With two major deals coming down the pike in Argentina, the market might appear to be thriving regardless of current strains on the political and economic stability within the country - but that's not the case, according to analysts.

Argentina currently has the most established domestic and cross-border securitization market in all of Latin America, according to sources. One analyst has even argued that Argentina has one of the most developed securitization markets out of any emerging market. However, over the past couple of years, Argentina has encountered a recession and analysts are declaring a slowdown.

"In terms of cross-border securitzation, it will obviously be harder for deals to be placed in the market. Investors will probably be concerned with the Argentine risk and it will be more difficult to place Argentine risk in this market," said an analyst. "In terms of local securitization, I see it more as a slowdown as a result of the local recession because no assets are being generated. A slowdown in the economy is leading to a slowdown in the creation of assets that can be securitized."

According to Juan Pablo De Mollein of Standard & Poor's Ratings Services the present situation in Argentina has been deteriorating lately "not only because of the micro-economic scenario, which is not improving, but they are also undergoing a huge recessive scenario and the government has had to deal with a huge deficit."

Over the course of the last two years, the government has dealt with the deficit by digging into capital markets or negotiating with the International Monetary Fund (IMF) or the World Bank for other types of financing. For next year, S&P is estimating that the Argentine deficit will reach $18 billion.

Making matters worse, after a recent G20 meeting in Canada regarding emerging markets, rumors of a financial aid package from the U.S. sent the value of Argentine bonds on a downward spiral.

According to sources, the country is already having difficulty paying the existing debt, and the newspapers, economists and ministers of the Argentine government are discussing the added difficulty a new loan would present to a country that is growing very little. Furthermore, there is a possibility that the economy will not recover as quickly as expected.

"If for next year you have to face $18 billion and you have a big package that will have to be repaid immediately, it is going to be very difficult for the country to face if the economy does not recover at the pace we are all expecting," De Mollein said.

Additionally, Argentina has encountered a weakening in the political stability of the country. In December 1999, the administration experienced a turnover for the first time in 10 years. More recently, a bribery scandal in the government rocked the country last month and ultimately led to the resignation of the vice president.

As a result of these problems, S&P has recently placed the BB/B sovereign credit ratings for Argentina on CreditWatch with negative implications. S&P said it anticipates a resolution of the CreditWatch within the next three months. The outcome weighs heavily upon the political actions taken in the near future.

Mollein also added: "What happens depends a lot on the capital markets because during the last 10 years they have been financing their expenditures through capital markets."

How are all of these problems affecting the securitization market in Argentina? While the market may be slowing down, it is surely not stopping altogether, as can be seen with the latest deals involving the Province of Salta and Molinos Rio De La Plata (see story p.7). De Mollein also said S&P has been assigning ratings to several local transactions.

"Deals are still going on there because companies need to find the proper money to keep on functioning," De Mollein said. They go to the markets and they prefer these types of things [securitization deals] because of the security offered to investors, because of the lowest level of interest they have to pay. They are using securitization as a safe source of finding fresh money from the market. It will be affected by this, but not as severely as some other areas."

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