In spite of the efforts of the Macri government in Argentina and the International Monetary Fund to support and boost the financial position of the country, there was a further fall in the value of the country’s currency – peso, of 7.4 per cent against the dollar.
The peso has dropped by over 18 per cent in the last 12 days and it touched just below 25 pesos against a dollar at the opening of trading on Monday.
There was a drop of over 1 per cent in the value of Argentina-related electronically-traded funds and the 100-year bond trading at under 87 cents on the dollar as the bonds and stocks of the country also suffered.
Peso is amongst the least traded emerging market currencies and its sharp fall underscores the bad liquidity position in the peso. According to the Bank of International Settlements, only about $1bn on a net-gross basis is the value of the daily average turnover in the over-the-counter foreign exchange in Argentina.
Following the hiking of interest rates to 40 per cent by the Argentine central bank and the approach by the Argentine government last week to seek an emergency debt from the IMF could not prevent the decline of the peso.
And there are chances that Macri could alienate common Argentines and their confidence on the peso be such measures even as foreign investors would apparently feel satisfied with those efforts, analysts have warned.
The very negative impact that some of the measures by the IMF had on eth local economy in early 2000s has made the IMF very unpopular in Argentina.
There are fears that a condition of absolute free floating of the peso may be put by the IMF against lending money top the country. While there are some who believe that the peso is still overvalued, there are other who see the peso reaching its market value after the fall of the currency over the past two weeks.
To initiate discussions with the IMF, Argentine president Marci has already spoken with US president Donald Trump, Macri said in a statement. Among all of the IMF member countries, the largest votes are with the US.
It was conducting discussions with the Argentine government, the IMF said in a statement. “Our shared goal is to reach a rapid conclusion of these discussions,” the IMF said. The Fund would hold an informal board meeting to discuss the Argentinian issue on Friday.
However, time is very crucial for the country’s economy. Analysts attributed the downward pressure on the peso to crucial test that Argentina’s central bank would be facing on Tuesday when it would be holding its monthly auction for the short-term securities which is known as Lebacs, where government notes valued at 639bn pesos would be maturing on Wednesday.
Simon Quijano-Evans, EM strategist at Legal & General Asset Management believes that either the central bank of Argentina needs to hike interest rates further or a quick time frame of disbursing the debt is required to be published by the Fund.
(Adapted from FT.com)