of quotes and
funds administered by private pension funds. Table 7.6 shows
the decrease of stock’s volume. This percentage implies a strong
that, during 2001, there were few significant changes of said
decrease with respect to the end of 1999 (20.6%) and even
composition measured in percentage points. National public
with respect to April 2000 (19.5%).
securities maintained their share and provincial and municipal securities increased slightly. There was a strong increase of secu-
In April 2001, fixed term deposits were second
rities issued by foreign corporations, whereas the most impor-
within managers’ preferences, with 16.1% of total funds,
tant fall was verified for national corporations’ stocks, even pri-
which implies an increase of two percentage points with
vatized companies and, to a lesser extent, in fixed term deposits.
respect to January 2001. Term deposits with variable yield
The funds place in financial trusts also increased.
(DIVA) 3 and those with a pre-payment option account for only 7% of total term deposits, most corresponding to
Analyzing these movements in detail, it can be seen
the traditional fixed term deposits with a fixed yield. The
that National Public securities are the instrument with the hig-
rise of fixed term deposits during the last months is the
hest share within private pension funds portfolios, accounting
result of the increase of rates due to their higher relative
2 It is worth remembering that in the case of these securities (either issued by the Federal Government or by other government agencies) there is the possibility of pricing part of them not at market value but on an accrued basis, i.e., at their purchase price adjusted for the compounding of the internal return rate the security had at the time of the purchase, in which case the security has to be retained until maturity. By valuing securities this way, the private pension funds try to ensure value increases of their shares at a low risk. On the contrary, the portion of negotiable securities is valued at market prices and, consequently, is subject to capital market volatility. 3 These deposits have guaranteed principal and their yield is based on the evolution of an underlying financial asset (national or international stock index, stocks, public securities).
15
CAPITAL MARKET security within a complex economic environment.
total investments (to a good extent thanks to certificates representing stocks of privatized companies now Spanish traded in
Some categories of investment have advanced lately.
the local stock exchange). Negotiable obligations increased to a
On the one hand, securities of government agencies, provincial
lesser extent, from 2.1% to 2.4% of the total (though they
and municipal, went from accounting for 2.6% of investments
decreased with respect to January this year). Mutual funds re-
at the end of 1999 to 4.7% in April 2001. Secondly, there
covered some share within private pension funds portfolios
were advances in the portion of foreign companies’ securities,
during the last year (from 6.3% to 8.9% of the total), especially
which grew between the same dates from 0.4% to 4.3% of
the portion corresponding to financial trusts (7.4% of total).
GRAPH 7.5 A.F.J.P. Investments as 04-30-01
6,41% Mutual Funds
53.76% Government Securities
6.71% Others
2,27% Corporated Bonds 16.08% Term Deposits
16
12.15% Shares
CAPITAL MARKET
ANNEX The June 2001 Debt Swap
On June 1º, 2001, a public debt securities swap tran-
compress the Government’s short-term financial needs, so as to
saction took place that, due to its size, received the name of
dilute any type of uncertainty about the Argentine State’s capa-
“mega swap” and it is the first example of a mechanism to solve
city to comply with its obligations. On the other hand, the
a debt crisis. The basic objective of this transaction was to de-
transaction releases pressure on capital markets, which allows
TABLE 7.7 Description of the new bonds PROMISSORY NOTE
GLOBAL $ / US$
GLOBAL
GLOBAL
GLOBAL
2006
2008
2008
2018
2031
5
7.25
7.5
17
30
Maturity
19-Jun-06
19-Sep-08
19-Dec-08
19-Jun-18
19-Jun-31
Nominal Value Issued
2,060.41
930.80
11,456.13
7,463.25
8,520.69
30,431
bi-annual 12.25%
bi-annual 12%
10,28% (b)
Term (in years)
PORTFOLIO
monthly
bi-annual
bi-annual
(a)
10% 1º al 3º year 12% 4º year at maturity
7% 1º to 3º year 15,5% 4º year at maturity
Compounding
580 pb up to jun-03
NO
NO
Interest up to jun-06
Interest up to jun06
Amortization
6 bi-annual installments
Bullet (c)
6 bi-annual installments
5 bi-annual installments
Bullet (c)
Average life
3.75
7.25
6.3
16
30
15.15
15.38%
15.99%
15.95%
15.24%
14.90%
15.29%
3.13
4.99
4.81
10.91
12.15
8.00
Coupon
Yield at maturity Duration
Amortization Schedule
Placement Price Listing Legislation Custody and Registratio
19-Dec-03 19-Jun-04 19-Dec-04 16-Jun-05 19-Dec-05 19-Jun-06
16.66% 16.66% 16.66% 16.66% 16.66% 16.70%
100
19-Sep-08
78.32
19-Jun-06 19-Dec-06 19-Jun-07 19-Dec-07 19-Jun-08 19-Dec-08
16.66% 16.66% 16.66% 16.66% 16.66% 16.70%
78.55
19-Jun-16 19-Dec-16 19-Jun-17 19-Dec-17 19-Jun-18
20% 20% 20% 20% 20%
73.25
Buenos Aires
Buenos Aires and Luxemburgo
Argentina
New York State
CRYL Caja de Valores
Euroclear - Clearstream - DTC Caja de Valores
19-Jun-31
70.7
(a) The highest of the dollar Fixed Term deposits Survey rate for 30 to 59 days’ terms published by the B.C.R.A. plus 580 basic points and the BADLAR private lending rate in dollars plus 150 basic points (b) At the beginning: 10.28%. Averaging step-up: 12.23%. At the end: 13.54% (c) That is to say, fully at maturity Source: Undersecretariat of Financing - Secretariat of Finance
17
CAPITAL MARKET TABLE 7.8 Decrease of debt services up to 2005 Principal and Interests, in million US$ Years 2001 2002 2003 2004 2005 Total
Principal 2,780 2,833 1,382 950 1,359 9,304
Interests 449 1,785 1,745 1,494 1,273 6,747
Total 3,229 4,618 3,127 2,444 2,632 16,051
Source: Undersecretariat of Financing
releasing resources to finance investment projects of companies
ly, in the third and fourth quarters, the reductions of the fiscal
and individuals.
imbalance due to the termination of interest payments of securities redeemed will also not be considered overcompliance, but
It has to be pointed out that the debt swap implies the
rather the fiscal result target will be adjusted downwards.
adjustment of the government’s deficit target agreed upon with the IMF for the second quarter as a consequence of the pay-
That is why, when the public accounts commitment of
ment of accrued interest of securities that were redeemed, so
the federal government was confirmed, the transaction does
this mismatch will not be considered non-compliance. Similar-
not imply a fiscal relax, although it is true that the Government
GRAPH 7.6 Decrease of debt services up to 2005 In million US$ 5,000 4,500 4,000
Interests
3,500
Principal
3,000 2,500 2,000 1,500 1,000 500 2001
18
2002
2003
2004
2005
CAPITAL MARKET TABLE 7.9 Debt average term and yield
Security
Variation of averge life (in years)
Variation of Yield (a)
2.63 4.60 3.35 -0.35 5.33 2.78
-1.70% 0.33% -0.44% 0.22% -0.33% -0.35%
Promissory Note 06 Global 08 $/US$ Global 08 Global 18 Global 31 Total
(a) Portfolio redeemed less portfolio issued Source: Undersecretary of Financing
reduces deficit in the medium term as a consequence of lower
ns, there were bids for US$ 32,854 millions, of which US$
interest rates and modifies short term solvency ratios.
24,451 correspond to the non competitive tranche ($ 5,137 millions from Official Banks) and US$ 8,402 millions to the
As a whole, the transaction meant to concentrate in 5, a
competitive tranche. Of the total, accepted bids amounted to
total of 46 bonds eligible for the swap, denominated in pesos
US$ NV 29,523 millions (US$ residual NV 28,175 millio-
and dollars. Three of the new securities are in dollars and matu-
ns) of old bonds, and in turn new bonds were placed for US$
re in 2008, 2015 and 2031, and there is a fourth security
NV 30,431 millions. The transaction generated a reduction
instrumented in dollars or in Argentine pesos maturing in 2008.
of debt services (principal and interest) until 2005 for S$
Besides, a promissory note in dollars with 5 years’ term was offered to redeem securities of the same type maturing this year and in 2004. Securities maturing in 2015 and 2031 have a grace period of five years in which accrued interest will be com-
16,047 millions, of which US$ 7,822 millions correspond to the rest of 2001 and to 2002, as seen in Table 7.8 and Graph 7.6. As a consequence of the transaction, the average term
pounded. Table 7.7 is a summary of the main characteristics of
of the debt was extended, since a bond portfolio is swapped
the new bonds.
for another with an average life of 2.78 more years. As a counterpart, average yields increased by 35 basis points (12 bp per
Of a total of eligible bonds of US$ NV 66,314 millio-
year of extension of average life), as detailed in Table 7.9.
19
