Argentina's central bank chief quits amid IMF talks

People in Buenos Aires on Tuesday protesting against runaway inflation and austerity measures imposed by President Mauricio Macri to shore up government finances. Argentina's peso has lost over half of its value so far this year, amid worries about t
People in Buenos Aires on Tuesday protesting against runaway inflation and austerity measures imposed by President Mauricio Macri to shore up government finances. Argentina's peso has lost over half of its value so far this year, amid worries about the government's ability to pay its foreign debts.PHOTO: BLOOMBERG

Resignation hurts efforts to restore investor confidence and sends peso tumbling

BUENOS AIRES • Argentina's central bank governor unexpectedly resigned on Tuesday in the midst of negotiations with the International Monetary Fund (IMF), upsetting Argentinian President Mauricio Macri's efforts to restore investor confidence and sending the peso sliding.

Mr Luis Caputo's resignation after just three months in the role came as a nationwide strike by unions shuttered public transit and ports across Argentina in protest at runaway inflation and austerity measures imposed by Mr Macri to shore up government finances.

Former economic policy secretary Guido Sandleris, an economist with a doctorate from Columbia University, was named as Mr Caputo's replacement.

At the centre of recent emerging market jitters, Argentina has seen its peso lose more than half of its value so far this year, amid worries about the government's ability to pay its foreign debts.

Mr Macri's government has struggled to tame inflation - expected to top 40 per cent this year, driven by the peso's tailspin.

The country's economic woes have been exacerbated by a severe drought this year that crippled the vital grain export sector.

"The main objective of the central bank is to reduce inflation," Mr Sandleris said in a statement, adding that the bank under his leadership would "work to recover the stability and predictability of prices".

The run on the peso led Argentina to secure a US$50 billion (S$68.3 billion) credit line from the IMF in June, negotiations in which Mr Sandleris was involved, but a subsequent slide in the currency forced the government last month to request further support from the IMF.

After meeting Mr Macri in New York on Tuesday, IMF managing director Christine Lagarde said the fund was "close to the finishing line" in reaching a new deal with Argentina.

Argentinian Economy Minister Nicolas Dujovne told reporters on the sidelines of the United Nations General Assembly that a deal could be announced as soon as yesterday. He threw his support behind Mr Sandleris.

"Just as in the finance ministry we have been working to overcome the fiscal deficit... now in the central bank under Sandleris' leadership, we will begin to defeat inflation," he said.

Mr Caputo, a former finance minister whose appointment was supposed to restore investors' faith in monetary policy, was the second Argentinian central bank president to resign this year.

"This resignation is due to personal reasons, with the conviction that a new agreement with the International Monetary Fund will re-establish confidence in the fiscal, financial, monetary and exchange rate situation," the central bank said in a statement.

It did not give further details, but Mr Dujovne was reported by Argentinian media to be at odds with Mr Caputo in recent weeks over the handling of monetary policy. Mr Sandleris, by contrast, is seen as a close ally of the Economy Minister.

A rise in the central bank benchmark interest rate to 60 per cent last month has failed to stem the peso's slide. Mr Macri said on Monday that the revised IMF agreement would lay out a clear direction in monetary policy.

Local media have reported that the government is considering introducing a trading band for the peso. Officials have declined to comment.

"The timing could not be worse for Argentina," said Mr Paul Greer, portfolio manager of the Fidelity Emerging Market Debt Fund. "Caputo's resignation will only add to investor uncertainty."

The peso initially fell by nearly 7 per cent in response to the news, with trade thin due to the national strike. But it recovered after the central bank intervened in the currency futures market, closing down 3 per cent at 38.50 to the US dollar, traders said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 27, 2018, with the headline 'Argentina's central bank chief quits amid IMF talks'. Print Edition | Subscribe