The Daily Update - Argentina's Woes

Yesterday the Argentine peso sank over 7% to a new record low after President Mauricio Macri publicly announced that the South American country needed the International Monetary Fund (IMF) to speed up bailout payments to stop it going deeper into debt. The fall was the biggest one-day decline in the peso since the currency was allowed to float in December 2015. So far this year the peso has lost approximately 45% of its value against the US dollar, making it the worst-performing emerging market currency of 2018. Two weeks ago the Central Bank of Argentina lifted its Leliq policy rate from 40% to 45% in an unscheduled meeting to try to slow the currency’s fall.

Earlier this year the IMF agreed to give Argentina a USD50bln credit line, the largest in IMF history. The first USD15bln has already been received by the government as part of the three-year standby agreement, with the next tranche of money due next month. The IMF’s managing director, Christine Lagarde said after Macri’s announcement ‘The authorities will be working to revise the government’s economic plan with a focus on better insulating Argentina from the recent shifts in global financial markets’. She added that the ‘more adverse international market conditions’ had not been ‘fully anticipated’ when the IMF and Argentina reached the deal in June.

To add to Argentina’s woes, on Tuesday Moody’s cut Argentina’s growth forecast to minus 1% of GDP, compared with previous expectations of 3% growth. Also, not helping the situation will be a 24 hour general strike, called by the General Confederation of Labour (CGT), Argentina's biggest trade union, for the 25th September to protest against the government’s belt-tightening measures. Added to this, some smaller unions say they will also strike for 36 hours starting on 24th September.

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