Argentina: default risks have eased, but not gone away

Investor sentiment towards Argentina has improved significantly in the past few months and it now looks like the government will probably be able to make the sovereign debt repayments that are due next year. But there are still no real signs that the government will address one of the key underlying issues behind Argentina’s economic woes – the overvalued peso. Absent a weaker currency, it’s hard to see Argentina’s economy returning to growth on a sustained basis without a deterioration in its balance sheet. A sovereign default later this decade remains a high risk.