‘I SEE A COUNTRY THAT’S LOST ITS WAY’
All bets off as peso tumbles and Argentina’s pain spreads
“There’s no clear price WASHINGTON reference after the peso plunge.”
Tommy Samson is explaining why he’s been forced to scale back business amid Argentina’s financial-market rout. His Buenos Aires firm imports surgical equipment such as sutures for stitching wounds, paying in foreign currency. Then he sells them to local customers in pesos.
The last link in that chain is breaking down — because Argentina’s currency is in free fall. It’s lost half its value this year, and some 20 per cent this week alone. The slump threatens to spread havoc through the $640 billion economy, rupturing supply chains for businesses and straining the finances of households.
And it’s casting a shadow over President Mauricio Macri’s prospects of winning re-election next year. Even Argentina’s most market-friendly leader in more than a decade has struggled to restore investor confidence.
His policy-makers have been trying. The central bank raised interest rates to 60 per cent on Thursday, the world’s highest. A day earlier, Macri had shocked the nation — and investors — with an appeal for quicker payouts from the International Monetary Fund.
The Fund said on Friday that Argentina has its “full support.” It said high-level talks will start on Tuesday, with the aim of rapidly submitting a revised economic plan to the IMF board.
Argentina’s $50-billion loan agreement in June was the biggest in IMF history. The country was also on an IMF program when it crashed and defaulted in 2001. That was the catalyst for more than a decade of budget-busting left-populist government — and isolation from world financial markets, something that ended with Macri’s election in 2015.
Maria de Los Angeles Rezk voted for him — “but I wouldn’t do it again.’’
“I see a country that’s lost its way,’’ said Rezk, a 46-year-old bank worker in the capital, shortly after buying some dollars. She said she was waiting to sell them later, expecting the peso to keep weakening.
“They need to find a way to stop this slide,’’ she said. “The problem is, they don’t know what to say.’’
Warning lights were flashing before the latest market turmoil. The government was forecasting that the economy would contract one per cent in 2018, a sharp deterioration from the three per cent growth that was predicted at the start of this year.
Inflation has stuck above 30 per cent and is set to accelerate on a weaker peso. Even for businesses that buy locally, it’s a struggle to keep up.
Pablo Ricatti says he bought two truckloads of flour two weeks ago, “to hedge myself from a price hike.’’
His supplier would usually provide financing for a couple of weeks, “but now they won’t,’’ says Ricatti, who runs a company that makes rolls for burgers and hotdogs. “I have to pay them right away. And I will,’’ he said, because prices are rising “as we speak.’’
Even significantly larger businesses are finding it hard to see far ahead.
TN&Platex is Argentina’s biggest textile company. It’s able to quote prices for buyers that have the money to pay right now, says Chief Executive Officer Teddy Karagozian. But the currency volatility means he can’t offer the usual 60- or 90-day credit to clients, Karagozian said.
If the peso’s slump is slowing the economy, government counter-measures may have the same effect.
Macri’s pre-crisis plan was to chip away gradually at Argentina’s budget deficit, lowering it from 6.5 per cent of GDP last year to 3.8 per cent in 2019.
More drastic cuts are now likely. Treasury Minister Nicolas Dujovne told reporters late Thursday that the government will release its plan for a “substantially lower” deficit target for 2019, below 1.3 per cent of GDP, on Monday. He will then travel to Washington to meet with IMF officials. No details were provided.
With inflation accelerating, the government’s negotiations with unions on public pay are likely to be “extremely difficult,’’ said Paul Greer, a money manager at Fidelity International in London, in an email. He predicted “general labour strikes over the next year.’’