Peso slump continues as currency closes at record low
Argentina’s beleaguered currency closed the week above the symbolic ‘40’ barrier, reaching a height of more than 40 pesos to the US dollar amid a crisis in investor confidence.
The peso has suffered a huge devaluation since last December, forcing a reshuffling of President Mauricio Macri’s economic team. While the Central Bank, led by Luis “Toto” Caputo appeared to have controlled the peso’s slide through a series of interventions and measures proposed to the International Montetary Fund, the Argentine currency once again fell over the past few sessions, closing out the week at a new record of $40.51 to the dollar.
On Friday, the Central Bank is said to have intervened strongly, offering some US$200 million, as its reserves slid to US$50.5 billion. Two weeks ago, the peso lost 20 percent of its value in just two days, generating an intensified sense of crisis that saw President Macri restructure his Cabinet and give a televised, pre-recorded speech in which he sought to explain the causes of Argentina’s current economic conundrum.
A massive fiscal deficit, a bankrupt state, corruption, and external shocks including the worst draught in half a century, rising interest rates in the US, and a global trade war have all hit Argentina particularly hard given its macroeconomic vulnerabilities, Macri said. Yet, the ruling Cambiemos (Let’s Change) coalition vowed to stay its course, pledging to accelerate austerity in order to balance the primary deficit by the end of 2019, while asking the IMF for an advance on the emergency Stand-By agreement which totaled US$50 billion.
The Central Bank has raised interest rates to 60 percent, the highest in the world, as inflation expectations continue to rise.
A “leaked report” from the Economy Ministry led by Nicolás Dujovne indicated the government was estimating 2018 inflation at 42 percent and an economic contraction to the tune of 2.4 percent.