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Macri seeks to provide reassurances in Argentina

Development: On 15 May Argentina’s President Mauricio Macri said in a video recorded address that the country is not facing another financial crisis like in the past and urged Argentines to maintain calm.

Significance: Macri’s remarks are a clear attempt to calm the markets amid the recent sharp devaluation of the Argentine peso against the US dollar and apparent loss of confidence in the peso that led his government to turn to the International Monetary Fund (IMF) for assistance. The move has sparked fears in Argentina that the country is once again at the onset of a financial crisis like in 2001 and that the IMF help will come at the expense of painful economic reforms just like it did back then, sparking political and social tensions. Macri’s objective is to avoid these tensions escalating into social unrest as his government seeks to reach a workable deal with the IMF and tries to regain market confidence.

  • Macri released his video address following what was seen as a critical day for Argentina’s financial markets. Yesterday was the expiration day of Ar$615.8bn in short-term bonds (Lebacs) that the central bank (BCRA) regularly issues to regulate the supply of pesos in the currency markets. Given the peso has lost around 15% of its value compared with the dollar since the start of the month there were concerns that Lebac holders would seek to cash in on the bonds in order to seek to purchase dollars in order to safeguard their money.
  • However, yesterday BCRA announced that it had renewed the entirety of the Lebacs after offering increased yields of up to 40%. Indeed, BCRA said that it had placed an additional Ar$5bn in Lebacs. The successful operation with the Lebacs helped to stabilise the exchange rate and halt the fall of the peso, with the peso gaining 3.7% on the dollar to finish trading at Ar$24.50/US$1 after BCRA also sold US$791m from its foreign reserves in the currency markets to help prop up the peso.
  • Following BCRA’s success in controlling the exchange rate, Macri sought to provide further assurances to the public in his address. The president reiterated that his government and the economic authorities are well prepared to deal with the current volatility in the financial markets and the other difficulties faced by the Argentine economy such as the still-high inflation rate. “I know that these days have produced anguish and worry that the situation that we face could produce a major crisis. I understand that…but we are far from that: there is not a situation comparable to a crisis”, Macri said.

Looking Ahead: In his message Macri insisted that his government can overcome the current financial volatility and bring inflation under control provided that it has the necessary public and political support to advance his proposed economic reforms in congress. The big question is whether this support will be forthcoming.

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