Argentine financial crisis could signal broader turbulence

 

Argentine financial crisis could signal broader turbulence

By
Nick Beams

10 May 2018

Argentina’s decision on Tuesday to ask the International Monetary Fund (IMF) for financing to help stem the slide of the peso has raised the question of whether this could be the start of a crisis affecting other so-called emerging markets.

Argentine President Mauricio Macri announced he was going to the IMF after three interest rate hikes in ten days by the country’s central bank—the latest lifting its rate to 40 percent—failed to halt the sell-off.

Argentina is seeking a “flexible line of credit” (FCL) of some $30 billion, to come without conditions attached by the fund. Whether the country obtains such a stand-by facility is another question. The IMF stipulates that FCLs are designed for countries with “very strong fundamentals and policy track records.”

IMF managing director Christine Lagarde issued a statement saying Argentina was a “valued member” of the IMF and discussions had begun on “how we can work together to strengthen the Argentine economy.”

Those words sound an ominous warning for the mass of the Argentine people who recall only too well the devastation imposed under IMF intervention in 2001, when one in five workers lost their jobs, banks closed and the peso lost two thirds of its value.

The Argentine crisis forms part of a developing global turbulence in which a number of countries with high debts are coming under pressure because of rising interest rates and an appreciation in the value of the US dollar.

As the Financial Times noted in a comment earlier this week, the Argentine crisis of 2001 did not spread to other markets. “Yet this time, Argentina’s woes are not isolated. Not only is there a global cause, in the stronger dollar and rising…

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