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Another Country In Trouble With Currency
- Aug 30, 2018 -

Argentina is considered one of the most vulnerable emerging markets due to its huge fiscal deficit, high debt burden and high inflation. It ranks second in South America’s second largest economy on Bloomberg’s Emerging Markets Vulnerability Scorecard. two.


Due to the drought-induced reduction in crop yields, the sharp decline in export earnings, the rise in international crude oil prices, and the Fed’s interest rate hike and the strengthening of the US dollar, the Argentine peso has plunged twice in early May and mid-June, with a cumulative depreciation of nearly 40%.


The Argentine government used 6 billion foreign exchange reserves to save the market in May. Although the Argentine government reached a $50 billion loan agreement with the International Monetary Fund in early June, the peso depreciation in mid-June was again caused by the huge domestic fiscal deficit and unclear economic policy.


In June, Argentina's CPI reached a high of 29.5%, and currency depreciation and inflation are likely to form a vicious circle. According to data released by JP Morgan Chase recently, Argentina's national risk index increased by 42 points to 764 basis points, doubled from the beginning of this year, the highest value in the past three and a half years.


The current crisis is spreading to emerging markets, and the South African Rand, Indian Rupee, and Indonesian Rupiah have fallen sharply. In fact, the currency rises and falls is not terrible, but when a country's external debt is relatively high, the currency crisis will evolve another crisis: the debt crisis. Whether it was the Latin American debt crisis of the 1980s or the Asian financial crisis of the late 1990s, it was associated with higher external debt. The International Finance Association believes that the vulnerability of emerging markets will spread to a greater extent and is highly concentrated in some countries, with South Africa, Indonesia, Lebanon, Egypt and Colombia being particularly dangerous.


Hope those countries will be back to normal soon.