Argentina raises interest rate, devalues peso after shock primary election

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Argentina's central bank will raise the benchmark interest rate to 118% from 97% previously, an official source said Monday, adding the country's currency will be devalued to 350 pesos per dollar in the aftermath of a shock primary election.

The Argentine central bank rate is now at its highest level since April 1991, when the country was just emerging from a hyperinflation crisis.

Sunday's primary vote, seen as a reliable bellwether for the upcoming presidential elections, propelled ultra-right outsider Javier Milei, who wants to axe the central bank and dollarize the economy, to first place with some 30% of the vote.

The official peso plunged nearly 18% on Monday morning to just over 350 pesos per dollar and the source said the exchange would be fixed at this rate until the October presidential vote.

The parallel, "blue" rate meanwhile jumped from 605 pesos to 685, as worried Argentines rushed to buy dollars.

Latin America's third-biggest economy is battling a severe economic crisis with sky-high inflation and dwindling central bank reserves - partly the result of a foreign debt crisis inherited from right-wing former President Mauricio Macri in 2019.

At: https://www.reuters.com/markets/currencies/argentina-raises-interest-rate-devalues-peso-after-shock-primary-election-2023-08-14/

Pedestrians walk by Argentina's Central Bank building in downtown Buenos Aires recently.

A surprisingly strong showing by far-right outsider Javier Milei yesterday in nationwide presidential primaries - where Milei garnered 30%, compared to 21% for center-left candidate Sergio Massa and 17% for hard-right candidate Patricia Bullrich (both, establishment figures) - sent Argentines rushing to purchase dollars on the parallel, "blue" market.

[Alexander Of Assyria]

1. Debt traps, old as the world bank.

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2. And in Argentina's case, it all traces back to the last dictatorship in the early '80s

After deregulating banking, a massive bubble developed - and when it all crashed in '81, around $30 billion in assets were dollarized and offshored.

All made possible by both deregulation, and $40 billion in new foreign debt (in 1980 dollars!).

The country has never been able to dig out of it ever since, with governments either trying in vain to pay down the debt (Alfonsín and the Kirchners) - or, as Menem and Macri did, simply adding to it to satisfy an insatiable demand for dollars by locals.

Either way, it's hopeless.

[Alexander Of Assyria]

3. Western bond holders...trying to cash in a windfall...good thing not China!

American investment corporation BlackRock, the world's largest asset manager, has been negotiating with the Argentine government on behalf of three different creditor groups to which Argentina reportedly owes more than half its overseas debt.

The three creditor groups are known as the Ad Hoc Group of Argentine Bondholders, the Exchange Bondholder group and the Argentina Creditor Committee. The negotiations have been over the restructuring of around $65 billion in debt which the Argentinean state owes to these and other bondholders.

Total foreign debt…near $400 billion…can’t print their out like America…

https://www.dw.com/en/argentinas-debt-restructuring-deal-explained/a-54432373

[peppertree]

4. Excellent recap. Thank you.

The only thing I'd add is that the foreign debt (including private borrowers) is currently at $276 billion - of which $189 billion is public foreign debt.

But it might as well be $400 billion...or a trillion. Short of Argentina discovering a Saudi-sized oil field (or something like it), it's utterly unserviceable.

They were close at one point to getting ahead of it, around 2010/11 - until Paul Singer and the other vultures ruined Argentina's credit with their fraudulent lawsuits.

And of course, the late Judge Tom Greasa - who played as a kind of Aileen Cannon for Singer, siding with him brazenly every step of the way (allegedly for a bribe).

Famously, he even attached every other bondholders' payments (!) until Singer got his way. Macri and his borrowing binge in 2016/18 did the rest.

Thanks as always for your insights, and good vibes Alexander. All the Best!