Argentina central bank chief resigns
Argentina’s central bank chief has resigned after just three months in the job, triggering a 5 per cent slide in the peso and hitting President Mauricio Macri’s attempts to restore investor confidence in the midst of a currency crisis.
The departure of Luis Caputo came as Mr Macri’s government struggled with a 36-hour general strike against his new austerity budget and sought to close a revised bailout deal with the IMF, which has already extended a $50bn programme to shore up the country’s finances.
“The timing could not be worse for Argentina,” said Paul Greer, a portfolio manager at Fidelity.
Argentina has been at the centre of a broadening sell-off in emerging markets with investors becoming increasingly worried that governments and companies in the developing world will be unable to pay billions in dollar-denominated debts as the US currency continues to rally.
Argentina has been the most aggressive emerging market in seeking to stop a run on its currency, which has lost half its value this year. Mr Macri has promised to drastically cut spending and the central bank has raised interest rates to a world-beating high of 60 per cent.
He was asking for permission to intervene in the foreign exchange markets and that caused very great fear at the IMF
Mr Greer said Mr Caputo’s exit comes at the same time that financial markets are closely watching whether the IMF will allow the central bank to “continue depleting its international reserves to support the peso.”
Although the government said the central banker was departing for “personal reasons”, one person familiar with the IMF negotiations said his relationship with the Fund had been “very bad for a long time.” The person added: “He was asking for permission to intervene in the foreign exchange markets and that caused very great fear at the IMF.”
Although the IMF provides emergency support for countries facing market attacks, it often frowns on using reserves to shore up local currencies, which can quickly burn through aid cash.
The central bank said it was confident it could reach a deal with the IMF to “re-establish confidence in the fiscal, financial, monetary and exchange rate situation.”
The yield on Argentina’s benchmark century bond, a measure of risk, rose by more than 20 basis points to 9.33 per cent on Tuesday, a one-week high. Although the peso initially sold off after Mr Caputo’s departure was announced, it later pared its losses and was down 1.4 per cent in afternoon trading.
Mr Caputo, a former broker who was well liked by investors, will be replaced by Guido Sandleris, a respected economist who has previously worked at the Minneapolis Federal Reserve, Chile’s central bank and the IMF.
In a statement, Mr Sandleris thanked Mr Macri for the appointment and said that he would work to make prices more stable and predictable.
The IMF said on Tuesday that it looked forward to “continuing our close and constructive relationship” with the central bank under Mr Sandleris’ leadership.
“Our staff and the Argentine authorities continue to work intensively with the objective of concluding the staff level talks in very short order”, said Gerry Rice, an IMF spokesman.
Critics highlighted that although the IMF had called for strengthened independence of the central bank, Mr Caputo’s exit is widely perceived to have been triggered by the IMF negotiations, which are expected to come to a close this week.
“Caputo was a strong defender of the exchange rate, with constant interventions clashing with the IMF’s mindset,” says Marcelo Fiorellini, Brazilian investment bank BTG Pactual’s country manager in Argentina.
“On the other hand Caputo had a very good relationship with the market, and communication with banks,” he added.
Siobhan Morden, head of Latin America fixed-income strategy at Nomura, said: “This is the second turnover for the central bank since the crisis of confidence began, which shows that it’s not the people but the plan.” She added that the timing of Mr Caputo’s resignation was unfortunate since “markets are somewhat disappointed that the updated IMF programme may be less than expected”.
Benedict Mander & Pan Kwan Yuk & Colby Smith