1 00:00:03,000 --> 00:00:06,960 Speaker 1: In Argentina, the cost of borrowing is shooting up to 2 00:00:07,120 --> 00:00:12,400 Speaker 1: stratospheric levels. We're talking about interest rates of forty percent 3 00:00:12,800 --> 00:00:17,160 Speaker 1: for zero percent. The country's leadership promised a new era 4 00:00:17,600 --> 00:00:21,800 Speaker 1: that put this sort of trajectory behind it. Now Argentina 5 00:00:21,920 --> 00:00:26,000 Speaker 1: finds itself in talks with the International Monetary Fund for 6 00:00:26,160 --> 00:00:30,320 Speaker 1: loans to shore up its finances. How does this even happen? 7 00:00:30,880 --> 00:00:33,640 Speaker 1: How can they make it right? And how is this 8 00:00:33,760 --> 00:00:47,960 Speaker 1: part of a larger challenge facing emerging markets. Welcome to Benchmark, 9 00:00:48,120 --> 00:00:52,080 Speaker 1: a show about the global economy. I'm Daniel Moss, writer 10 00:00:52,159 --> 00:00:55,800 Speaker 1: and editor at Bloomberg Opinion in New York, and I'm 11 00:00:55,840 --> 00:00:59,520 Speaker 1: Scott landman and economics editor with Bloomberg News in Washington. 12 00:01:00,320 --> 00:01:04,000 Speaker 1: Joining us to explain Argentina's ills, why we should care, 13 00:01:04,240 --> 00:01:08,360 Speaker 1: and whether there are broader lessons is Federico County. He's 14 00:01:08,400 --> 00:01:12,960 Speaker 1: head of Emerging Markets fixed Income at UBS Asset Management. 15 00:01:13,280 --> 00:01:16,720 Speaker 1: He's also a former economist at the I M. F. Federico, 16 00:01:16,920 --> 00:01:20,760 Speaker 1: Welcome to Benchmark. Thank you for having me so, Federico. 17 00:01:21,240 --> 00:01:25,800 Speaker 1: Argentina's president, Mauricio McCree promised a new era for the country. 18 00:01:26,319 --> 00:01:30,440 Speaker 1: What practices did he say he would change. Well, when 19 00:01:30,480 --> 00:01:33,759 Speaker 1: he took off his he had to manage a number 20 00:01:33,760 --> 00:01:38,480 Speaker 1: of challenges that the previous administration had inherited to him. 21 00:01:38,520 --> 00:01:41,240 Speaker 1: You know, there was a system in which Argentina was 22 00:01:41,240 --> 00:01:44,800 Speaker 1: effectively an altar key. He didn't have many relationships with 23 00:01:44,880 --> 00:01:49,800 Speaker 1: international economy, and you know, had a fiscal situation that 24 00:01:49,840 --> 00:01:54,560 Speaker 1: needed repair. What he promised is a gradual adjustment program, 25 00:01:55,160 --> 00:01:58,560 Speaker 1: a multi I don't know, fiscal adjustment program that involve 26 00:01:58,680 --> 00:02:01,920 Speaker 1: lowering inflation and fixing the fiscal accounts once and for all. 27 00:02:02,600 --> 00:02:06,280 Speaker 1: Markets understood that, and we're willing to finance that effort 28 00:02:06,640 --> 00:02:10,600 Speaker 1: because of, you know, among other reasons, Argentina didn't have 29 00:02:10,680 --> 00:02:13,679 Speaker 1: that much that when this administration took office back in 30 00:02:13,760 --> 00:02:18,320 Speaker 1: two thousand and fifteen. So markets understood this. It was 31 00:02:18,360 --> 00:02:21,120 Speaker 1: going to be a gradual program, and they delivered. You know, 32 00:02:21,160 --> 00:02:23,919 Speaker 1: they were able to deliver on that growth. They started 33 00:02:23,919 --> 00:02:27,440 Speaker 1: to pick up fiscal accounts and started to improve. What 34 00:02:27,560 --> 00:02:31,240 Speaker 1: it never actually happened though, was or indirect investment coming 35 00:02:31,240 --> 00:02:34,440 Speaker 1: to the economy for different reasons. So was it just 36 00:02:35,000 --> 00:02:38,480 Speaker 1: foreign investment not coming in? What else went wrong that 37 00:02:38,960 --> 00:02:41,919 Speaker 1: made us get to this point in Argentina? There were 38 00:02:41,960 --> 00:02:45,440 Speaker 1: a couple of policy mistakes, and obviously external conditions turned 39 00:02:45,520 --> 00:02:49,120 Speaker 1: sour into thousand and eighteen for emerging markets. The policy 40 00:02:49,160 --> 00:02:51,560 Speaker 1: mistakes had to do with a perception that the central 41 00:02:51,600 --> 00:02:55,280 Speaker 1: bank was an independent institution and a very powerful one. 42 00:02:55,720 --> 00:02:58,680 Speaker 1: In December, when the exchange that had appreciated two levels 43 00:02:58,760 --> 00:03:02,120 Speaker 1: that the government thought were too strong, and we're having 44 00:03:02,120 --> 00:03:06,280 Speaker 1: an impact on manufacturing, production and export, it's when they 45 00:03:06,320 --> 00:03:09,040 Speaker 1: started to intervene on the on the central bank, and 46 00:03:09,120 --> 00:03:11,880 Speaker 1: investors took that very badly because all of a sudden 47 00:03:11,960 --> 00:03:16,239 Speaker 1: and independent institution was being meddled with by the government. 48 00:03:16,680 --> 00:03:19,760 Speaker 1: That was the beginning of it. And after that they 49 00:03:19,840 --> 00:03:22,960 Speaker 1: changed the inflation target. In inflation was already very high, 50 00:03:23,080 --> 00:03:26,640 Speaker 1: but the inflation target was actually raised even further, and 51 00:03:26,760 --> 00:03:30,480 Speaker 1: next the next month the central bank cat rates in 52 00:03:30,520 --> 00:03:33,280 Speaker 1: an environment which probably they shouldn't have done that. Then 53 00:03:33,720 --> 00:03:37,880 Speaker 1: they actually impose a small tax on the stock of 54 00:03:38,480 --> 00:03:42,880 Speaker 1: debt that foreigners had actually bought, called their backs. Um, 55 00:03:43,040 --> 00:03:45,560 Speaker 1: there these are, this is the name of the bonds, 56 00:03:45,640 --> 00:03:50,080 Speaker 1: and that five percent tax actually generated a run on 57 00:03:50,120 --> 00:03:52,400 Speaker 1: the bonds and a run on the currency. So there 58 00:03:52,400 --> 00:03:55,560 Speaker 1: were policy mistakes. There were Um, I think you know, 59 00:03:55,600 --> 00:04:00,240 Speaker 1: they underestimated how jittering markets were in relation to a 60 00:04:00,400 --> 00:04:04,520 Speaker 1: program that was vulnerable and that needed everything to go 61 00:04:04,680 --> 00:04:07,600 Speaker 1: perfectly well in order to work. Um. So that's how 62 00:04:07,640 --> 00:04:10,040 Speaker 1: we go to the point in which the central band 63 00:04:10,040 --> 00:04:13,760 Speaker 1: had to high rate more than a thousand basis points 64 00:04:13,760 --> 00:04:17,360 Speaker 1: in two days to stabilize the currency and to actually 65 00:04:17,440 --> 00:04:20,880 Speaker 1: you know, announce further physical measures and finally, you know, 66 00:04:20,960 --> 00:04:23,320 Speaker 1: not at the doors of the I m aficain to 67 00:04:23,440 --> 00:04:26,640 Speaker 1: get some some support from them. How does an economy 68 00:04:26,839 --> 00:04:33,400 Speaker 1: even function with interest rates of right? Inflation in Argentine 69 00:04:33,520 --> 00:04:36,960 Speaker 1: is high, right, so under under you know, the inflation 70 00:04:37,080 --> 00:04:41,200 Speaker 1: target for two and eighteen is fift Now, given what 71 00:04:41,279 --> 00:04:46,000 Speaker 1: has just happened, probably inflation will be close to so 72 00:04:47,800 --> 00:04:50,480 Speaker 1: is not as you know high as if it as 73 00:04:50,520 --> 00:04:52,640 Speaker 1: it will be the case if inflation was running at 74 00:04:52,640 --> 00:04:54,880 Speaker 1: you know, single digits. But in any case, it's very 75 00:04:54,960 --> 00:04:59,600 Speaker 1: high under you know, the more pessimistic inflationary expectations, we're 76 00:04:59,600 --> 00:05:02,360 Speaker 1: talking out an interest rate in real terms of around 77 00:05:02,440 --> 00:05:06,400 Speaker 1: fifteen percent, which is very high. Indeed, the idea is 78 00:05:06,440 --> 00:05:10,400 Speaker 1: to shock markets right, to actually eliminate any chance of 79 00:05:10,520 --> 00:05:14,279 Speaker 1: a further effects run, a currency run, that is, and 80 00:05:14,839 --> 00:05:19,520 Speaker 1: to stabilize the financial situation. Now, this cannot last for long. 81 00:05:20,000 --> 00:05:23,039 Speaker 1: Otherwise it was going is going to shock economic activity 82 00:05:23,200 --> 00:05:25,920 Speaker 1: and the economic my actually even running into a recession. 83 00:05:26,400 --> 00:05:30,040 Speaker 1: To avoid that, they have to come up with credible 84 00:05:30,080 --> 00:05:33,080 Speaker 1: measures on the fiscal front and also with a program 85 00:05:33,480 --> 00:05:37,200 Speaker 1: sponsored by the MF in which billions of dollars are 86 00:05:37,279 --> 00:05:40,240 Speaker 1: put at the disposal of the government. And this is 87 00:05:40,279 --> 00:05:45,280 Speaker 1: extremely important. Argentina has now the is now negotiating a 88 00:05:45,320 --> 00:05:48,920 Speaker 1: program with the MF and standard stand by agreement as 89 00:05:49,000 --> 00:05:52,360 Speaker 1: it is called, and they could get, you know, billions 90 00:05:52,400 --> 00:05:55,920 Speaker 1: of dollars from the MF for exchange of an adjustment 91 00:05:56,000 --> 00:05:58,640 Speaker 1: program that most likely will be very similar to what 92 00:05:58,720 --> 00:06:02,560 Speaker 1: they were already doing. The MF is a very change institution. 93 00:06:03,080 --> 00:06:05,200 Speaker 1: It's not you know, the institution of twenty years ago 94 00:06:05,600 --> 00:06:10,479 Speaker 1: when they were requiring demand orthodox policies with you very 95 00:06:10,560 --> 00:06:14,400 Speaker 1: deep adjustment. That doesn't happen anymore. Think about what they 96 00:06:14,440 --> 00:06:17,560 Speaker 1: just did with Greece. Um, you know, with Greece, basically 97 00:06:17,560 --> 00:06:20,320 Speaker 1: they agreed to give them thirty two times their quota 98 00:06:20,960 --> 00:06:23,599 Speaker 1: and uh, you know that was a significant amount of 99 00:06:23,640 --> 00:06:27,080 Speaker 1: money for Greece, thirty billion euro back then for in 100 00:06:27,160 --> 00:06:31,760 Speaker 1: exchange of a very gradual physical program. So is this 101 00:06:31,920 --> 00:06:35,400 Speaker 1: I M F loan or or facility, whatever you wanna 102 00:06:35,440 --> 00:06:39,440 Speaker 1: call it, Is this the way for Argentina to get 103 00:06:39,440 --> 00:06:41,760 Speaker 1: out of this trap that it seems to have been 104 00:06:41,800 --> 00:06:45,960 Speaker 1: in for several decades. And if it doesn't work, what next? 105 00:06:47,120 --> 00:06:49,839 Speaker 1: There are many things that have happened in the recent 106 00:06:49,880 --> 00:06:53,360 Speaker 1: past with this administration. Right, this administration basically clean up 107 00:06:53,880 --> 00:06:57,400 Speaker 1: the mess that the previous administrations actually left the country 108 00:06:57,400 --> 00:07:00,320 Speaker 1: in and they have a real shot of actually changing 109 00:07:00,360 --> 00:07:03,000 Speaker 1: things in Argentina at the fundamental level. Right, I mean 110 00:07:03,080 --> 00:07:06,120 Speaker 1: going to basic stuff like the rule of law, the 111 00:07:06,200 --> 00:07:10,680 Speaker 1: way the private sector is treated, how wages are negotiated, 112 00:07:11,400 --> 00:07:14,480 Speaker 1: you know, how our priced in the economy is set up. 113 00:07:14,880 --> 00:07:18,480 Speaker 1: How much of an adjustment they will implement on tariffs 114 00:07:18,520 --> 00:07:22,920 Speaker 1: and other public goods to provide an incentive to investment 115 00:07:22,920 --> 00:07:26,200 Speaker 1: in those sectors. I mean utilities in Argentina having gotten 116 00:07:26,240 --> 00:07:29,200 Speaker 1: investment in the past ten fifteen years, and there is 117 00:07:29,240 --> 00:07:32,200 Speaker 1: a need for that to happen. So it's not only physical, 118 00:07:32,240 --> 00:07:34,080 Speaker 1: it's not only monetary. There are a number of things 119 00:07:34,080 --> 00:07:37,000 Speaker 1: that have changed and are changing in Argentina that could 120 00:07:37,080 --> 00:07:39,720 Speaker 1: allow them to actually have a chance in the longer term. 121 00:07:40,160 --> 00:07:42,680 Speaker 1: So you know what this program with the m F 122 00:07:42,720 --> 00:07:45,800 Speaker 1: and this effort that they are into, uh, you know, 123 00:07:45,880 --> 00:07:50,800 Speaker 1: could provide is a way for Argentines to understand that, 124 00:07:50,840 --> 00:07:54,200 Speaker 1: you know, these new paradigming which they find themselves is 125 00:07:54,200 --> 00:07:57,560 Speaker 1: something that could be sustainable and could result in higher 126 00:07:57,600 --> 00:08:01,800 Speaker 1: growth and lower inflation without me to resort to price 127 00:08:02,360 --> 00:08:07,120 Speaker 1: controls and capital controls and all sorts of atificial, artificial 128 00:08:07,160 --> 00:08:09,720 Speaker 1: measures that they're having accustomed to because of the inefficiencies 129 00:08:09,760 --> 00:08:12,600 Speaker 1: of the economy in the past. So you're saying, there's 130 00:08:12,800 --> 00:08:15,960 Speaker 1: a lot that's going right, and a lot of the 131 00:08:16,120 --> 00:08:21,800 Speaker 1: macri promise is being delivered, but this fort interest rates 132 00:08:21,920 --> 00:08:25,920 Speaker 1: and the letters I am F, that's just getting in 133 00:08:25,960 --> 00:08:30,160 Speaker 1: the way of that narrative. Too much bad pr well, 134 00:08:30,640 --> 00:08:33,080 Speaker 1: no question about it. I mean, I m F is 135 00:08:33,120 --> 00:08:36,040 Speaker 1: not a good word in in Argentina. It will be 136 00:08:36,200 --> 00:08:40,560 Speaker 1: hard for this government to actually, you know, withstand the 137 00:08:40,600 --> 00:08:43,600 Speaker 1: political cost. But again I repeat, and I think this 138 00:08:43,760 --> 00:08:46,400 Speaker 1: is important. This I m F is not the MF 139 00:08:46,440 --> 00:08:52,320 Speaker 1: of Indonesia in and it's an IMF that is willing 140 00:08:52,360 --> 00:08:57,040 Speaker 1: to to help and to actually accept gradual programs in 141 00:08:57,120 --> 00:08:59,800 Speaker 1: exchange of you know, cheap money. I mean, I think 142 00:08:59,840 --> 00:09:02,600 Speaker 1: of out. You know, what are the Argentina pay foreign 143 00:09:02,640 --> 00:09:06,520 Speaker 1: investors that buy their bonds As recently as in January, right, 144 00:09:06,559 --> 00:09:09,480 Speaker 1: the coupons were between seven and eight percent. The I 145 00:09:09,559 --> 00:09:11,720 Speaker 1: m F will lend them this money for four percent, 146 00:09:12,360 --> 00:09:15,040 Speaker 1: so and this will be money that will be as obviously, 147 00:09:15,080 --> 00:09:18,920 Speaker 1: you know, conditional on certain measures being implemented and approved 148 00:09:19,120 --> 00:09:22,400 Speaker 1: that are already envisaged in their own program, in their 149 00:09:22,400 --> 00:09:25,720 Speaker 1: own Argentine you know, adjustment program. So I think that 150 00:09:25,760 --> 00:09:27,080 Speaker 1: you know, they will have to do a lot of 151 00:09:27,120 --> 00:09:32,600 Speaker 1: work on in Argentina itself to make Argentines understand that 152 00:09:32,679 --> 00:09:35,120 Speaker 1: they will not have to actually suffer, you know, the 153 00:09:35,160 --> 00:09:37,880 Speaker 1: way they might have back in two thousand, two thousand 154 00:09:37,880 --> 00:09:40,440 Speaker 1: and one, right where they were following an I m 155 00:09:40,480 --> 00:09:43,959 Speaker 1: F prescribed program and the economy going in deep trouble, 156 00:09:44,440 --> 00:09:46,840 Speaker 1: in a deep recession that at the end, you know, 157 00:09:46,880 --> 00:09:49,040 Speaker 1: resulted in a in a in a default. In two 158 00:09:49,040 --> 00:09:55,040 Speaker 1: thousand and one Fererico, with the election of Mr mccreed, 159 00:09:55,200 --> 00:10:00,520 Speaker 1: that changed in era of Argentina's politics that had been 160 00:10:00,520 --> 00:10:03,360 Speaker 1: in place for quite some time. And you say that 161 00:10:03,440 --> 00:10:07,200 Speaker 1: even though the I m F has changed to some 162 00:10:07,280 --> 00:10:11,840 Speaker 1: extent from it's kind of policies and philosophies twenty years ago. 163 00:10:12,240 --> 00:10:16,000 Speaker 1: There still is I think probably hatred for the I 164 00:10:16,160 --> 00:10:18,400 Speaker 1: M F in in a lot of corners of Argentina. 165 00:10:18,960 --> 00:10:22,240 Speaker 1: Is there any possibility that this could be a danger 166 00:10:22,280 --> 00:10:26,520 Speaker 1: to the current political leadership of the country and that 167 00:10:26,600 --> 00:10:29,760 Speaker 1: we could go back to, you know, kind of situation 168 00:10:29,800 --> 00:10:32,080 Speaker 1: that was in place for a long time under the 169 00:10:32,200 --> 00:10:36,320 Speaker 1: Kirchener's There's definitely that risk. You can actually see it 170 00:10:36,360 --> 00:10:41,920 Speaker 1: already from the reaction and the statements of some important 171 00:10:41,960 --> 00:10:44,760 Speaker 1: people in the opposition. There is mill blat and they 172 00:10:44,760 --> 00:10:47,280 Speaker 1: want more, right, I mean, this is a great opportunity 173 00:10:47,320 --> 00:10:50,040 Speaker 1: for them to score a political point. I mean, I 174 00:10:50,080 --> 00:10:54,760 Speaker 1: think that elections in Argentina will actually be run on 175 00:10:54,800 --> 00:10:58,640 Speaker 1: the economy. And these elections are in two thousand nineteen, 176 00:10:58,720 --> 00:11:00,720 Speaker 1: so you know, the sooner the better. And I think 177 00:11:00,760 --> 00:11:02,840 Speaker 1: they made, you know, the right decision to try to 178 00:11:02,880 --> 00:11:05,520 Speaker 1: fix this as soon as possible, because they will have 179 00:11:05,520 --> 00:11:09,120 Speaker 1: a few quarters before elections come to play into those 180 00:11:09,120 --> 00:11:12,760 Speaker 1: in the nineteen By then, if things work, the economy 181 00:11:12,840 --> 00:11:16,119 Speaker 1: should be growing at a decent pace, you know, not potential, 182 00:11:16,160 --> 00:11:19,000 Speaker 1: but at decent pace. Call it three percent, four percent hopefully, 183 00:11:19,440 --> 00:11:23,800 Speaker 1: and uh financial markets domestically as well as phisical, as 184 00:11:23,800 --> 00:11:27,400 Speaker 1: the fiscal situation should have stabilized. But I agree with 185 00:11:27,440 --> 00:11:30,240 Speaker 1: you politically speaking, they will have to actually fight a 186 00:11:30,320 --> 00:11:32,840 Speaker 1: number of battles with the position that will try to 187 00:11:32,920 --> 00:11:35,760 Speaker 1: make the most of it, particularly with unions. Unions in 188 00:11:35,840 --> 00:11:39,400 Speaker 1: Argentina are very powerful every first quarter, and it's still 189 00:11:39,400 --> 00:11:41,559 Speaker 1: the case now that you know, the last unions are 190 00:11:41,600 --> 00:11:44,920 Speaker 1: still negotiating their wage agreements for the year. Um what 191 00:11:45,040 --> 00:11:48,719 Speaker 1: happens with inflation expectations is crucial. Otherwise you have in 192 00:11:48,880 --> 00:11:51,439 Speaker 1: inflationary inertia in the in the in the in the system, 193 00:11:51,520 --> 00:11:54,160 Speaker 1: and inflation never comes down. So they have been able 194 00:11:54,200 --> 00:11:56,080 Speaker 1: to actually be successful in you know, this year with 195 00:11:56,160 --> 00:11:59,440 Speaker 1: those negotiations, and so what they need to do now 196 00:11:59,559 --> 00:12:01,480 Speaker 1: is to dell e were on lower inflation. It's gonna 197 00:12:01,480 --> 00:12:04,600 Speaker 1: be tough because of the depreciation of the exchange rate. 198 00:12:04,880 --> 00:12:07,720 Speaker 1: But if they can actually comply and be on the 199 00:12:07,760 --> 00:12:11,800 Speaker 1: bold part of inflation by say the end of the 200 00:12:11,840 --> 00:12:15,280 Speaker 1: first quarter two th nineteen, then they will have boosted 201 00:12:15,320 --> 00:12:18,120 Speaker 1: their credibility with unions and with workers, and they will 202 00:12:18,120 --> 00:12:21,439 Speaker 1: be able then to negotiate a new year way in 203 00:12:21,480 --> 00:12:27,520 Speaker 1: negotiation scheme at lower inflation, Federico, Let's zoom out a bit. 204 00:12:27,880 --> 00:12:33,520 Speaker 1: Is Argentina merely an extreme example of broader problems afflicting 205 00:12:33,559 --> 00:12:37,000 Speaker 1: emerging markets? Well, I think that Argentina is a very 206 00:12:37,040 --> 00:12:39,840 Speaker 1: peculiar case, right, I mean you think you have to 207 00:12:39,880 --> 00:12:42,800 Speaker 1: think about a country that comes, you know, two years ago, 208 00:12:42,920 --> 00:12:47,560 Speaker 1: had no access to international capital markets, extremely well prepared 209 00:12:47,600 --> 00:12:50,440 Speaker 1: people with lots of credibility, come to the market and say, look, 210 00:12:50,480 --> 00:12:52,400 Speaker 1: we have this program in front of you, We need 211 00:12:52,440 --> 00:12:55,280 Speaker 1: your financing. And in the past two years they have 212 00:12:55,360 --> 00:12:57,960 Speaker 1: issued around a hundred billion dollars of that in international 213 00:12:58,000 --> 00:13:02,640 Speaker 1: capital markets, right, and in exchange for a program. And 214 00:13:03,280 --> 00:13:06,559 Speaker 1: so in the meantime, what has happened that is affecting 215 00:13:06,600 --> 00:13:09,640 Speaker 1: other countries as well? Um, you know our many things. 216 00:13:09,679 --> 00:13:13,240 Speaker 1: First of all, we have rates in the world economy 217 00:13:13,280 --> 00:13:16,079 Speaker 1: actually going up, right. We have the ending of que 218 00:13:16,200 --> 00:13:18,040 Speaker 1: e in the U S and maybe the ending of 219 00:13:18,120 --> 00:13:22,280 Speaker 1: que in Europe not too far down the road. So 220 00:13:22,440 --> 00:13:25,800 Speaker 1: global monetary conditions are changing, you know, and that is 221 00:13:25,840 --> 00:13:28,880 Speaker 1: important for emerging markets because the cost of capital goes 222 00:13:29,000 --> 00:13:32,080 Speaker 1: up and people then start, you know, thinking on whether 223 00:13:32,559 --> 00:13:35,560 Speaker 1: investing in emerging markets may make sense or not. That's 224 00:13:35,600 --> 00:13:39,320 Speaker 1: a systemic, you know, shocked to emerging markets overall. And 225 00:13:39,360 --> 00:13:41,800 Speaker 1: then we have you know, higher volatility in the system. 226 00:13:41,840 --> 00:13:44,160 Speaker 1: You know, actility was very low for a long time 227 00:13:44,480 --> 00:13:47,480 Speaker 1: and all of the sudden spiked in February and it 228 00:13:47,559 --> 00:13:50,200 Speaker 1: has come down, but it's far mobility in the now 229 00:13:50,240 --> 00:13:52,320 Speaker 1: that it was in the past. And then you have 230 00:13:52,360 --> 00:13:55,200 Speaker 1: geo political issues, right. You have your political issues in 231 00:13:55,679 --> 00:13:58,000 Speaker 1: Asia that are you know, we'll see whether they get 232 00:13:58,000 --> 00:14:01,040 Speaker 1: resolved or not. We have the political issues in the 233 00:14:01,040 --> 00:14:03,480 Speaker 1: Middleities that are affecting many countries, right. I mean that 234 00:14:03,640 --> 00:14:07,520 Speaker 1: in particular effects Russia, Turkey, Israel, the whole me least 235 00:14:08,000 --> 00:14:11,200 Speaker 1: countries that we invest in as as emerging market investors. 236 00:14:11,240 --> 00:14:15,280 Speaker 1: And then you have the uncertainty brought upon by you know, 237 00:14:15,320 --> 00:14:17,839 Speaker 1: trade policies in the US. You know what will happen 238 00:14:17,880 --> 00:14:21,120 Speaker 1: with NAFTA, what will happen with other you know, trade 239 00:14:21,120 --> 00:14:24,280 Speaker 1: treaties around the world, and you know what will happen 240 00:14:24,320 --> 00:14:28,200 Speaker 1: with sanctions in different countries. I'm going to push back 241 00:14:28,280 --> 00:14:32,120 Speaker 1: just a little bit Federica on the global monetary conditions. Now, 242 00:14:32,520 --> 00:14:36,240 Speaker 1: It's true the FED is continuing to raise rights. It's 243 00:14:36,320 --> 00:14:40,280 Speaker 1: true the ECB has been clear that it's winding down. QUI. 244 00:14:41,040 --> 00:14:46,800 Speaker 1: Yet both institutions have been extremely transparent for some time 245 00:14:47,360 --> 00:14:51,720 Speaker 1: about what they're doing, and these changes are well advertised 246 00:14:52,200 --> 00:14:55,760 Speaker 1: and pretty gradual. What are we missing here? I agree 247 00:14:55,760 --> 00:14:57,840 Speaker 1: with you, But you know, think about what has happened 248 00:14:57,880 --> 00:15:01,480 Speaker 1: with the ten uere you know yield in the US, right, 249 00:15:01,480 --> 00:15:04,840 Speaker 1: I mean it's up sixty basis points so far this year. 250 00:15:05,200 --> 00:15:07,480 Speaker 1: It went up twenty five by points in January, twenty 251 00:15:07,680 --> 00:15:10,400 Speaker 1: basis points in February. You know, that is a shock 252 00:15:10,520 --> 00:15:13,560 Speaker 1: to the system. Right, it's basically the bond yields in 253 00:15:13,640 --> 00:15:16,280 Speaker 1: the longer end of the curve in in in the US, 254 00:15:16,360 --> 00:15:21,080 Speaker 1: and also booms that actually started affecting emerging markets in general. 255 00:15:21,440 --> 00:15:25,120 Speaker 1: The other shocks also, you know that we're unexpected to 256 00:15:25,280 --> 00:15:28,000 Speaker 1: some extent, have to do with the tax police in 257 00:15:28,000 --> 00:15:31,440 Speaker 1: the US. You know, repatriation had a tremendous impact on 258 00:15:31,520 --> 00:15:33,600 Speaker 1: library I mean it was not the only cous on 259 00:15:33,640 --> 00:15:37,280 Speaker 1: why library went up, but library rates, you know, went 260 00:15:37,400 --> 00:15:39,560 Speaker 1: up almost a hundred basis points in the past, you know, 261 00:15:39,600 --> 00:15:44,080 Speaker 1: several months. And that affects the appeal of carry trades 262 00:15:44,080 --> 00:15:46,920 Speaker 1: in emerging markets. I'll give you one example, Brazil, right, 263 00:15:47,000 --> 00:15:51,880 Speaker 1: Brazil carry uh what I mean by that is buying 264 00:15:51,960 --> 00:15:56,400 Speaker 1: the Brazilian currency, you know, the reality and financing that 265 00:15:56,720 --> 00:16:00,240 Speaker 1: with libral. You know, three quarters ago the car on 266 00:16:00,360 --> 00:16:04,520 Speaker 1: that trade was around six to seven percent. Nowadays is 267 00:16:04,600 --> 00:16:07,760 Speaker 1: less than two and a half percent. Right, Why because 268 00:16:07,800 --> 00:16:10,760 Speaker 1: on the one hand, central bank in Brazil has been 269 00:16:10,800 --> 00:16:12,760 Speaker 1: cutting rates. On the other hand, live or went up. 270 00:16:13,360 --> 00:16:17,040 Speaker 1: So this impact actually had and it has been spread out, 271 00:16:17,560 --> 00:16:21,040 Speaker 1: you know, across emerging markets, particularly in countries that actually 272 00:16:21,080 --> 00:16:24,640 Speaker 1: have inflation rates that are not in the double digits 273 00:16:24,720 --> 00:16:28,680 Speaker 1: and you know, policy rates that are relatively low, so Russia, 274 00:16:29,120 --> 00:16:32,840 Speaker 1: South Africa, Brazil, even Mexico. You know a number of 275 00:16:32,880 --> 00:16:35,840 Speaker 1: countries now are no longer carried trades and that affects 276 00:16:35,880 --> 00:16:39,120 Speaker 1: the amount of resources, financial resources that these markets might 277 00:16:39,120 --> 00:16:41,840 Speaker 1: be able to attract. So there are being you know 278 00:16:41,960 --> 00:16:45,200 Speaker 1: a number of shocks out there that actually affected emerging markets. 279 00:16:45,240 --> 00:16:48,000 Speaker 1: Although one thing that I will still say is that, 280 00:16:48,040 --> 00:16:51,760 Speaker 1: you know, the fundamental macro backdrop is still very solid. 281 00:16:52,160 --> 00:16:55,239 Speaker 1: Global growth is a strong, Commodity prices are very supportive. 282 00:16:55,280 --> 00:16:57,880 Speaker 1: But you have all these other shocks that are definitely 283 00:16:58,040 --> 00:17:01,280 Speaker 1: you know, having an impact on on ring market asset prices. 284 00:17:02,000 --> 00:17:05,159 Speaker 1: So does that mean that for the time being, the 285 00:17:05,280 --> 00:17:07,879 Speaker 1: I m F is probably not going to see a 286 00:17:08,000 --> 00:17:11,400 Speaker 1: boom in countries applying for loans, at least as long 287 00:17:11,440 --> 00:17:14,600 Speaker 1: as the global economy is still doing all right. Yes, 288 00:17:14,640 --> 00:17:17,000 Speaker 1: I mean, I will, I will actually be surprised if 289 00:17:17,040 --> 00:17:20,440 Speaker 1: we were to see, you know, a wave of problems 290 00:17:20,480 --> 00:17:23,720 Speaker 1: that might require them have to become a lot more active. Um, 291 00:17:23,760 --> 00:17:25,680 Speaker 1: you know, many of these countries I mean, and that's 292 00:17:25,720 --> 00:17:28,240 Speaker 1: the other side of the story, Many countries in emerging 293 00:17:28,280 --> 00:17:30,800 Speaker 1: markets are doing a lot better when it comes to 294 00:17:30,920 --> 00:17:34,320 Speaker 1: the quality of their economic policies. Well, Federica, this has 295 00:17:34,320 --> 00:17:37,280 Speaker 1: been a really interesting conversation and we're all going to 296 00:17:37,359 --> 00:17:40,600 Speaker 1: be watching Argentina very closely to see how it develops. 297 00:17:40,960 --> 00:17:44,119 Speaker 1: Federica County, thank you very much for joining us on Benchmark. 298 00:17:44,359 --> 00:17:50,480 Speaker 1: It was my pleasure. Thank you so much. Benchmark will 299 00:17:50,480 --> 00:17:52,840 Speaker 1: be back next week. Until then, you can find us 300 00:17:52,840 --> 00:17:56,240 Speaker 1: on the Bloomberg terminal, Bloomberg dot com or Bloomberg app, 301 00:17:56,320 --> 00:18:01,119 Speaker 1: and podcast destinations such as Apple Podcasts, Spotify, or wherever 302 00:18:01,160 --> 00:18:03,400 Speaker 1: you listen. 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