Argentina: Caputo bows to the might of the IMF

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The resignation letter of Luis Caputo, until September 25 the president of Argentina’s central bank, is effectively the IMF’s receipt for the purchase of the country’s monetary policy.

And with a price tag of $57 billion, the cost to the IMF is substantial – it is the biggest loan ever made by the organization.

Caputo reportedly resigned in frustration at the IMF’s strict loan conditions, which prevent the central bank from intervening in the currency markets unless there is “extreme circumstances” (and then, surprisingly, the IMF defined that as lower than Ps44 to the dollar.) Caputo’s exit rams home how far president Mauricio Macri’s economic strategy has come off the rails. 

Luis Caputo

It was Caputo who managed the negotiations with the holdouts that enabled Argentina to return to the international markets. It was Caputo who was the face of those comeback bond transactions – many investors at the time said that they were entering orders because of their faith in the ex-Deutsche Bank investment banker (and his team). 

It was also Caputo whom Macri relied on to restore faith in the central bank after errors made during the tenure of the former president, Federico Sturzenegger, sparked a crisis of confidence and a run on the currency – the first stage of the crisis that would bring IMF chief Christine Lagarde to visit Buenos Aires.

Loss of control

Caputo’s exit effectively shows that Macri isn’t in charge of the economy any more. The IMF will dictate the speed of reforms: Macri has committed to eradicate the country’s long-standing and intractable fiscal deficit for the 2019 budget.

Argentine sovereign bonds rallied on the announcement of the larger rescue package – reflecting the maths that Argentina now has enough cash to pay off its maturing debt without needing to tap the international markets again.

But interestingly the currency slid – and probably not just because of the newly introduced target of Ps44. 

More likely it reflects the recognition that Argentines vividly remember the last time the IMF ‘helped’ the economy – all the way to the 2001 economic crisis.