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Two days ago we first posted a Youtube clip in which a Greek reporter asked Argentina's Economy Minister Hernan Lorenzino a simple question: "what is inflation in Argentina" - a sensitive topic to a country with price and capital controls, and where inflation ranges between 0 and 20% depending on whether one uses official, or unofficial but based on reality, data. The result was a why we dubbed the clip "Thursday humor" as after several minutes of meandering gibberish, Lorenzino concluded by telling his aided that "he wants to leave", which in turn promptly became a twitter hashtag meme #mequieroir, in which the minister's response to a simple request for the truth was promptly lampooned around the world. However, that may have been just the beginning of Hernan's problems. As Bloomberg reports, citing Clarin, Argentina's president CFK, was also quite taken aback by the bumbling economist that she met with him subsequent to the interview going viral, and told him he has lost credibility and the most likely next step is his resignation.
A lot of U.S. dollars are tucked away somewhere in Argentina, most likely in stacks of $100 bills. Seven years ago, the U.S. Treasury, working with the Federal Reserve and the Secret Service, estimated that in the early 1990s Argentines held $20 billion in cash, a number that by 2006 had grown to “perhaps $50 billion or more.” That year there was a total of about $768 billion worth of dollar-denominated cash in the world, which means that someone in Argentina held at least one out of every 15 cash dollars.
How about now? The Fed is chary with its data releases. One table in a 2012 Fed paper on demand abroad for U.S. currency tells us that the annual net inflow of commercial shipments of bills denominated in dollars to Argentina and the former Soviet Union has increased since 2006 by 500 percent. In 2011, that growth rate stood at 48 percent, while total demand for U.S. currency, in America and abroad, has increased only about 10 percent. It’s unlikely that all of that growth came from the former Soviet Union alone; otherwise, why include Argentina at all? Demand for large dollar cash transfers to Argentina since 2006, then, has outstripped demand for dollar cash overall in the world.
So it seems safe to say that today Argentines hold probably well more than $50 billion, and well more than one in every 15 dollars. ...
Argentina devalued the peso the most in 12 years after the central bank scaled back its intervention in a bid to preserve international reserves that have fallen to a seven-year low.
The peso has plunged 12.7 percent over the last two days to 7.8825 per dollar at 3:45 p.m. in Buenos Aires, after falling to as low as 8.2435, according to data compiled by Bloomberg. The decline in the peso marks a policy turn for Argentina, which had been selling dollars in the market to manage the foreign-exchange rate since abandoning a one-to-one peg with the U.S. dollar in 2002.
President Cristina Fernandez de Kirchner, who said May 6 that the government wouldn’t devalue the peso, is struggling to hold onto dollar reserves which have fallen 31 percent to $29.4 billion amid annual inflation of more than 28 percent. Reserves are the government’s only source to pay foreign creditors. Since changing her economy minister, cabinet chief and the head of the central bank on Nov. 18, the peso has fallen 25 percent, the most in the world, according to data compiled by Bloomberg.
“They’re running out of cash and they’re sitting in the corner at the moment,” Phillip Blackwood, who oversees $3.5 billion in emerging market assets as a managing partner at EM Quest Capital LLP, said in a phone interview from London. “There’s a feeling in the market that they’re not going to intervene any more.”
The tumble in the currency is the biggest since March 2002, the year the government abandoned a one-to-one peg with the U.S. dollar following a record $95 billion default.
Argentina is to relax its strict foreign exchange controls, a day after the peso suffered its steepest daily decline in 12 years.
Cabinet chief Jorge Capitanich said the country would reduce the tax rate on dollar purchases and allow the purchase of dollars for savings accounts.
The measures would take effect from Monday, he said.
Mr Capitanich said the government would reduce the tax rate on dollar purchases to 20% from the current 35%.
He said: "This decision reflects the government's belief that in the context of a floating exchange rate, the price of the currency - that is, the dollar - has reached an acceptable level for the objectives of economic policy."
BBC economics correspondent Andrew Walker said: "Argentina seems to be moving towards a more flexible exchange rate system, which could mean further weakness for the peso.
"That would help the country's competitiveness, but the danger is that it could aggravate what is already a serous inflation problem."
Other shopkeepers chose not to wait to see the results of last week’s 15 percent depreciation, raising prices as much as 30 percent on appliances, electronics, wine and other goods that aren’t regulated by the government, while supermarkets seemed to abide by food-price accords reached earlier this month. President Cristina Fernandez de Kirchner left for Cuba over the weekend, days before the start of a regional summit, leaving top aides to try to contain price increases as investors raised bets on further declines in the peso.
“The first reaction has been a paralyzation of almost all the markets for goods and services tied to the official exchange rate,” Domingo Cavallo, who as economy minister in 1991 linked the peso to the dollar at one-to-one, said in a telephone interview from Cordoba, Argentina. “No one wants to sell merchandise at a price if they don’t know what the rate will be tomorrow.”
In his daily press briefing today, Capitanich said Argentine individuals who earn a monthly wage of 7,200 pesos ($900) or more will be allowed to buy dollars again starting today to build dollar savings. There will be a limit on these purchases of $2,000 per month, and they will be taxed at 20 percent unless kept in deposit for at least a year, according to a resolution on today’s official gazette.
Argentines had already been coping with annual inflation estimated at about 28 percent, the highest in Latin America after Venezuela, and currency controls that restricted access to dollars at the official exchange rate.
Via translation from Lanacion, please consider Credit Is More Expensive....Following the peso devaluation and sharp hike in interest rates by the central bank, interest rates on loans increased as much as 11 percentage points.
For a personal loan, private banks now charging at least 44% per year. Factoring in fees and other administrative expenses (up to 11 percentage points), the total financial cost exceeds 65% annually.
Public banks have with nominal rates for personal loans in pesos that range from 32% to 44%, with a total financial cost up to 55% annually.
Argentina's attempt to work around SCOTUS decision in favor of the 'holdouts' was rejected (under anti-evasion orders) last night leaving Argentina no alternative but to threaten to default on its debt. The government called it "impossible" to pay bond service due on June 30, because payment to holders of restructured bonds could not be made unless the 'holdouts' were paid $1.33 billion at the same time (and Argentina's economy minister argues could be up to $15 bn) which the distressed country clearly does not have. ... it seems increasingly likely that an even of default looms for Argentina.
Bank workers’ union La Bancaria confirmed yesterday banks will not be open to the public today and tomorrow due to a strike over wage negotiations. It will be an atypical week, as the strike follows yesterday’s national holiday.
There were concerns yesterday that no banks for the first three days of the week meant a rising risk of long queues and a possible lack of cash at some ATM machines. The strike’s organizers said the protest will be uninterrupted, suggesting cash machines will not be restocked.
Just a few weeks after Argentina became ground zero for the coming Emerging Market crisis, when its currency suddenly collapsed at the end of April amid soaring inflation, exploding capital outflows and a central bank that was far behind the curve (as in "13% of rate hikes in a week" behind)...
... the IMF has officially bailed out the country - again - this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.
Argentina has hiked interest rates to 60% as it takes dramatic steps to restore confidence in its plunging currency,in the latest sign of turmoil among emerging market economies this year.
The Argentine central bank raised the cost of borrowing by 15 percentage points on Thursday in an attempt to shore up the peso, which has plummeted in value. The central bank said it would keep rates unchanged at 60% until at least December.
The peso dropped amid intense trading on foreign exchanges, falling by more than 10%, despite the bank’s rate move, in the most severe drop for the currency since it was floated in 2015. $1 (77p) is now worth about more than 39 pesos, having been worth about 18 pesos at the start of the year.
Paul Greer of the City fund manager Fidelity said countries across emerging markets were being targeted by investors due to their economic problems, including high levels of debt and imports. “There are no easy answers for Argentina to its current woes,” he said.
Having approached the International Monetary Fund for emergency support amid an unfolding economic crisis, Argentina asked the Washington-based lender of last resort earlier this week to accelerate the release of the money to bolster its finances.
Argentina’s president, Mauricio Macri, has said a lack of trust from the markets had forced him to ask for help as the peso weakens and inflation runs at 30%.
The country has asked to borrow $50bn from the IMF to restore confidence in its finances amid high levels of government debt in dollars, which have become more expensive to pay off as the dollar strengthens. While the move was designed to soothe investor concerns, the effect has been the opposite in the financial markets, triggering concerns about the country’s ability to pay its debts.
Despite the massive increase for interest rates to 60% – by comparison the cost of borrowing is as low as 0.75% in the UK – economists said Argentina may still require further government action to bring the crisis under control.
Edward Glossop of the research consultancy Capital Economics said Buenos Aires would need to give more details about how it planned to meet the targets for tax and spending set by the IMF. Latin America’s third biggest economy is forecast to shrink this year, while borrowing has become harder for firms in the country amid higher interest rates.
“Maintaining investor confidence from here will require help from the government, which has been largely unconvincing over the past few weeks,” Glossop said.
In a televised address earlier this week, President Mauricio Macri declared an economic emergency and announced a dramatic new set of austerity measures in a desperate bid to convince the International Monetary Fund (IMF) to speed up the release of its previously agreed $50bn bailout loan - the largest in the IMF's history.
"What we have to face is a basic problem," Macri said, "which is that we cannot spend more than we have. This is not just another crisis. It has to be the last."
If Argentina's tumultuous economic history is anything to go by, however, this time is unlikely to be any different. In fact, Macri's keen embrace of the standard IMF recipe of far-reaching austerity only risks repeating the mistakes of the past - deepening the economic recession and leading to renewed social unrest, making further political turmoil all but inevitable.
Argentina's new central bank chief is considering raising reserve requirements and tightening how banks account for reserves to restrict money supply under a revised IMF deal signed this week with the aim of lowering inflation, local media reported on Friday.
Central bank Governor Guido Sandleris, appointed on Tuesday after his predecessor unexpectedly resigned, met with bank executives on Thursday to discuss raising reserve requirements but there is no date set for any announcement, newspapers Cronista and BAE reported, citing sources present in the meetings.
Sandleris announced on Wednesday that the central bank would target zero growth in the monetary base until June 2019 as part of the $57 billion financing deal with the International Monetary Fund, in addition to other measures to help stabilize consumer prices.
The central bank is also discussing a reduction in the amount of short-term debt, known as Lebac, allowed to replace hard cash in bank reserves, the reports said.
With interest rate increases by the U.S. Federal Reserve this year sucking dollars from emerging markets, Argentina has found itself at the center of a storm, as a drought unexpectedly tipped its economy into recession.
The peso has lost more than 50 percent of its value against the dollar this year as foreign investors fled amid concerns the government might be unable to service its debt next year.
Sandleris became central bank governor after his predecessor, Luis Caputo, resigned unexpectedly the day before the announcement of the revised financing agreement with IMF, the largest in the fund's history.
The Argentine government under President Mauricio Macri will publish a decree that effectively prohibits private sector firings, Ambito Financiero reported Nov. 8.
Argentina is seeking a new currency swap deal with China that would add another 60 billion yuan (US$8.7 billion) to its reserves, as the Latin American nation tries to boost confidence in the peso amid an economic crisis in the region.
Since the IMF intervened, Argentina’s economy, heavily reliant on foreign, particularly dollar-denominated, funding is showing signs of improvement. The country’s current accounts are looking healthier and its central bank, the Banco Central de la Republica Argentina, seems to have a handle on its macroeconomic situation.
In late October, the IMF approved a loan expansion to $56.3 billion from $50 billion before, and said Argentina had passed its first economic performance review.
With the peso exchange rate still sitting at the lower range of the trading band that was agreed with the IMF, “we expect BCRA to buy dollar up to $150 million per day to avoid it dropping substantially below the band,” the analysts said.
The trading band was established to stem the peso’s aggressive selloff.
... So far, the Latin American country has drawn $20.4 billion. ...
Argentina assets tanked after a populist opposition candidate routed President Mauricio Macri in a shock primary election result.
The currency tumbled 15% to a record-low 53 per dollar, while the nation’s offshore notes collapsed, with the country’s 100-year bonds down almost 27% in New York to 54.66 cents on the dollar. Bond risk measured by five-year credit default swaps surged 808 basis points. An exchange-traded fund of Argentina stocks tumbled 22% in New York.
Opposition candidate Alberto Fernandez and his running mate, former President Cristina Fernandez de Kirchner, won by a much wider-than-expected margin over Macri, spooking investors who were already trimming exposure to Argentine assets as the Oct. 27 presidential election nears.
The IMF delegates, who arrived in Argentina on Saturday and immediately began meetings with policy makers, face a tricky choice with unwelcome echoes from two decades ago: risk making the turmoil even worse by withholding a $5.3 billion installment due next month -– or cough it up, even though the program’s future looks highly uncertain.
At midnight Saturday, after months of histrionics, the clock ran out on Argentina.
It had failed to put up the $500 million it owed foreign bondholders and, in so doing, had fallen into default for the ninth time in its history. It's a staggering number, putting the South American country in an elite league of serial defaulters that includes the likes of Ecuador, Uruguay and Turkey.
Argentina will present an amended bond restructuring offer to U.S. regulators on Thursday or Friday, a source at the economy ministry told Reuters on Monday, as the government pushes forward with restructuring about $65 billion in sovereign debt.
Argentina is facing a grim economic picture after defaulting on its sovereign bonds last month.
Gross domestic product is seen shrinking 9.5% in 2020, according to a poll of analysts by the central bank released on Friday, versus an estimated 7% decline in the bank's previous monthly survey, as activity gets walloped by a nationwide lockdown that started March 20 to fight the coronavirus pandemic.
Striking a bond restructuring deal is key for the country to avoid years of legal battles with creditors and a potential shutout from global capital markets, as happened after a major default by the crisis-prone country in 2001.
Argentina said on Tuesday it had reached a deal with three creditor groups to restructure $65 billion in sovereign debt, potentially helping it climb out of a damaging default and revive the recession-hit economy.