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Macri’s Kiss of Death: Argentina’s Peso and the IMF

August 20, 2019 in Economics

By Steve H. Hanke


Steve H. Hanke

Yesterday, the ticket of Alberto Fernandez and Christina
Kirchner crushed the hapless President of the Argentine Republic
Mauricio Macri in a primary election. Their victory virtually
guarantees that the Fernandez-Kirchner team will occupy the Casa
Rosada after the presidential election scheduled for October.

For many, including the pollsters, Sunday’s results were a
stunner. Not for me. I have been warning for over a year that
gradualism, which is Macri’s mantra, is a formula for political
disaster. If that wasn’t enough, the Argentine peso is another time
bomb that has sent many politicians in Argentina into early
retirement. And, to add insult to injury, Macri called in the
“firefighters” from the International Monetary Fund (IMF) to
salvage the peso. These three factors sealed Macri’s fate.

As it turns out, this movie has been played over-and-over again
in Argentina. Argentina has seen many political gradualists bite
the dust. What makes Macri unique is that he advertised gradualism
as a virtue. Macri and his advisers obviously never studied the
history of economic gradualism. When presidents are faced with a
mountain of economic problems, it’s the Big Bangers who

As for the venom that can be injected by a peso crisis, the
instances of the poison delivered by that snake bite are almost too
numerous to count. To list but a few of Argentina’s major peso
collapses: 1876, 1890, 1914, 1930, 1952, 1958, 1967, 1975, 1985,
1989, 2001, and 2018.

It is noteworthy that the frequency of peso crises picked up
after the establishment of the Central Bank of Argentina (BCRA) in
1935. With that, serial monetary mismanagement ensued. The chart
below tells the BCRA story. Before the BCRA, Argentina (the peso)
held its own against the United States (the dollar), with the
respective per capita GDPs being roughly equal in 1935. But, after
the BCRA entered the picture, a great divergence began. Now, the
U.S. GDP per capita is roughly three times higher than that of

The BCRA’s most recent monetary mishap occurred last year, when
the poor peso lost 58% of its value against the greenback from the
start of 2018 until the end of May 2019. What was behind that
collapse? On Macri’s watch, no less, the BCRA had been
surreptitiously financing the government’s deficit spending. It did
this through the sterilization of increases in the net foreign
asset component of Argentina’s monetary base. This was done via the
sale of bonds issued by the BCRA (LEBACS). The sterilization (and
financing of the government’s deficit) was on a massive scale. In
the January 2017-May 2018 period, the BCRA sterilized 50% of the
total increase in the foreign asset component of …read more

Source: OP-EDS

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