Macri’s dad – who’d sold Trump a building in 1984. (The U.S. is by far the biggest contributor to the IMF’s war chest.) TIME RUNS OUT FOR ARGENTINA But the perfume of the IMF’s cash couldn’t cover up the stench of Argentina’s rot for long. With the peso continuing to come under pressure, the Argentine government went back to the IMF a few months later for a $7 billion top-off. Argentina’s central bank head resigned, maybe because he saw what was coming.
The future looked bright enough that in June 2017, Argentina was able to sell a 100-year bond. “Six defaults in the past century do not deter a bet on 2117,” wrote the Economist magazine at the time. But fixing an economy is like building a house: If one seemingly little thing is wrong, the whole place might collapse, or flood, or burn down... all at once. Macri had been dealt a terrible hand, and by some measures he moved too slowly to tackle Argentina’s problems, in an effort to appease the country’s famously entitled population. Then in early 2018, a hurricane blew the roof off, as
rising global bond yields triggered a global market rush out of risky emerging markets. Some of Argentina’s biggest challenges were spiraling inflation, and wide fiscal- and current-account deficits. In the playground of international finance, Argentina was the fat kid wearing taped-up glasses
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THE DECLINE OF THE PESO
More pesos/dollars means the value of each peso is decreasing
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A country’s currency is a perpetual referendum by investors on the prospects of the economy... And the decline of the peso in the graph below shows the story. Argentina was facing withdrawal, to borrow Ernest Hemingway’s immortal line about bankruptcy, “gradually, then suddenly.” The dealer, though, didn’t want it to end... In May 2019, the head of the IMF, Christine Lagarde, crowed that the Argentine government’s policies – implemented as a precondition for the IMF’s bailout – were “bearing fruit.” “IMF’s reputation [is] on the
who’s practically begging to be beaten up – or sold off immediately and brutally, no questions asked. So when investors fled for safety, Argentina was bullied hard. The peso plummeted in the spring of 2018, and a 13 percentage-point increase in interest rates (to a nosebleed 40%) didn’t help. Running out of options, Macri called his dealer... The May 2018 negotiation (if you can call it that) with the IMF for a $50 billion loan was straightforward. It was all much easier thanks to the support of U.S. President Donald Trump, who fondly remembered
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November 2019
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