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Argentina's recent financial history is going to get a lot more scrutiny ...
Especially Macri's original sin -- filling the budget deficit with a massive increase in external borrowing.
External borrowing almost literally went from 0 to 50 in a year
Especially Macri's original sin -- filling the budget deficit with a massive increase in external borrowing.
External borrowing almost literally went from 0 to 50 in a year
The result was textbook in a way. Portfolio inflows (foreign purchases of Argentine bonds) stopped, but the current account deficit moved down more slowly, creating pressure on Argentina's reserves that was filled by the IMF.
2/x
2/x
The basic pattern shows up clearly if you look at cumulative inflows -- Bonded debt jumped by $80b in the first couple of years of Macri's term.
Note that the inability of the BCRA to roll its paper was the precipitating event that led Argentina to the IMF.
3/x
Note that the inability of the BCRA to roll its paper was the precipitating event that led Argentina to the IMF.
3/x
The thing is that Macri did inherit an unsustainable situation -- Christina's policy mix had created external pressure on the peso that manifest itself as a steady fall in Argentina's reserves (even with controls)
4/x
4/x
And Argentina doesn't just have to adjust to a world where it no longer can borrow from the markets and thus can no longer run current account deficits.
Domestic capital flight tends to accelerate when Argentina loses market access --
Hence the current fall in reserves
5/x
Domestic capital flight tends to accelerate when Argentina loses market access --
Hence the current fall in reserves
5/x
New equilibrium thus will be defined imo by a current account surplus -- to cover domestic capital flight (a bit like China) ...
And an extended period where Argentina doesn't pay principal (and perhaps not all interest) on its external debt.
6/6
And an extended period where Argentina doesn't pay principal (and perhaps not all interest) on its external debt.
6/6
