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Recent developments: currency crisis

Argentina: Recent developments: currency crisis

Despite the austerity measures implemented by the Macri administration, in May 2018 the Government announced it was seeking a stand-by agreement with the IMF, owing to declining reserves, a high rate of inflation, and the continuing depreciation of the peso against the US dollar. Accordingly, on 7 June the IMF approved a three-year credit line worth US $57,000m. President Macri sought to allay fears that the accord with the IMF heralded a return to the harsh economic policies that followed the 2001 financial crisis and subsequent IMF bail-out, insisting that the funds were merely a contingency that would support economic growth. Nevertheless, news of negotiations with the Fund had prompted demonstrations in Buenos Aires, organized by trade unions and civil societies. The CGT also co-ordinated a 24-hour general strike on 25 June. In an attempt to restore confidence in his administration, in mid-June Macri effected changes to his Cabinet, appointing new energy and production ministers and remerging the ministries of public finance and economy, to be headed by Dujovne. He assigned Luis Caputo, the former economy minister, to head the Central Bank following the resignation on 14 June of Federico Sturzenegger. The President also appointed a new head of the Banco de Inversión y Comercio Exterior. Nevertheless, at the end of August, following a further fall in the value of the peso, as well as a still rising monthly rate of inflation, Macri requested an early release of $15,000m. in funds from the stand-by agreement. He also announced several measures designed to stabilize the economy, including further expenditure cuts, the introduction of an export tax and a reduction in the number of government ministries. A draft budget plan for 2019 was duly presented to Congress. However, the President’s attempts to reassure international markets of Argentina’s macroeconomic stability encountered a setback with the resignation for ‘personal reasons’ of Caputo from the presidency of the Central Bank after three months in the post on 25 September. He was replaced by Guido Sandleris, hitherto Dujovne’s deputy. The following day the IMF announced it had agreed to increase the total funds available to the Government to $57,100m. The conditions attached to this additional funding included further austerity measures, as well as the elimination of the fiscal deficit in 2019, and the news prompted further protests in Buenos Aires, including another CGT-organized general strike that halted all public transport in the capital.

Following much debate, amid protests outside the Congress building, the Government’s proposed budget for 2019 was approved by the opposition-controlled lower house on 25 October 2018. Cambiemos secured a further political victory in mid-November when the Senate also voted for the fiscal plan. However, in March 2019 the IMF, while provisionally approving a further tranche of credit for the country, warned that more economic reforms were needed if the Government was to meet its target of eliminating the fiscal deficit. Any further austerity measures were likely to be met with more popular protests, which, with a general election scheduled in October, the Macri administration would be keen to avoid.

Citation: Recent developments: currency crisis (Argentina), in Europa World online. London, Routledge. Retrieved 13 November 2019 from http://www.europaworld.com/pub/entry/EE000289

Political and economic reform Human Rights and the Dirty War


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