Dead President Bounce: As a country mourns, markets rejoice



Argentina's Ex-President has died.  He was 60 years old and widely speculated to run for President again in 2011. 

Kirchner came into office on the tail of a deep economic crisis. A country which had once equalled Europe in levels of prosperity and considered itself a bulwark of European culture in Latin America found itself deeply impoverished, with a depleted middle class and malnutrition appearing in the lower strata of society. The country was burdened with $178 billion in debt, the government strapped for cash.  The previous government had looted the bank reserves by changing the exchange rate.  People were very distrusting of government. 

This is what he inherited.  Most people would think he only has one way to go, but, during his time he left a legacy of bad decisions.  
  • He put onerous export taxes on farmers.  This led to general strikes and layoffs among the agriculture industry. 
  • He defaulted on debt owed to the IMF.   
  • He pulled Argentina away from the free trade consensus.  
  • He nationalized public pensions.  (Did I say nationalized?  I meant theft of private pensions)   
  • Published inflation was 11%, which was about half of the unofficial estimates at 25%. 
I am not one to kick a man as they leave this world.  In many "progressive" circles he was widely respected and admired. 

Markets are not so polite.  Since Kirchner's second emergency surgery, it was obvious to investors that something might happen that would make Kirchner an unlikely candidate in 2011, through either death or illness. 

Either Kirchner or his wife Cristina had been almost a decade in power, corruption and leftist policies were holding the country back.  Investors had a field day with the information. 

The Merval stock market index went on a tear and bond yields for Argentine sovereign debt dropped.   The yield on the inflation-linked notes due in 2033 dropped 60 basis points, or 0.6 percentage point, to 8.21 percent on the day following his death.  The spread of Argentine bonds over U.S. Treasuries sank 49 basis points, the most in a year, to 533, according to JPMorgan Chase & Co.’s EMBI+ index. It fell another five basis points the next day.

Argentina, Brazil and Mexico stock market returns.  Source Bloomberg

More

Feb 7th, Kirchner undergoes heart surgery
Sept 12th, Kirchner undergoes 2nd emergency heart angioplasty
IBD: Argentina's great leap forward
Argentina seizes public pensions to ward off another financial crisis
Argentina repays IMF debt

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