Economy
Related: About this forumArgentina's great reformer is losing believers with peso cratering
President Mauricio Macri of Argentina, who rose to power with bold promises to revamp the nations economy, is starting to try the patience of global investors.
For the second time in less than a week, the central bank on Thursday moved to shore up the peso, to little effect.
The currency weakened 7.8% against the dollar to 23 pesos - its worst day since Macri's shock devaluation in late 2015 - even as the central bank raised its benchmark interest rate by 300 basis points to 33.25%, the highest in the world. This was on top of Fridays 3% increase.
Behind the weakness is growing concern that both inflation (26%) and government spending are spiraling dangerously high.
A record 225 billion-peso ($24 billion) budget deficit Macri inherited has ballooned within two years to 569 billion pesos ($34 billion), as steep corporate tax cuts took effect.
Budget deficits in the first quarter are up another 30% due to a doubling in interest payments, mostly to service high-yield LEBAC notes now being unloaded for dollars to be wired overseas - a variant of carry-trade known locally as the financial bicycle.
Rolling back protectionist measures has meanwhile led to a record, $8.5 billion trade deficit and a doubling in the country's historically problematic current account deficit to $30.8 billion, or 4.9% of GDP.
Currency traders have made the peso the worst performer in emerging markets so far this year as it sank 19%. The countrys overseas bonds are also among the worlds worst performers.
Its a disappointment to many investors who saw Macris election in 2015 and his promises to bring predictability and lure foreign capital as a turning point.
At: https://www.bloomberg.com/news/articles/2018-05-03/argentina-s-great-reformer-is-losing-believers-as-peso-craters
Argentina's Macri promoting a municipal bicycle sharing program he enacted as mayor of Buenos Aires in 2010.
His reliance on the financial bicycle as president has been more problematic.
Dawson Leery
(19,348 posts)It has to stop at some point, and that point has already arrived.
sandensea
(21,620 posts)This was how the dictatorship in the early '80s bankrupted what up to then had been the region's most prosperous country: with a mountain of debt mostly taken on to finance the transfer ("bicycling" ) of profits to offshore banks (and the hare-brained Falklands War).
Voters should have known better, given his family's history of tax evasion and fraud, and given his choice of advisers.
But Argentina, like the U.S., has a lot of radicalized white voters angry with progressives for "coddling lazy brown people" - and that's where dog whistlers like Macri come in.
Certainly sounds familiar.
quartz007
(1,216 posts)Between excessive money printing, trade deficits, and budget deficits for ever, how long before US $ will tank?
sandensea
(21,620 posts)And God forbid.