Last month, the people of Argentina ended 12 years of socialist rule with the election of Mauricio Macri, a former mayor of Buenos Aires, as the nation’s president. The incoming president has vowed to make a break with the past adopting a more business-friendly approach, resolve problems with foreign creditors stemming from the nation’s insolvency in 2002, end corruption (well, it is the season of goodwill…) and shift the nation’s foreign policy away from Venezuela and Iran and towards better links with the US and western nations.
One of the first major decisions of the new administration is to remove controls on the nation’s currency, the Argentinian Peso. As a result, the Peso has plunged, losing 30% of its value against the US Dollar. The restrictions had artificially held the Peso to about 9.8 to the Dollar, but a Dollar was buying 14.5 Pesos on the black market. The move will immediately make Argentinian exports more competitive on international markets and restrictions on businesses buying Dollars have also been lifted, but controls remain in place on purchases of forex by individuals.
The central bank has been granted authority to buy Pesos to prop up its value should the exchange rate to the Dollar fall too strongly, but in general, intervention by central banks to support a given exchange rate have been ineffective (with the notable exception of the Swiss central bank, of course).
A dispute over so-called “Vulture funds” has seen the nation forced into a sovereign default since the creditors who currently own part of the debt have refused to accept a debt haircut which was designed to resolve the crisis and demanded payment in full, thereby blocking payments to creditors who had accepted the deal and triggering the default. The new administration will be keen to resolve this problem quickly.