Executive Intelligence Review


No Let-Up in Argentine Currency Run, as Fears Grow of Looming Debt Crisis

May 14, 2018 (EIRNS)—The opening of the markets this morning saw another run on the Argentine peso, as it reached a record low of 25.75 to the dollar, an 8% drop—it has plunged 34.3% this year—forcing the Central Bank to intervene with $5 billion to prop it up. This morning, President Mauricio Macri spoke by phone with President Donald Trump, who, according to the White House readout, “expressed strong support for President Macri’s efforts to transform Argentina’s economy.”

May 15 is being seen as “D-Day” for the markets. This is when 680 billion pesos, or $30 billion, in the short-term peso-denominated Lebac bonds come due. The fear is that, in the current climate of uncertainty, there won’t be sufficient rollover, and that the Central Bank will have to cough up $10 billion or more if holders start dumping Lebacs. In anticipation of tomorrow, today in the secondary market the interest rate on Lebacs reached 100%.

There is nervousness that Argentina’s crisis won’t be limited to just a currency crisis, either, as editor Wolf Richter warned in his Wolf Street blog May 10, pointing out that when the “ ‘hot money’ gets antsy, a currency crisis morphs into a debt crisis.” Argentina has issued a large amount in foreign currency bonds, highlighted by last June’s issuance of a $2.5 billion 100-year bond. “But these foreign currency bonds get increasingly difficult to service for these countries when the local currency crashes, and that’s on the horizon now,” Richter predicts.

Writing in Página 12 today, economist Alfredo Zaiat reports that Wall Street banks are telling Macri that he’ll need a lot more than a $30 billion bailout, and will have to look to various other multilateral lending agencies, as well as special credit lines from advanced-sector central banks. Last week, the government obtained a $2 billion credit from the Bank for International Settlements.

The need to increase foreign assistance, Zaiat says, stems from fears, both domestically and internationally, as to whether the bailout being negotiated with the IMF will succeed in calming the markets, or “whether it will be insufficient to avoid a solvency crisis, which would imply a new renegotiation or debt default.”