Executive Intelligence Review


Argentina Goes to IMF as Financial Crisis Deepens; Other Emerging Markets Sink

May 8, 2018 (EIRNS)—After last week’s drastic measures raising interest rates to 40% failed to halt a run on the peso and continued capital flight, today a desperate Argentine President Mauricio Macri announced his government, which, he admitted, relies entirely on foreign financing, will go to the International Monetary Fund (IMF) to seek a “preemptive” $30 billion standby loan, to cover immediate financing needs.

Finance Minister Nicolas Dujovne is already on a flight to Washington, D.C. to meet with the Fund, telling a press conference before he left that this will be a “flexible” IMF loan, with few conditionalities, insisting the Fund today “is very different from the one we knew 20 years ago.”

Opposition legislators, economists and political leaders say otherwise, warning that this is a rerun of the policies imposed by London toady José Martínez de Hoz, finance minister of the 1976-83 military dictatorship, or Domingo Cavallo, the finance minister in office just before the 2001 default, who vastly increased the country’s foreign debt with loans from Wall Street banks on usurious terms. There’s no question that the IMF will demand harsh austerity, as both Wall Street and London say this is now the only way to deal with the Argentine crisis.

At the end of December, Wall Street investors and hedge fund managers told Argentina’s economics team to stop issuing debt for foreign consumption; there would be no more money flowing into the country, they warned. In April, JP Morgan set off the run on the peso when it began to dump its holdings of Lebacs, a short-term, peso-denominated bond which has served largely to attract hot money and build up a speculative bubble, to buy dollars instead. Many other investors followed suit, dumping Lebacs, stocks and other public paper.

An Argentine economist told this news service that it’s not out of the question that Macri may be forced out before next year’s election, as the crisis is unsustainable. That’s what happened in the crises of 1989 and 2001, he recalled.

But Argentina could be the tip of the iceberg for a much larger emerging markets crisis, in the context of a looming global debt blowout. Rising interest rates in the U.S., especially on ten-year Treasury bonds, are provoking a significant capital outflow from emerging markets, whose own currencies and stock markets are shaky at best. Last week, the Mexican and Brazilian currencies declined significantly, as did Turkey’s and Indonesia’s, while Turkey’s debt was downgraded to below junk status. And Venezuela is being driven into default to hasten the regime change sought by London and Wall Street’s “Project Democracy” allies.