Latin America: Argentina recalibrates

Jason Mitchell
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Peso and exchange reserves have taken a tumble, interest rates have spiked and the money supply has tripled, yet analysts remain confident the economy is fundamentally sound. Can president Kirchner get full control, or will she leave it to the next government?

International investors have singled out Argentina. Confidence and capital – both already at low levels – drained away in January as the US Federal Reserve’s tapering of quantitative easing continued to put potential emerging market weakness at the forefront of investors’ minds. However, the recent sharp devaluation of Argentina’s currency and the dramatic rise in interest rates do not go nearly far enough to address the country’s underlying economic problems, say analysts.

At the end of January, the government, led by president Cristina Fernández de Kirchner – who represents the Justicialist (or Peronist) Party and who has been in office since December 2007 – allowed the peso to depreciate by 18% in one week to Ps8 to the dollar. This is the biggest decline since the devaluation amid extreme economic circumstances in 2002 and is a record low for the peso.