Argentina’s markets hold steady as protesters take to the streets

Argentine assets have stabilised since currency controls were imposed, but the country’s economic outlook has darkened.

Demonstrators hold a banner that reads "The debt is with the people not the FMI" during a protest against the government’s economic measures in Buenos Aires, Argentina September 4, 2019
Demonstrations were held in Buenos Aires on Wednesday protesting the government of Mauricio Macri and the International Monetary Fund, both blamed by many citizens for the country's current financial crisis [File: Agustin Marcarian/Reuters]

As thousands of protesters took to the streets of Buenos Aires on Wednesday, Argentina‘s markets held steady amid demonstrations against the government of President Mauricio Macri and a darkening economic outlook in the recession-hit South American country.

The Argentine peso edged up and bonds rose after newly imposed capital controls helped stabilise haywire markets that have touched record lows since Macri was trounced in a primary vote last month – all but dashing his hopes of re-election in October.

In the capital, protesters brandished banners slamming Macri’s austerity policies, rising poverty, and the International Monetary Fund (IMF), which agreed to extend a $57bn credit facility last year.

“Salary increases now! The debt is with the people, not with the IMF,” read one banner in large red letters.

Other signs demanded higher wages and lower inflation, while some placards read “Macri and the IMF out”.

Many Argentines have been bitterly resentful of the IMF since a massive economic crisis and devaluation in 2001 that they blame in part on the IMF’s policies towards the country.

Argentina’s economic growth has stalled sharply since last year. Inflation is far outstripping salaries, leading to a sharp uptick in poverty, official data shows. That trend was one of the key reasons for Macri’s larger-than-expected primary election defeat by the left-leaning Peronist candidate Alberto Fernandez.

“Given the fragility of our economy, we must now address the most urgent issues,” Macri said at a business leaders’ event on Wednesday. “We must focus on trying to anticipate and contain as much as possible the potential negative impact that it’s clearly having on the lives of all Argentines.”

The government’s focus was on stabilising the exchange rate, protecting middle-class savings and looking to build “consensus” with other political forces in the country, he said.

The peso closed flat at 56.02 per United States dollar, with traders saying the central bank had sold dollars to bolster the currency. That came after the peso rose sharply on Tuesday as Wall Street cheered Macri’s capital controls aimed at protecting beleaguered markets.

The black-market peso, traded on unofficial channels, also rose. Argentine over-the-counter bonds were up an average 3.5 percent on Wednesday, traders said, while the country’s risk index fell. The Merval stock index climbed 5.5 percent.

“[Argentina] took a very good step over the weekend when they announced the capital controls,” said Carlos Abadi, managing director at financial advisory firm DecisionBoundaries in New York City. He added, however, that the government also needed to address the country’s increased borrowing costs.

The primary election result sparked a market crash that saw the peso lose 26 percent of its value against the US dollar in August. The country’s risk index soared, and bond prices sank to record lows.

In response, Macri, who came to power in 2015 as a free-market champion and critic of interventionist policy, has rolled out plans to push back payments on around $100bn of debt and to impose capital controls to protect the peso.

A central bank poll of economists hiked Argentina’s inflation forecast for the year to 55 percent on Tuesday and cut its outlook for the economy, which is now expected to shrink 2.5 percent.

Economists also sharply lowered Argentina’s 2020 growth forecast from an expansion of two percent to a 1.1 percent contraction, suggesting a deeper-than-expected recession ahead.

Source: Reuters