Market turbulence triggers bank withdrawals in Argentina

In as lowbuts te ad ytrick le, locals are withdrawing their deposits in foreign currency amid the contagion of market uncertainty about Argentina’s future in the light of the presidential race and economic crisis.

In the last month US$2.6 billion have been withdrawn, equivalent to 8.2 percent of total deposits, according to the Central Bank. Although analysts say this isn’t yet worrying, they warn of the risks of a trend emerging.

“The total of private deposits in dollars is more than acceptable; the worrying thingisthetrendwithdailywithdrawals,” Ecolatina’s Matías Rajnerman told AFP.

With a long track record of economic crises, which have driven savers great and small to see the dollar as a refuge, Argentina today combines recession and a soaring inflation rate with political uncertainty.

The Buenos Aires Stock Exchange, the peso andArg entine bondsalltankedaf te r the August 11 primaries turned Kirchnerite opposition candidate Alberto Fernán

dez into the clear frontrunner for the October 27 elections. The Peronist emerged with a huge margin over Mauricio Macri, who is seeking re-election.

Fernández is a harsh critic of the austerity applied by Macri to secure a US$56billion credit from the International Monetary Fund (IMF) to stabilise the economy. The market volatility deepened this week with the visit of an IMF mission team, which was told by Fernández and his economic advisers that “the last tranche [of the loan] had been integrally used to finance capital flight.”

To defend the currency, the Central Bank has intervened in the market to the tune of up to US$300 million daily (almost US$400 million yesterday). Nevertheless, the peso has depreciated by over 20 percent since the primaries.

KEY TRANCHE

The agenda of this IMF mission includes deciding whether to deliver the next tranche of US$5.4 billion scheduled for September 15.

“If that tra nche does not come through, it could trigger a crash,” considers Rajnerman, explaining that at the moment only the Central Bank is placing foreign currency on the market. “The prívate sector has dollars but is not supplying them.”

Last Wednesday the Central Bank issued a directive to push the liquidation of foreign currency by the major exporters, in particular the grain sector.

Although international reserves were then at the comfortable level of US$57.4 billion,“theydonotsufficeforeverything: redeeming Treasury bonds, intervening on the exchange markets and returning deposits,” warned the economist Martín Vauthier. “That’s why that IMF tranche is so important.”

According to the Capital Economics consultancy, greater net international reserves would strengthen Argentina against external pressures, restore investor confidence and help the government to return to global capital markets.

“The latter point is crucial for the IMF,

which has maintained that Argentina’s foreign debt can be serviced,” stressed Capital Economics.

COUNTRY RISK

In that volatile context, country risk as measured by JP Morgan has been creeping up every day, already topping the 2,000-point in midweek and stirring up fears of a default.

“The country risk index is at default levels. That does not mean that default will be inevitable, it means it is a concrete possibility,” Rajnerman pointed out.

And that is perhaps the biggest fear of themarketsandlocals,whostillremember the US$100-billion default of 2001.

“The answers today are political. The three players – the IMF, the government and the opposition – have incentives not to make the situation worse. The absolute priority is to feed certainty,” maintained Vauthier.

Although Fernández has repeatedly ruled out the possibility of a default if president, Vauthier urges that he go a step further and “give a sensitive market some concrete signals as to his economic programme.” – TIMES/AFP