Peso collapses amid vote upset
BUENOS AIRES Argentina’s peso currency collapsed on Monday while stocks and bonds crashed by a degree not seen in 18 years as voters flirted with a return to interventionist economics by snubbing market-friendly President Mauricio Macri for the opposition in Sunday’s primary vote.
The peso initially dropped 30.3 per cent to a record low of 65 per U.S. dollar on Monday, but partially recovered later in the day to 55 per U.S. dollar, traders said, after opposition candidate Alberto Fernandez — whose running mate is former president Cristina Fernandez de Kirchner — dominated the primary by a much wider-than-expected 15.5 percentage point margin.
Fernandez has said he would seek to “rework” Argentina’s US$57-billion standby agreement with the International Monetary Fund if he won October’s general election.
Argentine stocks were among the top losers on the Nasdaq and the local Merval stock index was down 31 per cent. Falls of between 18 and 20 cents in Argentina’s benchmark 10-year bonds left them trading at around 60 cents on the dollar or even lower.
Refinitiv data showed that Argentine stocks, bonds and the peso had not recorded this kind of simultaneous fall since the South American country’s 2001 economic crisis and debt default.
The comprehensive victory by Peronists Fernandez and Kirchner “paves the way for the return to left-wing populism that many investors fear,” consultancy Capital Economics said in a note to clients.
“With a renewed focus on sovereign default risks, bonds, equities and the peso will come under severe pressure in the coming days. That said, falls in the currency might be tempered by intervention in the foreign exchange market,” it said.
Argentina’s central bank intervened hours after local markets opened, selling US$50 million in the foreign exchange market to defend the peso in the face of the massive sell-off. The auction used the bank’s own reserves for the first time since September of last year, traders said.
The bank later said it would auction another US$50 million of reserves.
Dollar auctions by the bank over recent months had been carried out using funds from the treasury.
According to Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, for global trading purposes the peso market does not have a measurable impact. He does not expect an emerging markets-wide contagion from the peso’s demise.
“It’s a very small market,” Thin said. “Ever since Macri reopened the markets, took some market-friendly measures, there’s been a trickle of activity back in the peso and Argentine assets in general. Money has been trickling back in but it is still very minimal.”
Thin added that “beyond Brazil and maybe Uruguay, it’s going to have a very limited impact from an economic standpoint.”
Macri came to power in 2015 on promises to kick-start Latin America’s third-largest economy via a liberalization wave.
But the promised recovery has not materialized and Argentina is in recession with inflation at over 55 per cent.