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Governor of Argentina's Central Bank resigns on September 25, IMF announces new deal on September 26

On September 25, Luis Caputo, head of the Central Bank, tendered his resignation while President Mauricio Macri was in New York for the UN’s General Assembly annual session. Guido Sandleris was designated as Caputo’s replacement shortly after. Subsequently, on September 26, the International Monetary Fund (IMF) announced a new deal with Argentina, raising the total amount to be lent to the country from 50 to 57.1 billion USD. The total amount to be lent in 2018 also increased, from 6 to 13.4 billion USD. In turn, from originally anticipating 11.4 billion for 2019’s fiscal year, Argentina will receive 22.8 billion. It is the largest loan in the IMF’s history. Subsequently, on September 26 the exchange rate between the USD dollar and the ARG peso reached an all-time high. At the time of writing 1 USD is roughly 42 ARG. Finally, on September 28, the Central Bank raised interests rates 5 points, from 60% to 65%.

Caputo’s resignation comes amid rumors of heated arguments with Minister of Treasury Nicolas Dujovne. While the former periodically intervened the currency market, selling reserves to prevent another steep devaluation of the peso, the latter recommended following IMF’s recommendations, chiefly among them to contain the monetary base to tackle inflation, and to adopt a soft peg exchange regime with horizontal bands, currently fixed between 34 and 44 ARG per USD. In this sense, while Dujovne is credited for successfully negotiating the aforementioned increase the IMF is willing to loan Argentina, Caputo’s resignation will likely increase Dujovne’s influence in government. In this sense, Sandleris, Caputo’s replacement, is less likely to intervene the exchange rate to safeguard the value of the peso against the dollar. However, the Central Bank could potentially sell reserves if the USD surpasses the 44 ARG barrier over the coming weeks. In any case, it is seemingly evident that the government is adopting orthodox fiscal policies to attract foreign investment, especially given broad concern over Argentina’s capacity to meet its debt commitments, which amount for almost 80% of the country’s GDP. Despite raising interest rates to 60% in late August, reaching 65% on September 28, the combined effect of political and economic uncertainty ahead of 2019 presidential elections, inflation, and foreign factors, such as rising U.S. interest rates, will most likely hamper Argentina’s recovery.

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