A month after default: bond prices up, the economy down

The economy is all of a sudden back in the middle of a storm. There are pressures on the exchange rate that is now overvalued, the spread on the parallel exchange rate has increased to 70%, while international reserves are falling again. Government officials are going around the world (to China, Europe and the US) exploring financing options, but so far they have been coming back empty-handed. In the meantime, there are no signs that the economy is getting out of the recession, that inflation is receding or that Argentina could regain access to external financing in the near future.

The low level of reserves is becoming a problem and it is unlikely to be solved in the near future. If anything, the outlook is for reserves to drop further and to end the year at around 25 billion dollars, and this assumes around 800 million dollars from the swap with China, and some marginal financing from sources to be determined (i.e. the Bank of France Repo or others). The only way to rebuild reserves is to obtain new external financing, probably from private sources, as the current account continues to be in deficit in spite of the tight restrictions that the Government is imposing on imports and to make payments abroad.