Who's Who in the New Argentina: Macri's Five Key Ministers
Comment of the Day

December 02 2015

Commentary by Eoin Treacy

Who's Who in the New Argentina: Macri's Five Key Ministers

This article by Charlie Devereux for Bloomberg may be of interest to subscribers. Here is a section: 

The creation of a new energy ministry speaks of the increasing importance of Argentina’s burgeoning oil industry.

Aranguren, former CEO of Shell Argentina, will be in charge of attracting investment to the Vaca Muerta formation, the world’s second-largest shale gas deposit and fourth-largest shale oil reservoir. He’ll also head up attempts to unravel the current government’s system of utility bill subsidies that contributed to an estimated budget deficit of 7.2 percent of gross domestic product this year.

An outspoken critic of the current government who frequently sparred with some of its officials, Aranguren has already made clear his different outlook, saying he would prefer to import energy while prices are low rather than maintain subsidies on oil. His double role as mining minister suggests Macri’s government may be more proactive in developing that sector after years of stagnation.

Eoin Treacy's view

Argentina is not Iran but they both share the ignominy of having been locked out of the international markets for a long time. Argentina is blessed with abundant natural resources and an educated workforce. A trend of improving standards of governance has been lacking for decades but, with expectations so low, the potential for a positive reaction from investors from even a modest uptick has to be the base case. 

The question for Argentina is whether it is seeking oil and gas investment at the wrong time in the cycle. Oil prices are flirting with the $40 area again and there is little prospect of prices sustaining higher levels beyond short-term rallies considering how much supply is on the side lines. This means that if the country is to attract the investment it needs, terms are going to have to be attractive. 

Until the Peso is revalued we do not have a chart that reflects the current value of the currency and the MERVAL Index is heavily influenced by domestic inflation. Therefore the US Dollar denominate 2033 8.28% sinkable bond is a reasonable barometer of how international investors rate Argentina’s prospects. The yield has been trending lower in a consistent manner for the last two years and a break in the progression of lower rally highs would be required to question medium-term demand dominance. 

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