Peso collapse and inflation force Spanish companies and banks — second largest investors in Argentina, behind US companies — to tally their losses.
Having learnt their lesson, most European companies and banks have limited exposure to Argentina’s crisis-prone economy. One exception is Spain’s corporate sector, which, after the U.S.’s, has the most exposure to the South American economy, with almost €6 billion invested by its companies there, down from around €9 billion in 2011 after some divestments.
For many of those companies, Argentina is still an important source of revenues and profits. But those revenues and profits are getting slammed by the double whammy of a rapidly deteriorating economy and rampant inflation. Now, there’s the potential risk of yet another Argentine default to contend with.
The Argentine peso has slumped 25% since the primary election on Sunday. Stocks have crashed. The risk of default has surged to above 75%, based on the latest credit default swap levels. The peso is worth just 1.7 cents, having lost 68% of its value against the U.S. dollar in the last year and a half.
In June, before this latest episode of political and economic turmoil, annual inflation in Argentina was already over 55%. The lower the peso falls, the worse the inflation gets. Argentina was already deemed to have entered hyperinflation in 2018, meaning that overseas companies operating in the country that report in Argentine pesos now have to reformulate their financial statements, depreciating the value of assets in line with the rapidly soaring prices.
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Nick Corbishley 