Please see below the ‘Daily Update’ from EPIC Investment Partners, which was received this morning (15/08/2023) and provides their views on Argentina devaluing its currency and hiking interest rates:
Argentina devalued its currency and hiked up interest rates following a shock primary election win by the far-right outsider Javier Milei, who has vowed to “burn down the central bank”. The South American central bank devalued the peso by 18% to around 350 pesos versus the dollar and hiked interest rates by a shocking 21%, to 118%, in a drastic policy shift as it runs short of funds to defend its currency. Milei has been riding a wave of popular discontent, and is seen as a libertarian who supports dollarising the economy. He has also called for massive cuts in government spending.
The central bank also intends to ask the International Monetary Fund (IMF) to increase a payment planned for later this month by an unspecified amount, government officials said. The Fund agreed to give Argentina nearly USD11bn in loans for the rest of the year as part of a refinancing agreement brokered by the Economy Minister Sergio Massa, who is also running for president in October’s election. The first payment of USD7.5bn is expected by the end of August, after approval of a staff-level agreement by the Fund’s executive board. Argentina is the largest debtor to the IMF, after securing USD44bn last year to refinance a 2018 loan.
Of course, defaults, devaluations and crippling recessions are not unusual for Latin America’s third-largest economy. Argentina is on the brink of its sixth recession in the last decade. Milei has been a vocal critic of what he calls the “corrupt political class”, saying the country’s leaders have thrown it from one crisis to another. He believes replacing the peso with the dollar, along with eliminating the central bank, and cutting government spending “so large that austerity measures demanded by the IMF would look tiny in comparison” would all help turn the economy around.
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Carl Mitchell – Dip PFS
Independent Financial Adviser
15/08/2023