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Argentina Plans Aggressive Defense of Peso Starting Monday
Argentina’s government has asked the central bank to start an aggressive new defense of the peso on Monday after the currency fell 26% in August, driving the country closer to default.
The peso collapsed after primary election results showed the market-friendly government has little chance of retaining power in October’s polls, raising concerns among investors of an impending default and pushing Argentinians to seek the safety of hard currency.
Investor fears are already becoming real after the country last week pushed back maturities on local short-term debt, drawing default tags from S&P Global Ratings and Fitch Ratings. The weaker peso makes it harder for the government to pay back debt coming due in dollars.
In May a year ago, the central bank was able to temporarily halt the peso’s collapse by offering to buy $5 billion, a huge amount in Argentina’s thin currency market. Monday’s measures may echo that plan, newspapers Clarin and La Nacion reported, citing government sources they didn’t name.
Former president Cristina Fernandez de Kirchner, who is running as the vice-presidential candidate on what looks like the winning ticket for October’s election, slammed the mostly-orthodox economic policies of President Mauricio Macri, saying that Argentina should “never again” turn to “neoliberal” ideas.
Fernandez de Kirchner refrained from policy specifics at a book launch in the Argentine city of La Plata, but she criticized Macri’s open capital account and track record on employment, saying that Argentinians were better off when she was in power.
On Friday, the central bank said lenders would now need to ask permission before making dividend payments. The measure may help reduce demand for dollars after the country’s international reserves plunged $900 million on Thursday. Further capital controls may follow as authorities try to stop money from leaving the country.
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Macri’s Surprise Debt Plan Silences Argentina’s Opposition
Since Argentine President Mauricio Macri heeded opposition calls to start negotiations on $101 billion of debt with the International Monetary Fund and private creditors, his political rivals have gone silent.
With the government unable to roll over more than 10% of its short-term debt in an auction this week, Macri moved to extend maturities on local notes while starting creditor talks on other bonds. But even if the plan were merely to calm investors worried about an imminent default, as his close advisers claim, it also had a clear political effect and front-runner Alberto Fernandez and his associates aren’t sure how to respond.
Fernandez actually finds himself at a crossroads: By supporting the debt renegotiation, he could embolden Macri’s beaten down election chances; but shunning the move could reek of opportunism and hypocrisy. Macri’s decision to send a bill to Congress to debate the plan to extend local debt maturities will eventually force the opposition to take a stance one way or another.
So perhaps for now the best tact is silence. While a person close to Fernandez acknowledges that “at least” the government is now doing something, they refrain from elaborating on Macri’s strategy, even in private.
Fernandez, the 60-year-old candidate who shocked Argentines and investors alike by taking a commanding 15 percentage-point advantage in an Aug. 11 primary, will conveniently be flying to Spain this weekend to keep a previously agreed upon commitment to teach courses at a university.
Cristina Returns
His running mate, former President Cristina Fernandez de Kirchner, returned to Argentina Friday from a trip to visit her daughter in Cuba and will appear at a book signing on Saturday in the city of La Plata.
Her words will be watched closely. After all, the fear among investors who have dumped Argentine assets at a historic pace in the past 20 days is precisely that Fernandez will be steered back into imposing the same sort of capital and price controls that flourished under Kirchner.
With bonds at or now below 40 cents on the dollar, there might not be a lot more room to fall before the Oct. 27 election, but a sharp criticism by Cristina -- as she’s known -- of the IMF or bondholders could spark another bout of selling.
For Macri, who is both trying to heal the wounds from the stunning primary defeat and keep the wheels on long enough to finish his term on Dec. 10, it’s unclear how his debt gamble may play out. The currency stabilized the day after the plan was unveiled even as bonds and international reserves at the central bank continued to plunge.
Polls won’t be a reliable gauge after nearly all opinion surveys flopped in the primary.
The road to the actual election and eventual government handover seems longer every day.
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Vediamo se riescono a fare peggio di noi quando nel '92 Ciampi bruciò 48 miliardi di dollari (1/3 delle nostre ottime riserve in divisa estera) per difendere la lira. Operazione ovviamente inutile. La lira fu sganciata dallo SME e andò dove doveva andare
.Alla fine, inizialmente svalutata del 7% a tavolino rispetto al Marco (+3.5% di rivalutazione Marco, -3.5% di svalutazione lira), poi la parola passò al mercato che in pochi mesi la salutò del 40%.
I sovranisti de noantri si sono scordati quanto sono belle le crisi valutarie delle belle monetine sovrane
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