Surprise, surprise! With the peso continuing to drop like a stone against the U.S. dollar, Argentina has appealed to the IMF for emergency credit. In requesting the bailout, President Macri cited the sudden emergence of global factors beyond his control for the current plight of the peso.
During the first two years [of his administration] we have had a very favourable global context, but today that is changing, global conditions are becoming increasingly complex due to several factors: interest rates are rising, oil is rising, currencies of emerging countries have been devalued, all variables that we do not control.
But this is a load of baloney. As I pointed out in my post yesterday, the slide of the peso is due to one and only one thing: the enormously high rate of growth of the money supply since Macri took office in December 2015. The money growth rate exceeded 45% year over year during the first three quarters of 2017 and has never fallen below 25% during Macri’s tenure. Rather than requesting aid, which will guarantee more currency crises in the future, President Macri needs to call a halt to central bank intervention in the foreign exchange markets and allow the peso to depreciate and reveal the true extent of past monetary inflation. If he then implements a credible program—and at this point, only a shock program will be considered credible—to bring inflationary monetary policy to an end, the currency crisis will cure itself.
