On May 11, three days after Argentina secured a $50 Billion IMF bailout – the largest in the fund’s history – we jokingly noted that with the peso resuming its slide, an indication the market did not view the IMF backstop as credible, the ECB would need to get involved.
ARGENTINE PESO EXTENDS LOSS, HITS NEW ALL-TIME LOW AT 23.16/USD
Time to add ECB to IMF bailout
In retrospect, it now appears that this may not have been a joke, because with the Peso plummeting, and surpassing the Turkish Lira as the worst performing currency of 2018 having lost half its value YTD…
… with the bulk of the collapse taking place in August…
… Christone Lagarde had some very bad news for Buenos Aires and Argentina president Mauricio Macri: the IMF now insists that after burning through billions in central bank reserves, Argentina should stop using funds to support the peso, and float it freely.
According to Infobae, the Argentine foreign currency reserves have declined below the level demanded by the IMF, with Argentine authorities selling $2.5BN to support the peso in August; meanwhile the overall level of reserves has slumped even more, approaching the levels before the IMF bailout and failing to prop up the peso which, as shown below, has collapsed in a move reminiscent of what is taking place in hyperinflating Venezuela.
Worse, the Argentine Peso suffered its latest sharp drop in the days after the central bank unexpectedly hiked rates to 60% – the highest in the world – and another indication that the market is firmly convinced that not even the IMF backstop will force Argentina into a painful, and politically destabilizing structural program.
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