Argentina Races Thunderstorm With Monday Panic Hike
Well, it's time to dust off the annotated Argentine peso chart, because amid the turmoil in emerging market currencies, the central bank has hiked rates (again).
Earlier this year, Argentina grabbed the limelight and not in a good way, as a crisis of confidence in the peso pushed the country into the arms of the IMF (again).
In the week through May 4, the central bank hiked a Tony Montana-ish 1275bps in an (ultimately futile) attempt to get a handle on things.
Paradoxically, the IMF program
Is it a “coincidence” that the USDCNY has crept up to 6.89? If it were to go a bit higher and caused some minor shockwaves in equities, I guess Turkey could be the scapegoat for a “spillover”, as opposed to it being a deliberately manipulated shot in the US-China trade dispute. But I’m a n00b in these things.
Your comment that the IMF agreement limited the Argentine Central Bank’s ability to sell dollars is a good point, however I noticed that LaGarde and Macri+ team are planning to meet to increase ‘flexibility’ on this point. The new wrinkle here is the Notebooks scandal which is essentially a detailed compendium of bribes paid to the preceding Kirchner administration over a period of 12 years PRIOR to Macri being elected president. Business leaders were ‘forced’ to pay the Ks to win public works bidding on construction contracts. The emergence of the Notebooks as evidence has created an avanche of disclosures, and confessions, by business leaders ‘repenting’ their payoffs to the Ks. Markets are adding a new concern to the currency run…that a Petrobras/Car-Wash type ocean of disclosures will taint all politicians and paralyze the economy as they did in Brazil. The Turkey fiasco is the wrong kind of nervous backdrop at the wrong time. Argentine stock and bonds have been hammered…But perhaps unjustly. Shoot/sell first and ask questions later…is usually the best time to roll up your sleeves as an investor and get to work. I am optimistic that the Notebooks and Carwash scandals will differ. Whereas all Brazilian political parties were tarred by Carwash, the Notebooks have so far only fingered the ever more discredited Kirchner/‘Irrational’ wings of the Peronist Party in Argentina. Macri and his Cambiemos Party are so far emerging as ‘clean’…and the more practical/centrist figures in the Peronist Party are now MORE likely to cooperate with Macri’s government–and distance themselves from Senator Kirchner and her populist cohorts. The liklihood of a reasonable and reformist 2019 budget emerging that is market and IMF-friendly, over the next few months is therefore now also enhanced. The budget, showing sustainable tariff reform (fewer to no energy subsidies for consumers and business), reduced deficit spending, and freely traded foreign exchange are all part of the deal signed with the IMF (which you pointed out as far as currency intervention in your piece). Macri is doing the right things, and the IMF is actively supporting his government. In the short term anything can happen as global investors draw back and all emerging markets weather the storm, but it is in such details that fortunes are made, the ability to differentiate the wheat from the chaff, the truth from the fictional narratives making the rounds. Macri and Erdogan could not be more different.
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