Argentina Peso Plunges To New Record Low

Last night, Argentina got 50 billion pieces of good news, when the IMF agreed to provide the troubled Latin American nation with a $50BN standby loan, the largest even in IMF history. It also got some bad news, when the central bank announced it would remove the 25/USD barrier it had imposed in early May to prevent an escalating currency crisis.

Well, this morning, contrary to expectations that the Argentina Peso would rise on the IMF loan, ARS resumed its selloff, and promptly breached the central bank's 25/USD barrier, and plunging 2.3% to 25.55 .

The breach of the barrier shows that confused traders are seeking to find the "fair value" of the ARS after almost a month of living with a virtual cap. The move is also surprising as it contrasts with the positive impact from the IMF deal seen in sovereign bonds market, with Argentina's century bond’s due 2117 dropping modestly by 18bps, to 8.02%

Meanwhile, there is the political blowback to consider: as Bloomberg notes, after the kneejerk reaction and market stabilization at a new level - assuming there is one - traders will start watching the steps govt will make to achieve the new fiscal targets as Argentina is well known for protests, and the latest round of IMF austerity in the form of cuts in jobs and government spending is unlikely to be achieved peacefully.

Meanwhile, as Bloomberg's Sebastian Boyd writes, "given the pace of inflation, the peso needs to weaken just to maintain the real exchange rate, and arguably it should fall more than that. But today is going to be interesting. It looks as if the market wants to test the bank's resolve again."

As we reported yesterday, Argentina will seek a fiscal deficit/GDP of 2.7% this year and 1.3% in 2019; below the previous targets were 3.2% and 2.2%, respectively; the country is expected to balance its budget in 2020.

Ironically, even as the Brazilian real is stabilizing, for now, after last night's central bank intervention, the EM selloff in Latin America for now has merely jumped borders across to Argentina. The question is whether the central bank will be forced to intervene again.

* * *

Finally, keep the following chart from JPM in mind,: it shows why of all EMs, Argentina and Turkey are by far the two nations most likely to collapse first:

Putting Argentina in context, JPMorgan's cluster model illustrates how risky the Latin American country has been for investors. In the chart below, the closer countries are to each other, the more similar they are with respect to competitiveness, regulation, investor protections, labor markets and ease of doing business. Like Bangladesh and Zimbabwe, Argentina lies at the outer edge of this known universe, far from other EM countries like China, Peru, Indonesia and Mexico and Vietnam, and lightyears away from the developed world. Only in a world of financial repression by central banks could a country like this issue an oversubscribed 100-year bond.

 

Comments

JLarryL The central planners Fri, 06/08/2018 - 12:43 Permalink

It's the revenge of the IMF. They just loaned a few new dollar-denominated billions to the abysmal Argentinian leaders, who must now impose extra austerity on the population to repay the loans. What's impressive about this scam is that it's likely done with magically created dollars and manipulated currencies. It's a highly efficient way of looting a country without firing a shot. You only need "cooperative" local leaders, which Latin America unfortunately excels at producing. USA dollars, USA-led IMF.

In reply to by The central planners

el buitre shizzledizzle Fri, 06/08/2018 - 10:04 Permalink

When I lived in Argentina 6 years ago, the official USD exchange rate was 4.5.  That is what you got at a bank ATM.  One could take a bus to Uruguay and do quite a bit better.  Interestingly, all real estate offers and posters in RE broker windows were priced in USD.  I guess when the USD also goes into hyperinflation, they will have to switch to PM's:-)

In reply to by shizzledizzle

Offthebeach Agent P Fri, 06/08/2018 - 10:03 Permalink

Who do you think is behind this attack?  Brit Bob!

This is war by other means, and on behalf of The People's Malvinas Liberation Front( NOT to be confused with The Liberation Brigade of Occupied Malvinas, who are splitters and tools of Bank of London and Shell Oil of Netherlands) , WE DEMAND the INTERPOL arrest of Brit Bob, Bob, any and all British "Richard, Dick, or Harry", or else our armed wing will be forced to take measures.

 

In reply to by Agent P

BritBob Agent P Fri, 06/08/2018 - 10:26 Permalink

Seriously, if Argentina had spent as much time an effort with their economy instead of chasing illegitimate and mythical sovereignty claims then there would be no need for this loan - They would be economically sound.

Cristina Kirchner was the queen of Malvinizar but I do hope Macri doesn't revert to using Malvinizar:-

Critics of the Argentine government’s strategies and rhetoric toward the Falkland islands have coined a new verb – malvinizar – to describe how the claim for and memory of the Malvinas is used simply to divert attention away from more serious domestic socio-economic challenges .

 

In reply to by Agent P

foreignlander BritBob Fri, 06/08/2018 - 15:06 Permalink

It doesn't have anything to do with what happened in Malvinas Brit Bob.  But then again, we can turn your statement around and say "If the UK has spent as much time and effort with their economy instead of chasing illegitimate and mythical sovereignty claims" as a has-been-empire then... they would not be in the hole there in now and digging some more.

https://www.independent.co.uk/news/uk/home-news/food-bank-use-uk-rise-c…

http://truepublica.org.uk/united-kingdom/what-the-doomsday-brexit-plan-…

The private household debt is second to Canada only and both have a housing bubble from another planet that spiked homelessness to Dickensian times, not that living in the legendary damp and decrepit average housing in Albion is such a thrill but it's an improvement over cold damp pavement, the RR network is owned by foreign powers France, the Netherlands and Germany, China is building the nuke plant at Hinckley Point because the UK doesn't have the know how nor the capital to tackle it, the total public + private debt ratio to GDP is one of the highest in the world and let's not even start with the Islamic hordes that are breeding like rabbits in springtime.  You better get familiar with the nuances of Ramadan and Sharia law Bob.  The rag heads mean biznez.  And they will be calling the shots while you are still blobbing about the Falklands.  Being a fully owned colony of Hellaviv is one thing but these sand kneegrows are quite another creature I tell ya.  If I were you I'd put my trust in your great political leadership steering the country in such troubled times right now...no competence has been seen since the times of Churchill, oh well he sunk the empire but what the hell.

Pass the popcorn please.

 

In reply to by BritBob

AustrianJim Fri, 06/08/2018 - 10:00 Permalink

Perhaps it's not really surprising, since the government of Argentina will just spend the 50 billion, and then be 50 billion more in debt than they are today.

arkel Fri, 06/08/2018 - 10:11 Permalink

LOL. A century bond. How can anyone be dumb enough to ever have something like that on their portfolio? Let alone paying only 8% from a screwed up country. Unbelievable

Zhaupka Fri, 06/08/2018 - 10:20 Permalink

$40,000.00 USD makes one Peso Millionaire in Argentina (TINA). Kids love it. $40,000.00 pocket money: Instant Millionaire. Have Fun!

acheron2016 Fri, 06/08/2018 - 10:48 Permalink

When you throw out statements like "The country is expected to balance its budget" (not to mention the "by 2020" part) -- I know you are indulging in illegal pharmaceuticals.  They will not balance their budget in 2020 nor 2120. 

On the other hand it is entirely possible they will scrap their monetary system and come up with a new paper currency long long long before 2117.  Those 2117 bonds will be declared worthless because the currency in which they were issued has been withdrawn from circulation. 

GoldenDonuts Fri, 06/08/2018 - 13:24 Permalink

I wonder when people will learn that they should kick anyone with a business card that says IMF out of their country  Of course the pols wouldn't get their cut if they did that.   Bull market in lamp posts, rope, tar, feathers,

Paracelsus Fri, 06/08/2018 - 16:18 Permalink

  I never in my life thought I would see the day that countries desired to introduce a "basic income level". Now several are toying with the idea.I never thought I would see the day that a bank would steal (bail-in) their customers accounts as a legal process (legalized theft),as happened in Cyprus. Not much coverage in this article about Italy. The anti-refugee position seems inconsistent with a left-ish ideology, but I guess the Italians are fed up with Brussels and those EU idiots.

William Dorritt Fri, 06/08/2018 - 17:42 Permalink

Peso to Dollar exchange

2013   5.8

2018   25

 

Good time to book a vacation ??

Hotels aren't down 80%, but plenty affordable in Ricoleta.

AIRBNB appears to have some great deals, perhaps more price sensitive to the exchange than the hotels. est $30 night.

Airfare

ORD to BA, $1700 - $2200, jet fuel stayed the same.

ORD to Schiphol $ 1400