Argentina's Peso Drops by nearly 11% After Slight Improvement

Galtero Lara
Agosto 13, 2019

According to press reports, election victor Alberto Fernandez criticized his opponent, current President Mauricio Macri, for increasing short-term debt to unacceptable levels.

Argentina last defaulted on its debt in 2001, an event which sparked years of recessions and economic crises.

The peso on Monday tumbled as much as 25 percent to a record-low 60 per U.S. dollar and the Merval stock index lost the most ever in intraday trading.

Argentina's peso ended trade on Monday at 52.15 per dollar for a loss of roughly 15 per cent after falling to an all-time low of 61.99.

"The hopes of Argentina becoming a sustainable, well-functioning economy have been shattered for now", said Patrick Wacker, fund manager for emerging-market fixed income at UOB Asset Management Singapore. The S&P Merval Index plummeted 48% Monday, the second-largest single-day drop in any global stock market since 1950, according to Bloomberg.

That is because further falls in the peso - which on Monday at one stage plunged 30% against the USA dollar - will make the flexible formula enacted by the Macri government less sustainable.

Yesterday was indeed a brutal day for the Argentine financial markets following the news of Mauricio Macri's severe defeat at the country's primary election this weekend, which drastically reduced the chances of a pro-business president to win an official election scheduled for October.

Fernandez has vowed to renegotiate the terms of a $57 billion loan the country received from the International Monetary Fund in 2018 meant to help the heavily-indebted country to service future borrowing.

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The government and its subsidiaries now have US$15.9 billion in debt payments denominated in dollars and euros due in 2019, according to data compiled by Bloomberg.

Alberto Fernandez was Cabinet chief under former Argentine president Nestor Kirchner, while his vice presidential pick, Cristina Fernandez, led the republic for eight years before Macri came to power.

In the primary over the weekend, Macri took home only 32% of the vote, while Fernandez won 47%.

IHS Markit calculations show that the current price level of 5-year CDSs means that the likelihood of Argentina's bankruptcy (defaulting on the country's external obligations) has increased to over 72% over the next five years.

MSCI's gauge of stock performance in 47 countries fell 0.85 per cent, driven lower by tumbling United States stocks.

In overnight trade the Japanese yen rose to its highest level against the dollar since March 2018 - barring a flash crash in January this year - as investors ramped up bets that the safe-haven currency could gain more if the trade conflict is prolonged.

In a press conference Monday, Macri said he still has a shot to reverse the trend in October and that his economic team is working on measures to address voter concerns on the economy.

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