Financial Volatility in Argentina

by Andy Neiman

Argentina started talks with the International Monetary Fund seeking financial rescue once again, as inflation soars and the currency sinks.

Let’s first explore the country’s background with some brief historical facts. The name “Argentina” comes from the Latin word for silver, argentum. The original European settlers believed the country was full of silver. It is the eighth-largest country in the world and at 6,960.8 meters (22,837 ft) high, the Aconcagua Mountain in the Mendoza province (where the country’s prestigious Malbec wines come from), is the highest mountain outside of Asia and the highest point in the Southern Hemisphere. In 1913, Argentina was the world’s 10th wealthiest nation per capita. Now it is the 54th. Argentina’s economy is Latin America’s third-largest and the second largest in South America.

Unfortunately, in 2001, this rich and beautiful country experienced a financial collapse, defaulting on $132 billion of foreign debt. The Argentinean population took to the streets and the government was led by 5 different presidents in 10 days. For a few years until 2016, if you wanted to buy dollars in Argentina to travel abroad, you needed to send an application to the government declaring where, when and why you were traveling. But a lot has changed since then.

In 2015, Mauricio Macri -from the center-right party- was elected president with the hopes to change the course of the nation’s fate after many years of Kirchner’s reign, which many believe deteriorated the country even further. After winning the first ballotage in the country’s history, Macri’s Government introduced austerity measures to tackle inflation and try to get the economy back on its feet again. Macri, a businessman, also has worked to reopen the country’s doors to external investors and promote economic growth.

However, the Government still has a lot of work ahead to seek stability and regain investors’ confidence. Recent troubles with the Argentine Peso currency (ARS) began in April 2018. Argentina’s central bank raised the country’s interest rates to 40% in May, the third hefty increase in eight days in a continuing attempt to defend the slumping Peso and put a lid on runaway inflation, which hit 25%, well above its 15% target. ARS is the worst performing emerging market currency this year, having lost about 20% of its value since the start of January. The Peso depreciated to a record $29.57 on June 29. The government was also forced to turn to the IMF once again for some funding relief, which definitely brought bad memories for many.

The roots of the issues seem to go deeper, as Rolo Ledesma, Director at Velocity Trade, claims. “Argentina has suffered the consequences of Populist governments like no other country in the world. Since 1930, the culture of Argentina has been influenced by this way of doing politics. This has affected every government office (local, state and federal), as well as the unions, corporations, etc. This will remain the main challenge for the Macri government: to rebuild the damage done by past Populist governments. This will be a long and difficult process and I do not believe that Macri will be able to sort it out in his term; it will take decades. The bottom line is the country’s leadership needs to focus on the long term and lay solid foundations for future governments to come.”

The good news is that there may be light at the end of the tunnel for Argentina. During the month of July, the ARS appreciated 5.21%. The Central Bank of Argentina just reported that the inflation would reach their target of 17% by December 2019. Additionally, some experts are forecasting things to improve during the remainder of the year, resulting in economic growth in 2019.

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About the Author

Andy Neiman of Fortex

Andy Neiman moved from Argentina with a full tuition scholarship for a double major in Finance and International Business at Hofstra University while also defending the school’s pride as a member of the tennis team. Upon graduation, he developed a solid 10+ year global career in banking based in New York City, with stints in London and Singapore. Andy built a strong client services foundation at JPMorgan for 7 years, transitioning into support/business development at Standard Chartered Bank. He then transitioned to sales and helped build the FX eCommerce offering at National Australia Bank. From there he was recruited by EM4X to head up the Account Management team. In early 2018, he joined Fortex and is also working on his Master of Liberal Arts in Management at Harvard University. He can be reached at [email protected]