argentina emerging markets Markets Mauricio Macri

Just When You Thought Emerging Markets Might Be Out Of The Woods, Argentina Spoils The Party

"Personal issues."

Just when emerging markets looked like they may be finding their footing, things took another turn for the worst in Argentina when Central Bank President Luis Caputo resigned on Tuesday, a mere three months after taking the job. He cited “personal issues”.

Replacing Caputo (a JPMorgan and Deutsche alum) is Guido Sandleris, a deputy of Economy Minister Nicolas Dujovne, who orchestrated the country’s latest deal with the IMF.

The news comes just weeks after President Mauricio Macri accidentally triggered a fresh rout in the peso with a pretty epic communications kerfuffle involving accelerated disbursements from the country’s bailout package. It also comes a month (nearly to the day) after Caputo hiked rates to a cartoonish 60% in an ultimately futile effort to arrest the slide in the currency.

The peso fell on the news and was initially no-bid.


The reaction in the analyst community is somewhat ambiguous.

“[This] may reflect disagreement between him and the IMF, as well as the Ministry of the Treasury, regarding monetary and exchange rate policy”, Barclays writes, adding that “we also think the change may indicate a shift to less direct central bank intervention in the spot market [and] the change could point to increasing coordination of economic policy within the government and with the IMF.”

“The market has reacted negatively as you would expect, given the governor was only 3 months into the job”, Informa Global Markets’ Natalie Rivett said, on the way to contending that this marks “a blow to Macri’s attempt to restore investor confidence.”

Fidelity was unequivocal. “Negotiations with the IMF about an expanded and revamped program have taken longer than most expected,” the asset manager’s Paul Greer said Tuesday, before warning that “Caputo’s resignation will only add to investor uncertainty around the rationale for the departure after only three months in the job, and who his replacement will be.”

Strategists from RBC, Wells Fargo and others were reluctant to commit one way or the other in terms of saying whether this is definitively bad, but everyone seems to agree that Caputo’s market-friendly reputation means his exit will rattle investor confidence at a rather delicate juncture.

Bloomberg’s Sebastian Boyd had some interesting commentary on Tuesday afternoon. Here’s an excerpt from a short blog post:

Both Christine Lagarde and Mauricio Macri have been throwing shade at Caputo recently. It’s intriguing then that his replacement is not Gustavo Canonero. The former Deutsche Bank economist studied at MIT alongside Alejandro Werner, the IMF’s Western Hemisphere head (Ilan Goldfajn was there at the same time; Blanchard, Dornbusch, Fischer and Krugman were faculty). Canonero retains his role as #2 at the central bank, but he’s amply qualified for the top job and might have helped ease any tensions with Washington.

Whatever the case, this isn’t great for emerging markets as an asset class, to the extent it serves as a rather stark reminder that nothing has really changed over the past two weeks.

The problems are still there, the only difference between now and three weeks ago is that the dollar has taken a breather and both Turkey and Russia have hiked, restoring a bit of confidence.



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