Christine Lagarde has left another economic disaster behind her in Argentina

One of the rules of modern life is that the higher up the chain you are or as Yes Prime Minster put it “the greasy pole” the less responsible you are for anything. A clear example of that is currently Christine Lagarde who is on here way to becoming the next President of the European Central Bank and found her competence being praised to the heavens in some quarters. Yet the largest ever IMF programme she left behind continues to fold like a deckchair. From the Argentina central bank or BCRA this morning via Google Translate.

Measures to protect exchange-rate stability and the saver

There are two immediate perspectives. The first is that we need to translate the announcement which suggests as a minimum a modicum of embarrassment. Next when central banks tell you that you are being protected it is time to think of the strap line of the film The Fly.

Be Afraid, Be Very Afraid

Let us look at the detail.

The measure establishes that exporters of goods and services must liquidate their foreign exchange earnings in the local market……Resident legal entities may purchase foreign currency without restrictions for the importation or payment of debts upon expiration, but they will need compliance from the Central Bank of the Argentine Republic to purchase foreign exchange for the formation of external assets, for the precancelation of debts, to turn abroad profits and dividends and make transfers abroad.

So some restrictions on businesses and here are the ones on the public.

Humans will not have any limitations to buy up to USD 10,000 per month and will need authorization to buy amounts greater than that amount. Transactions that exceed USD 1,000 must be made with a debit to an account in pesos, since they cannot be carried out in cash. Nor will it be allowed to transfer funds from accounts abroad of more than USD 10,000 per person per month. Except between accounts of the same owner: in this case there will be no limitations.

If you are not Argentinian then the noose is a fair bit tighter.

Non-resident human and legal persons may purchase up to USD 1,000 per month and may not transfer funds from dollar accounts abroad.

What about the debt?

We need a bit of reprogramming here after all it has been party-time for bondholders in most of the world. However as Reuters points out not in Argentina.

Standard & Poors announced on Thursday that it was slashing Argentina’s long-term credit rating another three notches into the deepest area of junk debt, saying the government’s plan to “unilaterally” extend maturities had triggered a brief default. The ratings agency said it would consider Argentina’s long-term foreign and local currency issue ratings as CCC- “vulnerable to nonpayment” – starting on Friday following the government’s Wednesday announcement that it wants to “re-profile” some $100 billion in debt.

That’s more than a bit awkward for those who bought the 100 year bond which was issued in 2017. It was also rather difficult for the IMF which seems to have found itself in quicksand.

By the time Treasury Minister Hernan Lacunza said on Wednesday that the government wanted to extend maturities of short-term debt, and would negotiate new time periods for loans to be paid back to the International Monetary Fund, a debt revamp was already widely expected.

We will have to see how the century ( now 98 year ) bond does but after being issued at 85 it traded at 38 last week. In a sign of the times even the benchmark bond which in theory pays back 100 in 2028 did this.

The January 2028 benchmark briefly dropped under 40 cents for the first time ever before edging up to trade at 40.3.

For perspective Austria also issued a century bond at a similar time and traded at 202 last week.

The Peso

Back on August 12th I pointed out that it took 48.5 Pesos to buy a single US Dollar ahead of the official opening. Things went from bad to worse after the official opening with the currency falling into the mid-50s in a volatile market. On Friday it closed at 59.5 and that was after this.

The central bank has burnt through nearly $1 billion in reserves since Wednesday in an effort to prop up the peso. But the intervention did not have the desired impact and risk spreads blew out to levels not seen since 2005, while the local peso currency extended its year-to-date swoon to 36%. ( Reuters ).

If we stay with the issue of reserves I note that the BCRA itself tells us that as of last Wednesday it had US $57 billion left as opposed to this from my post on August 12th.

But staying with the central bank maybe it will be needing the US $66.4 billion of foreign exchange reserves.

I was right and the nuance here is shown by how little of the reserves were actually deployable in a crisis. We know 14% were used and at most 20% have now been used yet policy has been forced to change. That is a common theme of a foreign exchange crisis you only end up being able to use if I an generous half of your reserves before either you press the panic button or someone does it for you.


Here we see another departure from the world-wide trend as rather than falls we are seeing some eye-watering levels. Back on August 12th I noted an interest-rate of 63.71% whereas now it is 83.26%. This provides another perspective on the currency fall because you get quite decent return for these times if you can merely stay in the Peso for a week or two.

As for the domestic economy such an interest-rate must be doing a lot of damage because of the length of time this has lasted for as well as the number now.


As recently as June 7th last year the IMF announced this.

The Argentine authorities and IMF staff have reached an agreement on a 36-month Stand-By Arrangement (SBA) amounting to US$50 billion (equivalent to about SDR 35.379 billion or about 1,110 percent of Argentina’s quota in the IMF).

The amount has been raised since presumably because of the rate of access of funds. If you look at the IMF website it has already loaned just short of 33 billion SDRs. Meanwhile here is some gallows humour from back then.

The authorities have indicated that they intend to draw on the first tranche of the arrangement but subsequently treat the loan as precautionary.

As Christine Lagarde was cheerleading for this she did get one thing right.

I congratulate the Argentine authorities on reaching this agreement

They kept themselves in power with the help of IMF funds. That has not gone so well for the Argentine people not the shareholders of the IMF. There are similarities here with the debacle in Greece where of course Christine Lagarde was heavily involved in the “shock and awe” bailout that contributed to an economic depression. For example as 2018 opened the IMF forecast 2.5% economic growth for it and 2.8% this year as opposed to the reality of the numbers for the first quarter being 5.8% lower than a year before.

Yet as recently as April she was telling us this.

When the IMF completed its third review of Argentina’s economy in early April, managing director Christine Lagarde boasted that the government policies linked to the country’s record $56bn bailout from the fund were “bearing fruit”.

It is not an entirely isolated event as we look at other IMF programmes.

Pakistan Rupee -4.83% seems IMF’s (Lagarde’s) lesser-known second success story. Eurozone you are next up ( @Sunchartist )

But the official view has been given by Justin Trudeau of Canada who has described Christine Lagarde as a “great global leader.”


12 thoughts on “Christine Lagarde has left another economic disaster behind her in Argentina

  1. It is most unfair to blame Mme Lagarde. Appointment as head of the IMF as with appointment to head the ECB is a political matter, jobs for chums. Surely there is no suggestion that she would bring any knowledge of international finance to the position?

      • God no! You can’t have competent people running such things, they might do things which politicians don’t like.

        I remember when she was appointed to the IMF after DSK had rather blotted his copybook. George Osborne (the then Chancellor) was grilled about his choice of appointment on Newsnight (back in the days when it still had some independence from BBC group-think). George explained he was backing Madame L’Orange because she was “a very old friend”. That’s good emough for me!

  2. Hi Shaun

    This is just the Washington Consensus working its magic; compromising democratic government; impoverishing the people and protecting the banks and creditors.

    To look at these bodies as economic agents is I think wrong. They are primarily political and there to enforce an international order and, particularly, to protect creditors of whatever stripe.

    • Hi Bob J

      There is more than an element of truth in that. However it is something of an exchange where large institutional and international investors can exit the scene with minor losses as others buy in after the promises of the IMF. Sadly I suspect it is the equivalent of what in America is called Joe Sixpack who mostly end up holding the parcel when the music stops.

  3. Shaun,thanks for doing the article on whether we need a new reserve currency last week, but I was unable to comment as I was at work.

    Regarding some truisms of life, there are just some that stand head and shoulders above others, just so undeniably certain to occur that when they happen nobody even questions them and merely roll out the historical records of previous events.

    One is the defaults of Argentina, and two is the devaluation of sterling, which is at new all time lows against gold. What many people seem to think is defaults are isolated to and are peculiar to the countries of south America, but there is long history of UK government defaults stretching back to WWI, either by the change in duration of the debt after the end of the war, or the “soft” default of devaluation which has been used so many times, it is difficult to distinguish the inexorable decline from the official bank devaluations.

    The property loving speculators, whether those who have over-borrowed to buy their own home in the hope of selling it at a much higher price in the future, or the extremes of the buy to let speculator who has bought multiple properties and then uses the incomes from them to fund future purchases, believe that there are no consequences to their actions other than it will inevitably make them extremely rich some time in the future. However now interest rates are going negative, the game has entered a new very dangerous phase, whereby central banks will have to now restart QE and repeatedly issue tens of billions of freshly created currency to artificially reduce rates to keep the plates spinning, as if interest rates rise by just a little the whole economy will collapse.This has the unfortunate side effect of weakening the banks(and hence their willingness to lend into the real economy) as their margins are cut further and deflationary as savers, after ten years of receiving no interest on their money, now face the prospect of paying the bank to hold it for them. This is before the coming mass default of pensions(also deflationary leading to more QE) as funds that have been forced to stuff their portfolios with huge quantities of negative yielding bonds face massive losses when rates inevitably rise sometime in the future.

    For anyone holding sterling, as if the above were not enough, they are now faced with the prospect of a Johnson government gifting those shorting sterling another boost to their accounts, George Soros was rumoured to have made over £1 billion shorting the pound in 1992, this time I think he will make many times that.

    The next time a “you can’t lose on property” conversation starts, just resist the urge to engage in an argument detailing the damage the policies the UK government have employed over the years to support it have done to the rest of the economy and our currency, I know from experience it just isn’t worth it.

    • Hi Kevin

      I am reminded of something I wrote in the article about the new reserve currency or SHC. That was that the new US $3 Trillion resources of the IMF would allow it to hide large losses from Argentina. As for Argentina the currency has improved a little today to 58.25 versus the US Dollar but it will take a few days for us to find out if the BCRA intervened to prop it up on what is a US holiday.

      Also there was this.

  4. “From now on, the pound abroad is worth 14% or so less in terms of other currencies. That doesn’t mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” Harold Wislon’s Little Red Book

    • Ah yes, the famous devaluation that (years later) turned out to have been unnecessary as it was based on incorrect numbers from our wizards of finance – no doubt lessons were learned.

  5. …. the strap line from the “The Fly”
    -Be Afraid- Be Very Afraid-
    ….ahhh! Sorrry?!?
    I was thinking “Fly Strip Paper”–which only works really well when there are lots of ‘flies’ stuck on it..
    Sorry?!? Cultural misinterpretation!

  6. Pingback: Christine Lagarde has left another economic disaster behind her in Argentina - Free World Economic Report

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