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LatinNews Daily - 15 June 2018

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Macri replaces Argentine central bank chief as peso plummets

Development: On 14 June the president of Argentina’s central bank (BCRA), Federico Sturzenegger, tendered his resignation.

Significance: Sturzenegger was most likely pushed. His departure followed a turbulent day for the Argentine peso in the currency markets as it tumbled against the US dollar. The peso’s decline has not ceased despite the government’s successful pursuit of a Stand-By Arrangement (SBA) with the International Monetary Fund (IMF), and President Mauricio Macri concluded that a change at the BCRA was essential. Macri swiftly confirmed that his finance minister, Luis Caputo, would replace Sturzenegger.

  • In his resignation letter, which he published on Twitter, Sturzenegger argued that “in recent months various factors have deteriorated my credibility as president of the central bank, a key attribute for carrying out the coordination of expectations which is so important in the task with which I had been entrusted”. This appeared to be an allusion to the government’s decision last December to raise its annual inflation target, treading on his toes.
  • Macri’s economic team had been at loggerheads with Sturzenegger over monetary policy for months, with a steady stream of ‘sources’ cited in the media expressing the conviction that he has squandered Argentina’s international reserves in a vain attempt to prop up the peso against the US dollar. The final straw appears to have been the peso’s 6.5% slump from Ar$26.69/US$1 to Ar$28.43/US$1 yesterday.
  • Macri is banking on Caputo’s appointment restoring market confidence. But it does call into question one of his government’s commitments under the terms of its deal with the IMF: to confer greater autonomy on the BCRA. Caputo is very much Macri’s man. Coordination between the BCRA and the government might improve with Caputo at the helm, particularly with the finance and treasury ministries having been merged under Nicolás Dujovne, but it is difficult to see how it will become more independent.

Looking Ahead: Caputo’s appointment must be confirmed by the federal senate, where the government does not have a majority. Macri had managed to establish a decent working relationship with the moderate political opposition in the senate before he sought a deal with the IMF, but it has been much more critical since.

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