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Interview: Resignation of central bank head shows Argentina still looking for balance point, says economist
Last Updated: 2018-09-27 14:42 | Xinhua
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The resignation of Luis Caputo, president of Central Bank of Argentina (BCRA), shows that the country "has not found a balance point," Argentine economist Jorge Marchini said Tuesday.

Marchini, vice-president of the Foundation for Latin American Integration, said the equilibrium point has not been found in spite of the involvement of the International Monetary Fund (IMF) and maneuvers within the monetary policy.

The resignation of the BCRA head occurred in the context of new negotiations with the IMF to accelerate the loan disbursements made by IMF to Argentina, along with a high volatility temporarily paused due to continued interventions by the issuing bank in the foreign exchange market.

"This shows that the situation has not found a new balance. Caputo tried to use the central bank's reserves as a permanent form of intervention to avoid the rise in the dollar and he increased the interest rate, but these measures have not had much success," Marchini said.

When Caputo took over as president of the BCRA, the dollar was at 25 Argentine pesos; but when he left three months later, the dollar had jumped more than 54 percent.

Among the things he attempted to do to restrain the dollar's advance was to increase the benchmark interest rate to 60 percent, the highest in the world.

He also authorized the permanent increase in the bank reserve requirements (non-transferable liquid deposits) as well as the intervention in the local exchange market in the event of sharp increases in the U.S. dollar.

"From my perspective, it looks like the IMF does not agree with the intervention, in other words, using the reserves in such a huge manner," Marchini said, referring to the new talks between the financial organization and the government.

In the past five months the BCRA has offered on the exchange market some 16 billion U.S. dollars but has not been able to defuse the exchange rate, Marchini said.

"I believe that the IMF is in a dilemma over what to do about Argentina. On one hand there is the option of keeping the exchange market open and without intervention, while the other alternative is to intervene in the movement of capital," he said.

However, he said a crisis of mistrust prevails in Argentina's economic and financial course, which determines the outflow of capital.

"The dollar becomes a source of value, it's the 'rescue' in situations of uncertainty and inflation in Argentina," Marchini said.

This mistrust means that Argentina has "a large balance of current payment deficit" and a situation of an outward flow of capital, which determines whether the requested advance of the 50 billion U.S. dollar loan from the IMF will be used solely to meet other financial obligations.

"For President Mauricio Macri's government the resignation is a huge surprise, one that sends alerts of what is happening in Argentina," he said.

External factors also add to the pressure of Argentina's exchange rate, especially given the fact that the U.S. Federal Reserve has announced an interest rate hike.

"That increase in rates signifies a type of movement in capital leaving peripheral markets like Argentina and that capital outflow also hits the balance of payments and the exchange rate," Marchini said.

He called the situation in Argentina a "complex cycle," one that requires the implementation of urgent measures which guarantee stability and credibility for investors.

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