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Argentina is in the grip of a currency crisis

by | 15 May, 2018

Argentina’s economic outlook is uncertain

Argentina had once been heralded as a prime example of an amazing economic recovery. The commodities boom of the last few decades helped the nation repay all the money it owed to the IMF (International Monetary Fund) after a turbulent period which included sovereign debt defaults, as well as attacks from so called ‘Vulture Funds’, who bought up Argentine bonds at record low prices after the country defaulted on around $100bn worth of debt in 2002, then demanded repayment in full. 

Only last year, circumstances looked brighter. The country was issuing 100-year bonds to investors, joining a select club of countries with the confidence to borrow for such a long period, with optimism high due to the fresh approach to policy courtesy of a new President – Mauricio Macri. Now that optimism has returned to worry however. Macri has asked the IMF for a $30 billion loan to help combat its currency crisis, as the Argentine Peso has fallen over 79% against the US Dollar over the last few years, which is an even bigger fall against the Greenback than Turkey’s Lira.

Argentina’s economy is particularly vulnerable because of its heavy reliance on external borrowings in foreign currency, which has hampered investor sentiment. At the same time, recent volatility in the price of the Peso was caused by a surge in the US Dollar, alongside market expectations the Federal Reserve would raise interest rates more aggressively. Some analysts think even a bailout won’t work, and that the economy is heading for a recession this year.

5-year chart for the Peso against the US Dollar from the Invstr app

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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