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Currency controls will not curb crisis in Argentina

Monday, September 2, 2019

Significance

The surprisingly ample victory of opposition candidate Alberto Fernandez over President Mauricio Macri in the August 11 presidential primaries triggered a currency run and a sharp fall in international reserves and led the government to announce a “voluntary reprofiling” of short-term debt. The announcement was interpreted as a default, worsening investor expectations. The debt crisis puts the political transition at stake, with nearly two months before the general election and over three months until a new administration takes office in December.

Impacts

  • Following a new debt crisis, capital markets will be closed, forcing a sharper fiscal adjustment.
  • The financial crisis will delay any economic rebound and worsen social indicators.
  • The fragile fiscal situation will inhibit implementation of any ‘populist’ measures by the new government.
  • The structural reform agenda will make some progress, though more slowly than expected.
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