New moves will not ease confidence crisis in Argentina

Significance

The moves followed a peso depreciation of nearly 21% during the last week of August. The measures aim to ease investor doubts over the government’s ability to overcome the financial crisis given its political weakness, different viewpoints within the economic team and its erratic fiscal and monetary policy. The IMF is expected to confirm that it will release the funds necessary to avoid a possible new sovereign default.

Impacts

• Exchange rate weakness will drive inflation, while the fiscal adjustment will boost unemployment and deepen the recession.
• Early IMF disbursements will ease concerns for 2019, but doubts will surge if the government fails to achieve ambitious fiscal targets.
• Social protests will escalate, possibly putting governability at risk.