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As default looms, Argentina’s fiscal discipline slides

Argentina's Economy Minister Sergio Massa departs IMF headquarters in Washington
Sergio Massa has a small window to succeed at both keeping the economy on track and winning the candidacy for this year's elections. Photo: Reuters

The country’s economy was already weak before a serious drought hit. Now it is broke, and the question in Buenos Aires isn’t whether finance minister Sergio Massa can muddle through to the presidential election at the end of October, it is whether he can make it to the primaries in August before a full-blown financial crisis.

“It’s very hard for banks because there are few alternatives.”

Jump to:

  • Massa’s choice
  • Diego Chameides, chief economist at Argentina’s Banco Galicia is talking to Euromoney about the limited options that firms in this country now face.

    “Credit demand is very low,” he says. "So [bank] liquidity is basically invested in short-term Leliqs [securities issued by the central bank] or banks can also buy treasury papers that are linked to inflation – and there are obvious reasons to buy those as we need to find a hedge against inflation."

    But with the central bank now facing a net negative reserves deficit, isn’t credit risk from pursuing this strategy becoming a material threat?

    Chameides lets out a quiet sigh. “You have to pick your poison. Do you want to run sovereign credit risk or do you want to be exposed to inflation risk? So, that’s what we are trying to manage on a day-to-day basis.”

    You have to pick your poison. Do you want to run sovereign credit risk or do you want to be exposed to inflation risk?
    Diego Chameides, Banco Galicia

    Faced with high and rising inflation, it is not surprising that the banks have to participate in the administration’s debentures.


    Rob Dwyer head.jpg
    Latin America editor
    Rob Dwyer is Latin America editor. He has been a financial journalist since 1997 and has worked in London, New York and São Paulo, Brazil, where he is now based.