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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