Argentina’s peso falls again as Macri tries to shore up support
Argentina’s peso resumed its slide on Wednesday as President Mauricio Macri announced a raft of emergency measures aimed at providing relief to a population suffering from the impact of a sharp devaluation following his stunning defeat in primary elections.
The measures, which will cost $740m, included increases in the minimum wage, loans for small- and medium-sized businesses, students grants, subsidies for poor families with children and the floor for income tax, as well as a freeze in petrol prices for 90 days.
The peso fell more than 5 per cent against the dollar on Wednesday morning to a record low of 58.75 pesos per dollar. The yield on the country’s government bonds climbed again, with one maturing in 2028 rising to 18.4 per cent. Yields move inversely to prices. Longer-dated debt, including the century bond maturing in 2117, failed to catch a bid as well. That once-celebrated issuance is now trading at 48 cents on the dollar.
The sharp move lower in the peso has heightened concerns of a coming debt default, with the odds of such a move within five years remaining elevated at 75 per cent. Four-fifths of the country’s debt is denominated in a foreign currency, meaning any weakness in the currency makes repayment a much more difficult task.
Mr Macri has launched the new measures as he redoubles efforts to win presidential elections in October after losing by 15 percentage points in primary elections on Sunday to his Peronist rival, Alberto Fernández. The outcome took markets by surprise and leading to a collapse in Argentine asset prices.
It also fuelled concerns that Mr Macri may be in denial about his election chances, and that the measures will do little to solve a looming governability crisis if the economic chaos worsens and there are no talks with Mr Fernández to smooth a transition, seen now by investors as inevitable.
“It’s too little too late,” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, arguing that it is “game over” for Mr Macri. “There’s very little that populism can do to change three years of recession. Voters delivered a vote of no confidence in the primaries. I can’t think of anything he could do or say to reverse the electoral outcome.”
Mr Macri also apologised for comments on Monday that appeared to blame those who voted for Mr Fernández for the market rout, since investors are fearful of the consequences of a return of Peronism and a potential default on Argentina’s sovereign debt.