The government of Argentina denied that it was facing economic failure after the peso fell for three straight days. Investors appear unconvinced that President Mauricio Macri can alleviate the country's economic woes.
Argentina's currency fell precipitously on Thursday, losing more than 20 percent of its value against the dollar, despite efforts by the government to calm the markets and a move by the Central Bank that raised interest rates by 15 percent. The Argentine peso closed at a record low of 39.25 per US dollar.
The peso has suffered a 102 percent loss against the dollar so far in 2018, and local inflation is running at about 30 percent a year, raising worries about the health of the South American nation's economy.
The government of Mauricio Macri has sought to calm markets and boost confidence as Argentines continue to lose purchasing power and are frustrated with layoffs, high utility rates and a spike in poverty levels, which his administration has overseen.
Macri, a pro-business conservative who became president in 2015, had promised to curb Argentina's fiscal deficit, reduce poverty and tackle inflation. But he triggered labor unrest, when he ordered layoffs and cut utility subsidies, in an attempt to reduce the budget deficit.
Since December, when officials announced a rise in the nation's inflation target, investors began doubting Macri's commitment to taming price increases. Rising US interest rates also lured investors to pull their dollars out of Argentina. All of this has contributed to the current currency predicament.
Macri goes to IMF
On Wednesday, as the peso hit a record low after losing more than 8 percent versus the dollar, Macri announced he had asked the International Monetary Fund (IMF) to speed up the disbursement of a $50 billion (€43 billion) loan for Argentina that had been agreed to in June.
IMF chief Christine Lagarde said she had granted Macri's request but, in return for the help, Argentina had to commit to strict economic measures, such as reducing its budget deficit to 2.7 percent this year, from 3.9 percent in 2017, and to 1.3 percent of GDP next year.
The move was not effective in bringing calm to the markets, and the peso did not recover at the end of Wednesday's trading day.
Central Bank acts
The peso plunged further as markets opened on Thursday, prompting the Central Bank to announce a hike in its benchmark interest rate, from 45 to 60 percent until December. The measure did briefly stall the peso's tumble, but the currency still closed at a historic low.
The ratings agency Moody's called the Central Bank's move "a clear signal that economic policy approaches have not been sufficient to contain the financial pressures facing Argentina."
Marcos Pena, Macri's cabinet chief, denied that the government was facing disaster. "We are not facing economic failure," he said, arguing that "Argentina will emerge stronger from this process."
"This is a transformation, not failure. In that transformation there are difficult moments," Pena added. He defended the economic policies that Macri had imposed since 2015, saying it was a path "of fiscal balance, development and growth."
In the last 40 years, Argentina has lived through at least four serious economic crises. The most recent took place in 2001, when the economy unraveled and Argentina suffered a record $100 billion debt default. Banks froze their deposits, causing many to lose all of their savings and unleashing chaos in the streets. The crisis left one out of every five Argentines unemployed and plunged millions of people into poverty.
jcg (EFE, AP, Reuters, dpa)