By Julien Ponthus and Daniel Bases
NEW YORK (Reuters) - MSCI (N:MSCI), the global stock index provider, is closely monitoring how Argentina is navigating its financial turmoil, reiterating the decision to reclassify it as an emerging market could be reversed should it restrict market access, the company's chief executive told Reuters on Friday.
Henry Fernandez made clear he was currently satisfied with how President Mauricio Macri's administration was dealing with Argentina's financial crisis using "free market tools" but was nevertheless ready to act should the situation change.
MSCI's benchmarks are widely used, with some $14 trillion in investors’ assets tracked against them. Its blessing, including its bestowal of an emerging market classification, can launch billions of dollars from index-tracking funds into markets around the world, especially developing economies.
The upgrade to "emerging market" status that Argentina received in June remains a rare positive development for the country, whose currency has so far this year has lost over 50 percent of its value against the dollar.
Argentina was downgraded to a "frontier market" status in 2009 after former populist President Cristina Fernandez imposed capital controls, which international investors hate.
"We are definitely monitoring the country daily and very carefully for any signals of conditions that would create lack of accessibility for international investors into their equity markets," MSCI's Fernandez said.
"We will be watching that and can definitely reverse our decision before it gets implemented" in May 2019, he added.
Investor concerns about Argentina's debt burden and current account deficit have prompted a run on the peso and the government has sought financial assistance from the International Monetary Fund.
Last month, the country's central bank hoisted its key interest rate to an unnerving 60 percent to try to stabilize the peso and calm inflation.
One key difference from the last wave of emerging market financial crises two decades ago lies in the fact that the governments of Argentina and Turkey have not resorted to such tools as capital controls.
"If you go back 10, maybe 20 years, countries like this, their first reaction would have been to start slapping all sort of tariffs or controls" but they are now focusing on long-term fixes rather than a "short-term band-aid," Fernandez said.
MSCI's Fernandez argued that Argentina's woes mainly resulted from its own economy, not from the stress caused by such issues as rising interest rates in the United States.
"I would not blame the conditions in Argentina on external factors", the MSCI head said, arguing that it had failed to implement structural reform for decades and that the healing process would take several years.
He also added that the financial situation in emerging markets "could get worse before it gets better" given the challenges these countries face with investor capital moving to benefit from U.S. monetary tightening, trade tensions or rising oil prices.