Argentina's Recent Events: Wake-up Call that May Trigger Positive Changes

Source: TheBubble
By: Carlos Alfaro
05.28.2018

Until the events of the first weeks of May, Mauricio Macri’s administration was happily planning its re-election campaign. What should have been an anticipated market episode took the government by surprise. The results so far have been less than encouraging: a loss of international reserves of US $9 billion, the 22 percent depreciation of the peso against the US dollar, and the need to require assistance to the IMF.

Looking to the future, the challenges it faces are myriad:

Greater restrictions on access to financing;
Gradual acceleration of the cut in subsidies for this year;
Increase of the average annual inflation and consequently facing the chances of the opening of salary adjustments as a result of the trigger clause;
International price of oil higher than the US $70 US per barrel today. The recent adjustment of the exchange rate and the increase in the price of oil could have consequences on the rate of reduction of the fiscal deficit;
Reduction in consumption.
In total, the depreciation of the exchange rate last May and its impact on inflation and the rise in the price of oil would imply a total additional cost equivalent to US $1.5 billion at the current exchange rate (0.2 percent of GDP).

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