In recent days a severe currency run drove a 12.2% depreciation of the peso and an estimated fall of nearly 5 billion dollars in international reserves (8% of that stock). The Bank has raised rates by 600 bp in only a few days, but this has not stopped the run. The crisis highlights Argentina’s vulnerability to external shocks, but has also been driven by domestic errors, such as the BCRA’s loss of reputation and the implementation of a tax on Lebacs (BCRA notes), an asset that had attracted many foreign investors.
The weak exchange rate will boost inflation, while capital outflows will drive real GDP growth estimates down.
A less benign global financial environment will limit the government’s gradualist strategy.
The government’s ability to overcome the crisis will condition its chances of electoral success in 2019.
