BUENOS AIRES, Sept 26, 2018 (BSS/AFP) – Argentina was paralyzed by a
general strike on Tuesday while the central bank chief resigned amid talks
with the International Monetary Fund on a revised crisis loan package.
As president Mauricio Macri negotiated accelerated funding from a $50
billion loan agreed with the IMF in June, the country’s beleaguered currency
was hit by the news that Luis Caputo had been replaced by Guido Sandleris as
central bank chief.
The peso almost immediately slumped 2.2 percent against the dollar.
The IMF seemed to approve of the change, spokesman Gerry Rice expressing
the desire to continue its “close and constructive relationship” with
Argentina’s central bank.
Later, IMF chief Christine Lagarde said a deal with Argentina was “close
to the finish line” after a “very good meeting” with Macri on the sidelines
of the UN General Assembly in New York.
His center-right government burned through an initial $15 billion tranche
of the loan in June to prop up the beleaguered peso, with a further $3
billion due in November and the rest over the next three years.
Argentines protested the loss of purchasing power brought on by the peso
losing around 50 percent of its value against the dollar this year.
Many shops, banks and public offices were closed with public transport and
taxis at a standstill.
Following Monday’s mass demonstration organized by trade unions, left-wing
demonstrators faced off against security forces near a key Buenos Aires
bridge on Tuesday, but streets in the capital were mostly deserted with many
people unable to get to work.
Airports were also deserted with all flights in and out of the country
cancelled.
– ‘IMF disagreement’ –
The central bank stated in the morning that Caputo had resigned for
“personal reasons,” with the conviction that a “new agreement with the
International Monetary Fund will restore confidence in the fiscal, financial,
monetary and exchange situation.”
Some analysts said there were already rumors on Friday that he would
resign due to “a disagreement with the IMF over monetary policy,” according
to Argentine economist Gabriel Rubinstein.
Formerly chief of trading at JP Morgan and Deutsche Bank, Caputo is close
to the center-right Macri and was finance minister before he was appointed
president of the central bank in June.
Gabriel Torres, Moody’s chief sovereign risk analyst for Argentina, said
Caputo’s shock departure “will increase near-term currency volatility” and
reducing volatility would depend on the final terms of the revised IMF
agreement.
Economist Fausto Spotorno said Caputo was never seen as a long-term
fixture, though, and that “the government’s priority is an agreement with the
IMF.”
“I don’t know if the IMF requested he leave or if Caputo preferred to
resign rather than take a different path to the one he was advising,” said
Management and Fit Institute chief economist Matias Carugati.
“But his departure is linked to the new IMF deal.”
His replacement, Sandleris, is an economist who worked previously for the
World Bank and the Inter-American Development Bank. He was deputy finance
minister before being named central bank president.
Sandleris was given a glowing reference by Finance Minister Nicolas
Dujovne, who called him “a brilliant person” with whom Argentina would “start
to win the battle with inflation.”
Inflation is expected to hit 40 percent by the end of the year while the
economy is predicted to shrink by 2.0 percent.
– Crisis of confidence –
A crisis of confidence beginning in April saw the value of the peso
plunge, with Argentina negotiating its $50 billion bailout loan from the IMF.
But that failed to prop up the currency and Macri announced in August he
would be seeking an accelerated disbursement of the remainder of the funds
that were initially due to be transferred over a three-year period.
That sparked two days of damaging drops in the value of the peso, which
lost 20 percent against the dollar.
Macri responded by announcing new, and unpopular, austerity measures,
including halving the number of government ministries and restoring taxes on
grain exports.
The central bank hiked interest rates to a world-high 60 percent and the
peso has remained largely stable since its sudden crash in August.
But restoring faith in the peso has proved difficult, with skeptical
Argentines believed to be holding $300 billion outside of the country’s
fiscal circuit, either in cash or abroad, in a bid to protect their assets
from the peso’s woes.