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Dujovne rules out dollarising Argentine economy

Development: On 20 September Argentina’s economy & finance minister, Nicolás Dujovne, expressed the government’s commitment to a floating exchange rate during an appearance before the budgetary and finance commission of the federal lower chamber of congress as part of the 2019 draft budget debate.

Significance: Dujovne’s defence of a free-floating peso follows the unremitting depreciation of the national currency, which has lost more than 50% of its value since the start of the year. As Dujovne was speaking the peso rallied, closing the day up 3.2% at Ar$38.2/US$1 amid optimism that the budget would win approval and the government would secure early disbursement of the US$50bn Stand-By Arrangement (SBA) with the International Monetary Fund (IMF).

  • Dujovne ruled out reverting to ‘convertibility’, pegging the peso to the US dollar, which was in place in Argentina between 1991 and 2002, in response to a question from Diego Bossio, a deputy for the main opposition Partido Justicialista (PJ, Peronists). Bossio referred to comments by Larry Kudlow, US President Donald Trump’s top economic adviser, during an interview with Fox News on 8 September.
  • Kudlow said that “the only way out of Argentina’s dilemma is to set up a currency board, the peso links to the dollar…that worked in the 90s; it brought down inflation and kept prosperity”. Kudlow added that the US treasury department was “on it”.
  • Dujovne denied that Argentina had “embarked on any negotiation of any such monetary scheme”. He insisted that beyond “specific technical details”, no changes were being envisaged to the exchange rate system. It is a moot point whether this will have assuaged the concerns of Argentines who do not remember convertibility as fondly as Kudlow, instead recalling the economic, financial, and social costs of its collapse in 2002.  
  • While Dujovne was addressing congress, the beleaguered peso was enjoying some respite. The peso bounced back against the US dollar as markets reacted positively to the sale of US$950m short-term treasury notes the previous day, and the announcement by an IMF spokesperson that “important progress” had been made in talks with the Argentine government.

Looking ahead: Dujovne said that details on the progress of talks with the IMF would shortly be forthcoming, and much more would be known before congress votes on the budget.