On Thursday's podcast, we talked about the trouble with hedge funds. Economist Elisa Parisi of RGE Monitor used the example of Argentina. Parisi noted that as Argentina's economy wobbles, investors want to sell their Argentinian bonds as fast as possible. The mass selling drives down the price of the Argentinian bonds, which in turn makes Argentina look like an even riskier bet.
On Tuesday, Argentina's President Cristina Fernandez proposed to nationalize private pension funds to help the government meet its short-term obligations. The idea is to make the government's balance sheet look better. The pension funds amount to one percent of the country's gross domestic product.
Now Moody's, a credit ratings agency, says Argentina stands to lose credibility. Reuters reports:
"Although the proposal, if approved, would provide the government with greater financial flexibility in the short term, it undermines the government's already weak policy credibility and adds to negative perceptions about Argentina's institutional integrity -- particularly governance and respect of contracts," Moody's analyst Mauro Leos said in a statement.
categories: South America's Financial Crisis
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