Argentina’s black market peso sinks on economy minister shake-up

Argentina’s black market exchange rate tumbled on Monday after left-leaning economist Silvina Batakis was appointed as the new economy minister following the abrupt resignation of Martín Guzmán.

The country’s unofficial exchange rate, locally known as “dolár blue,” weakened 14.6 percent to 280 pesos per dollar as of 12pm in Buenos Aires, according to website Dolarhoy.com. While US bond markets were shut for a holiday, locally-traded assets indicated investor wariness on the new minister. Rofex future contracts on the official peso exchange rate due in October weakened two percent to 168 pesos per dollar, while the S&P Merval benchmark stocks index fell 3.4 percent at the open.

Argentina’s President Alberto Fernández tapped Batakis after Guzmán’s resignation deepened a political crisis that has been hurting the country’s finances and markets. Batakis, a low-profile policy maker close to the more heterodox wing of the ruling Frente de Todos coalition, inherits a long list of economic challenges, including annual inflation over 60 percent, and the government’s US$44-billion programme with the International Monetary Fund, which just passed its first review.

The IMF programme “seems to be coming off the tracks sooner than even we had anticipated,” William Jackson, an economist at Capital Economics, wrote in a note. “A[nother] sovereign default is starting to look increasingly likely.”

Argentina’s global bonds remain deeply into distressed territory, just above 20 cents on the dollar, while the local debt market has been mired in a crisis, with investors reluctant to roll over maturing debt into longer dated government bonds. Euro-denominated notes due 2030 slipped 0.2 cent to about 22 cents on the euro.

The country’s parallel exchange rate, known locally as the blue-chip swap, slumped to a record low of 252 pesos per dollar last week. The rate, derived from buying securities locally and selling them abroad, will resume trading tomorrow when US markets open. Analysts from firms including BTG Pactual and Alberdi Partners have already begun to warn in their reports that they expect a official peso devaluation in the second half of 2022.

Batakis’ appointment is seen as a win for the farther left-leaning faction of Argentina’s ruling coalition aligned with Vice-President Cristina Fernández de Kirchner which could endanger the success of the nation’s US$44-billion lending programme with the International Monetary Fund, JPMorgan Chase & Co economists Diego Pereira and Lucila Barbeito wrote in a note.

“Batakis’s appointment seems to signal that the balance of power has tilted to the Kirchnerite side,” Pereira and Barbeito wrote. “We would expect a more expansive fiscal stance, and potentially a renegotiation of the IMF program amid brewing imbalances and wider FX gap.”