ECR: Self-inflicted wounds drive Argentina’s plummet
The peso’s plunge precipitating the emerging markets sell-off is bang in line with Argentina’s lowest-scoring economic risk indicator and is a home-grown problem linked to an incoherent economic plan and poor communication.
The sharp sell-off of the peso in the first week of February – plunging 15% against the dollar in a single day to reach a new low – had been predicted by experts taking part in Euromoney’s Country Risk Survey.
Far from stabilizing, Argentina’s country risk score has plumbed new depths, pushing the bankrupt sovereign down no fewer than 24 places in the global rankings to 136th in the fourth quarter of 2013, firmly embedding it in tier five, the lowest ECR category, containing the world’s highest-risk sovereigns.
The long-term downward trend in Argentina’s creditworthiness has led to its score for monetary policy/currency stability slipping to a paltry 2.8 out of 10, the lowest scoring of the five economic indicators of its total risk score. Other political and structural risk indicators have fallen similarly.
One of ECR’s Argentina experts – speaking under the condition of anonymity – notes that while he was still trying to make sense of the market’s reaction, neither US tapering nor China’s growth slowdown provided the trigger for the sell-off, which is fundamentally a home-grown problem linked to dwindling reserves.