Argentine President-elect Alberto Fernández is preparing to task the country’s central bank with trying to boost the crisis-torn economy through a weak exchange rate, according to two people with direct knowledge of the strategy.
Fernández takes office on December 10 having promised voters he will revive the economy from its slump. He now intends to make the central bank a centerpiece for that strategy, taking advantage of the fact that it’s not legally independent from the government.
Under the plan, Fernández will ask the central bank to actively intervene to curb the peso’s value to avoid appreciation cycles such as the ones that helped generate large trade deficits in the past, the people said.
A weaker currency will spur exports, the theory goes, helping to close a current account gap that many economists consider the root cause of Argentina’s repeated episodes of financial turmoil. The deficit is estimated to be 1.8 percent of gross domestic product this year after reaching more than 6 percent in the third quarter of 2018.
“The central bank must control the currency market,” Matias Kulfas, one of Fernández’s economic advisers, said in a recent speech.
Argentina’s real exchange rate, the value of the peso measured against a basket of international currencies, is above the average of the past eight years, signaling the country’s improved competitiveness with its main trade partners. That’s a level that the incoming…
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries.