Argentina to remain a ‘trade’ unless it can lower volatility, BlackRock exec says

BlackRock executive Pablo Goldberg warns that unless Argentina reduces its economic volatility, the South American nation will continue to be viewed as a risky investment, according to his recent comments at the IDEA Colloquium in Mar del Plata. Goldberg, who has been tracking Argentina’s economy for 25 years, asserts that until the country’s volatility decreases, international investors will treat it as a short-term trade rather than a long-term destination.

Using the Sharpe ratio, a measure of risk-adjusted return, Goldberg demonstrated that Argentina has consistently ranked among the worst performers in emerging market bond indexes, even after multiple defaults. The country’s creditworthiness is further undermined by high domestic political risk and a weak local capital market, forcing the government to borrow in U.S. dollars to service its peso-denominated debt.

Goldberg emphasizes that Argentina’s credibility hinges on both its policies and actions, highlighting the country's poor track record in managing fiscal deficits. Investors primarily consider a nation's "postal code" when assessing its creditworthiness, and Argentina’s current challenges make it difficult to earn the investment-grade rating it seeks.

The BlackRock executive believes that achieving investment grade status would significantly reduce Argentina’s financing costs, from around 600 basis points to less than 200. This would not only benefit the Argentine government but also companies seeking to access international capital markets. Goldberg suggests that Argentina should focus on improving its current account performance driven by energy, mining, and agriculture sectors, as well as building a strong domestic capital market.

Argentina's potential to attract investment is further underscored by comparisons with countries like Peru and Uruguay, which have maintained macroeconomic stability even amidst political crises. Goldberg advises Argentina to reduce output volatility while maintaining stable, predictable rules of governance to compete for capital in an increasingly competitive global market.