Argentina’s currency woes deepen crisis

Argentina‘s currency woes have deepened in recent weeks despite determined policy responses on the part of the government and the central bank, as well as a $50bn financial package from the IMF. The country is now the world’s riskiest sovereign borrower behind Venezuela. It’s currency, the peso, has halved in value this year against the dollar. The country already has the highest interest rates in the world and is on financial life support.

President Mauricio Macri is struggling to prevent an economic collapse and has announced austerity measures to reduce the deficit. He acknowledged poverty rates are on the rise and announced he will give extra cash handouts for the poor, but will these extroardinary measures work?

The economic crisis is affecting the most vulnerable, reports Teresa Bo from Buenos Aires. “The impact of the the devaluation of the peso on food prices worries those who are trying to assist those in need. This year alone food prices have increased over 30 percent, making it difficult for people to buy the most basic food items in Argentina like bread, pasta and meat.”

“While the peso has stabilised for now, it is very fragile,” according to Richard Segal, a senior emerging markets analyst with Manulife Asset Management speaks to us about the global impact.

“Among these factors are forthcoming elections; the very uncertain international environment, including federal policy in the future; the Brazilian elections in a few months; but also just the general unease in Argentina about returning to the IMF and the possibility of capital flight.

… there needs to be a greater burden sharing. It had, up to now, mostly been on foreign investors and local taxpayers. It needs to be more on the corporate sector, which had been receiving a lot of subsidies …

Richard Segal, senior emerging markets analyst, Manulife Asset Management

“Weakness in Argentina leads to additional weakness in Turkey, and back and forth. This leads a lot of investors in the local markets to bail out because they do not want to take a chance. In addition, they can only incur more risk, especially as these two countries have lower ratings.”

“For the time being, the contagion in the local markets has an impact on those investors but not so much on the real economies, because countries such as India, Brazil and Indonesia do have a lot of buffers – unlike Turkey and Argentina. But the big risk we see moving forward is the Brazilian elections because the two major candidates are an unknown for the markets.”

If Argentina defaults on its debt commitments, “its impact will be on local investors and foreign direct investors,” explains Segal. “Because Argentina was frozen out of the markets for so long, it’s waiting is still relatively low … the chances of a default are near to below because they do have a good relations with the IMF”

“What needs to happen for the time being, is there needs to be a greater burden sharing. It had, up to now, mostly been on foreign investors and local taxpayers. It needs to be more on the corporate sector, which had been receiving a lot of subsidies, particularly to invest in energy and electricity, where there hadn’t been any investments for 10-12 years, but also the foreign direct investors who are going to have to bare some of the additional losses.”

Also on this episode of Counting the Cost

Ethical investing: Consumers are increasingly searching for ways to find out how ethical brands really are. Ethical watchdogs say companies from big tech to big oil need to drastically improve transparency on their environmental and social impact. As awareness about these issues grows, so too is interest in something called ethical investing. Patrick Connolly, a chartered financial planner with Chase de Vere offers his take.

Chile tango effect: Argentina’s sinking economy and currency crash is starting to have a negative effect on one of Latin America’s most stable economies. Neighbouring Chile has seen its peso slump in what’s being called the Tango effect, reports Latin America editor Lucia Newman.

Nike ad: Some consumers set fire to their Nike trainers this week because of a new ad campaign. The sportswear manufacturer has hired Colin Kaepernick, a former NFL quarterback who sparked a national outcry by kneeling during the American national anthem. The symbolic gesture was in protest at racial injustice and police brutality, reports Kristen Saloomey from New York.

Netflix: Internet movie maker Netflix made it’s presence felt on the red carpet at this year’s Venice Film Festival. But allowing streaming services into the competition is something not everyone is happy about, reports Nadim Baba from Venice.

Source: Al Jazeera

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