A coun­try go­ing south?

Financial Mail - - DIAMONDS & DOGS -

Even by South Amer­i­can stan­dards it’s been a tu­mul­tuous pe­riod for the coun­try that brought you the tango, the gau­cho and a scrappy lit­tle con­flict in the South At­lantic.

When the Ar­gen­tine peso started go­ing down like a home­sick mole, the cen­tral bank stepped in, rais­ing the in­ter­est rate three times in a week to leave the key bor­row­ing rate at a punchy 40%. This pro­vided some re­lief to the bat­tered peso, but the cur­rency is still down 15% this year against the US dol­lar.

Pres­i­dent Mauri­cio Macri has been push­ing a pol­icy of grad­ual change to wean the coun­try off years of pop­ulist govern­ment, but it hasn’t done a lot to ad­dress con­cerns about the thump­ing cur­rent ac­count and bud­get deficits, as well as high in­fla­tion. This at a time when emerg­ing mar­kets as a whole are un­der pres­sure from higher US in­ter­est rates and the resur­gent dol­lar.

Now the big ques­tion is whether the cri­sis is spe­cific to Ar­gentina, or merely the first stage of whole­sale flight from emerg­ing mar­kets. If it is the lat­ter, this could spell real prob­lems for Macri, whose re­form pro­gramme is be­ing re­sisted vig­or­ously by unions and the par­ties of the left wing, while be­ing at­tacked by con­ser­va­tives for not cut­ting hard enough and fast enough.

To steer the coun­try through this mid­dle ground, Macri’s go­ing to need the drib­bling skills of Lionel Messi com­bined with the sleight of hand of Diego Maradona.

The worry for SA is that nascent in­vestor in­ter­est af­ter our po­lit­i­cal changes may be re­versed in a wide­spread emerg­ing-mar­ket con­ta­gion.

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