Shut up, investors told, as Argentina unleashes crisis crackdown
Early on the evening of Friday, May 11, Argentina’s most-powerful corporate executives rushed over to the official residence of President Mauricio Macri north of Buenos Aires.
The peso had just plummeted 6% against the dollar for a second straight week, and the small group - which included a billionaire, a real-estate mogul, and the local head of Fiat - had been summoned to discuss the steps being taken to combat what had quickly turned into a crisis.
Macri, after all, was an ex-businessman himself. He understood their concerns and would soothe their frayed nerves.
It didn’t turn out that way.
Within minutes, a heated exchange broke out that left a frosty tension between the two sides which has only deepened in the days since. The problems began, according to three people present that evening, when some of the CEOs spoke up to express concern over the central bank’s decision to boost benchmark rates to 40%.
They were immediately silenced by two Macri aides: Deputy Cabinet Minister Gustavo Lopetegui and Industry Minister Francisco Cabrera.
Don’t worry about rates, they insisted. Focus instead, they said, on expressing support for the government at a difficult time; that’s why the meeting had been called.
The message had been sent: Toe the line or keep quiet.
From market darling to IMF bailout
Early in Macri’s term, having finally put its epic 2001 default behind it, Argentina was the darling of the bond market once again. It sold more than $40 billion worth of securities, including a rare 100-year bond last year.
But in 2017 budget and current account deficits rose to a record $38 billion and $31 billion, respectively, and inflation over the last six months is now at an annualized 31%.
A record trade deficit of $8.5 billion last year is up 165% so far this year.
When yields suddenly climbed in the U.S., investors got nervous and started yanking money out of the country, forcing Argentina's central bank to sell $7.7 billion from its reserves and to request a $30 billion stand-by credit line from the IMF.
The peso has sunk 24% this year to a record low of 25 per dollar - the worst of all emerging markets.
At: https://www.bloomberg.com/news/articles/2018-05-21/shut-up-investors-told-as-argentina-unleashes-crisis-crackdown
Macri and Argentine business leaders in happier days.
Record trade deficits, massive utility rate hikes, and a 40% prime rate have since fouled consumer and business sentiment.
