Last week, a market sell-off caused the value of the Argentine peso (ARS) against the USD to plunge by -5%. The trigger of the sell-off was the prospect of a successful return to power of former President Cristina Fernández de Kirchner, although we are still five months away from the election. During her mandate, interventionist policies were mainstream and the country was unable to recover access to international financial markets. Besides, the January monthly activity index points to a continued recession after the -2.5% annual GDP contraction in 2018. Moreover, doubts have arisen on President Macri’s adjustment program as he imposed price controls to curb runaway inflation (55%). In a controversial move, the Central Bank reacted to the sell-off by abandoning the currency non-intervention zone; it will now use its USD72bn foreign reserves to support the currency and fight against inflation. Meanwhile, the encouraging ongoing twin deficit rebalancing and a gradual economic recovery from Q2 could alleviate such market pressures.
