GO FUND ME: MARKETS BASH ARGENTINA´S AND TURKEY´S CURRENCIES AGAIN / THE ECONOMIST

Go Fund Me

Markets bash Argentina’s and Turkey’s currencies again

Another torrid week for the peso and lira



THE first YouTube video, posted in 2005, showed the site’s 25-year-old co-founder standing in front of elephants at the San Diego zoo. One of its most recent videos is a little different: it shows Argentina’s president, Mauricio Macri, explaining why he needs the IMF to stand in front of the bears destroying his country’s currency.

The peso fell by more than 7% on August 29th, capping another difficult month. Its fall will make it harder for the central bank to meet next year’s inflation target, further undermining the institution’s credibility and the currency’s appeal. Argentina must also roll over or replace about $50bn of debt falling due over the remainder of 2018 and 2019. The financial markets worry that the government will struggle to secure both refinancing and re-election, since the sky-high interest rates required to attract creditors may further repel voters in the October 2019 elections.

On YouTube, Mr Macri asked the IMF to speed up disbursement of the $50bn loan it had agreed to in June. Argentina received $15bn upfront. The remainder, which it had hoped not to need, is scheduled to arrive in 12 equal quarterly instalments, provided Argentina meets the fund’s conditions. In a statement, Christine Lagarde, the IMF’s managing director, said the fund would “re-examine the phasing” of the loan.

Mr Macri admitted that the market had expressed a lack of confidence in his government’s finances. In Turkey, by contrast, the president, Recep Tayyip Erdogan, has often expressed a lack of confidence in markets. He sees the sell-off in the Turkish lira as a weapon in an economic war waged by America, which has imposed sanctions on two Turkish ministers and two of its exports (steel and aluminium) because of the detention of an American pastor, Andrew Brunson.




Like Argentina, Turkey suffers from stubborn inflation, a wide current-account deficit and heavy foreign-currency debts, although Turkey’s liabilities are mostly the result of corporate, not government, overborrowing. On Tuesday Moody’s, a rating agency, downgraded 18 Turkish banks and two finance firms, which could face problems rolling over foreign-currency loans. Berat Albayrak, Turkey’s finance minister and the president’s son-in-law, denied that the economy faced a big risk, because government and household debt remain relatively low. The lira slid further afterwards.

Since April, Argentina and Turkey have responded quite differently to their currency crises. Argentina has hiked interest rates aggressively and asked the IMF for help promptly. Turkey, by contrast, has tightened monetary policy belatedly and often indirectly. And it has appealed for financial assistance to allies like Qatar, rather than the IMF, not least because the fund’s help might first require a thawing of relations with America. But despite their differences, these two emerging-market responses share a common feature: so far, neither seems to be working.