Despite its commitment to a floating exchange rate, the government has been forced to prioritise exchange rate stabilisation. After the change of Central Bank (BCRA) authorities in mid-June failed to stop the latest currency run, the government further tightened monetary policy. Aiming to alleviate fears of a new medium-term debt default, the government is emphasising its commitment to fiscal adjustment, even including the possibility of new taxes, which runs counter to efforts to reduce tax pressure.
Interest rate rises and closer control of monetary aggregates may prompt a recession.
Depreciation will help to reduce the current account deficit in 2018 but will worsen debt indicators.
Growing political uncertainty and difficulty in cutting public spending will sustain financial volatility.
