Argentina central bank chief resigns

Argentina’s central chief has resigned after just three months on the job, denting President Mauricio Macri’s attempts to restore investor confidence after a months-long collapse in the currency forced him to seek more help from the IMF.

Luis Caputo, a former broker who had a good relationship with financial markets, will be replaced by Guido Sandleris, a respected economist who has previously worked for the Minneapolis Federal Reserve, Chile’s central bank and the International Monetary Fund.

“This resignation is due to personal reasons, with the conviction that a new agreement with the International Monetary Fund will reestablish confidence in the fiscal, financial, monetary and exchange rate situation,” the central bank said in a statement on Tuesday.

The peso tumbled almost 4 per cent against the dollar on the news, while the yield on Argentina’s benchmark century bond, a measure of risk, rose by over 20 basis points to 9.33 per cent, a one-week high. Argentina is currently in talks with the IMF to renegotiate and possibly expand a $50 billion programme, the international lender’s biggest ever.

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The IMF said Tuesday that it looked forward to “continuing our close and constructive relationship” with the central bank under Mr Sandleris’ leadership.

“Our staff and the Argentine authorities continue to work intensively with the objective of concluding the staff level talks in very short order,” IMF spokesman Gerry Rice said.

‘Normal country’

Mr Macri’s reform programme, launched after he won office in 2015, made Argentina an international investor favourite. But rising global interest rates, high energy prices and a major drought have since helped push the economy into recession, jeopardising what Mr Macri has called his desire to make Argentina a “normal country”.

To try and stop a run on the currency, which has lost half its value this year, the central bank has also raised interest rates to a world-beating high of 60 per cent, further slowing the economy. A 36-hour general strike over austerity began on Monday.

Analysts were divided about the effects of the surprise resignation of Mr Caputo.

“Caputo was called to the central bank because experience of the markets was needed to manage the foreign exchange market. But the deal with the IMF didn’t allow him to operate with discretionality,” speculated local economist Fausto Spotorno.

Critics pointed to the irony that the IMF had called for strengthened independence of Argentina’s central bank, while Mr Caputo’s exit is seen to have been triggered by the IMF negotiations, which a government official indicated last week would come to a close by the middle of this week.

“Caputo was a strong defender of the exchange rate, with constant interventions clashing with the IMF’s mindset,” says Marcelo Fiorellini, Brazilian investment bank BTG Pactual’s country manager in Argentina. Such thinking has led some to argue that the relationship with the IMF would improve without him.

Timing

“On the other hand Caputo had a very good relationship with the market, and communication with banks, which was crucial for the plan to unwind the Lebacs [central bank short-term debt],” he added. “The timing was bad.”

Siobhan Morden, head of Latin America fixed-income strategy at Nomura, said the timing of the move "is not opportune considering markets are somewhat disappointed that the updated IMF programme may be less than expected.

“This is the second turnover for the central bank since the crisis of confidence began, which shows that it’s not the people but the plan. All of the recent central bank governors were competent, but the central bank is in a difficult situation, bearing the full burden of the currency stress with constrained monetary policy.”

‘Stay the course’

Still, the timing of the announcement may not necessarily signal a shift in policy direction, said Alberto Ramos, head of the Latin America economic research team at Goldman Sachs.

“Macri needs to remain steadfast on the fiscal commitments and for the IMF disbursements, deliver on the adjustment. It is difficult from an economic, political and social standpoint, but the government has to stay the course.”

– Copyright The Financial Times Limited 2018