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How Will the Notebook Scandal Affect Argentine Companies?

The negative impact to Argentina's risk rating could be disastrous for companies

By | [email protected] | August 23, 2018 12:04pm

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For the past few months, Argentina has been facing high inflation and an uncertain peso, with a number of factors converging in recent weeks to exacerbate the current economic situation.

This includes the recent “Notebook Scandal”, which many political analysts in Argentina have positioned as the  greatest corruption scandal in the history of the country. The fact that it involves a number of prominent Argentine companies has not had a positive effect on Argentina’s current climate of economic unrest. In fact, Argentine shares traded on Wall Street suffered a new blow due to the scandal, adding to already existing losses.

According to the risk rating agency Standard & Poor’s (S&P), the scandal could “affect for a long time the reputation of the companies involved,” and “greatly impact their credit profiles.”

In addition to having “a significant impact on the companies involved,” the ongoing corruption scandal could also harm “the entire national corporate sector if economic growth is affected and Argentine risk aversion increases,” spokespeople from S&P emphasized.

They stressed that “effects on the reputation of a country’s companies ” rarely respected boundaries between individual firms, and that fears of corruption in some prominent state companies might well spread to fears of corruption in a country’s entire commercial apparatus and general business sector.

Argentina’s investment risk level already rose above 700 points last week after the sharp devaluation of the Turkish lira due to the ongoing Turkish-American crisis, which caused panicked investors in emerging markets—including in Argentina— to flee to more secure places. This caused a day of chaos in Argentine financial markets, contributed to the rapid inflation of the peso, and led to the price of Argentine bonds collapsing.

The S&P also went on to stress that financial sanctions resulting from the Notebook Scandal on the involved companies could “substantially impact” such firms, and significantly delay ongoing lucrative projects, “especially if the contractors are under investigation.” This too could serve to hurt the economy and the Argentine investment market.

The risk rating agency also emphasized that the notebook scandal arose at a highly inconvenient time for the Argentine economy, when “Argentine companies were already suffering from the country’s economic difficulties” and there was a growing international “aversion to risk in emerging markets.”

However, the S&P noted that, although access to the market “for the rest of 2018 looks challenging, the refinancing needs of Argentine companies in 2018 and 2019 are manageable.”

According to estimates, market conditions could be “slightly better in 2019 if fiscal imbalances improve and the economy begins to grow again,” a key factor that would significantly help Argentine companies “with growth after the potentially significant damage caused by the Notebook Scandal”.