MACRI-ECONOMICS

Argentina has devalued the peso to get back into the financial world’s good graces

Argentina is peeking back into the global financial system. The country’s economy has been in rough shape since it lost a battle with hedge funds last year and went into default (and cut itself off from borrowing money abroad) rather than pay back certain of the creditors on whom it had defaulted on more than a decade prior. The fracas that ensued, among other things, led to Mauricio Macri winning the presidency over the hand-picked replacement of former president Cristina Kirchner.

Macri has begun pushing a series of economic reforms, and in a speech last night (Dec. 16), his finance minister, Alfonso Prat-Gay, told Argentina and the world that he would be removing capital controls, loosening currency trading, and devaluing the peso, which has dropped immensely in response. It’s the second devaluation in as many years:

While the previous one came about because the country had been exhausting its foreign-currency reserves keeping the peso propped up, this one aims to remove distortions in the economy. Capital Economics, in a note to clients, sounded pleased with the about-face:

Finally, the fact that the abolition of capital controls (and likely devaluation of the peso) has happened so soon after President Macri’s election is encouraging. We’ve noted before that major reforms tend to happen within the first 100 days of a government taking office and, by lifting capital controls and devaluing the currency, the new administration will have tackled the most obvious distortion in Argentina’s macro-policy framework. It’s still early days, but Mr. Macri has made a good start to his term in office.

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