Argentina’s banks face strategy dilemma
Ground shifts under banks’ move to normalization; financial, economic and political uncertainties to dominate boardrooms.
Argentina's economy minister Nicolás Dujovne meets with IMF MD Christine Lagarde on Thursday
The slow pace of Argentina’s fiscal reform programme finally caught up with its government last week and, compounded by an error in monetary strategy at the end of last year and a deteriorating risk environment for emerging markets, the country is firmly into emergency reaction mode.
Meanwhile, the banks that had been changing their funding mix and business strategy to anticipate economic growth and credit demand face tough operational questions: do they continue with their path to normalization or hunker down and see how long and fierce the storm will prove to be – and what damage it will do?
There are three main impacts to the banking sector from the recent economic drama in Argentina, which saw the central bank intervene three times and increase its policy rate by 1,250 basis points in three inter-meeting decisions to 40%.
This was an attempt to stop a run on its currency – the peso fell by 12% last week – and prevent the central bank burning through billions of dollars of FX reserves to fight the peso's depreciation – followed by the politically risky decision to negotiate a line of credit from the IMF.