(Bloomberg) -- Argentina’s central bank got a new chief after the monetary authority failed to stop the peso’s plunge despite obtaining the biggest loan in the history of the International Monetary Fund.
Luis Caputo, previously the finance minister, will take over the post following Federico Sturzenegger’s surprise resignation. Investors need him to lay out a strategy to curb volatility in the currency, which has lost more than a quarter of its value since the end of April, including a selloff of more than 6 percent Thursday that left it at a record low.
Caputo, 53, a former portfolio manager and banker, may be better positioned to win back investors who have complained about a lack of communication and incoherent policy from the central bank amid the worst peso rout since President Mauricio Macri allowed it to start trading freely in late 2015. Nicolas Dujovne will lead a united Ministry of Finance and Treasury, the government said.
The peso collapse has added to the woes of a country already under siege from double-digit inflation and fiscal and current account deficits. BlackRock Inc. and Brown Brothers Harriman are among shops that have predicted further peso declines as outside factors, including a resurgent dollar, rising global interest rates and higher risk aversion, conspire against an easy solution for Argentina.
“Right now we’re in a confidence game, and there’s no confidence in Macri’s team and how they’re communicating,” said Walter Stoeppelwerth, the chief investment officer at Balanz Capital Valores in Buenos Aires. “Sturzenenger is a great professional, but he’s an academic, not someone that understands a run on the currency. The market had a problem with the way they handled intervention. The one person on Macri’s team they have confidence in is Toto Caputo.”
Caputo took the helm of the Finance Ministry in December 2016 after serving as a key figure in securing an agreement with investors holding debt the country defaulted on in 2001, a truce that allowed the country to return to global capital markets. Before that, he was the president of Buenos Aires-based asset manager Axis Inversiones and held roles at JPMorgan Chase & Co. and Deutsche Bank.
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Strife in Argentina set a negative tone for emerging markets as trading started Friday, with the Thai baht and South Korea’s won both dropping.
The changes at the helm of the central bank, which included the departure of several high ranking officers, capped a dramatic day in local markets. The peso slid Thursday with no intervention from the central bank amid rumors anticipating the reshuffling. Trading on the MAE electronic market fell to $240 million on Thursday, the lowest since September 2017, and almost half of the past year’s average daily volume of $471 million.
Investors had expected that the $50 billion deal with the Fund would return calm to the market after a sharp selloff in May amid global volatility and questions over the central bank’s credibility boiled over. A change in the central bank’s inflation target last December was cited as the beginning of the confidence crisis.
In May, officials sought to arrest the decline by jacking up interest rates to the highest in the world at 40 percent, intervening directly in the market and using a $5 billion offer at 25 pesos per dollar to contain the currency while the government negotiated the deal with the IMF. The day of the announcement, Sturzenegger said that the bank would only intervene in the market in "disruptive situations." Still, the central bank spent $794 million over two days to curb losses as volume plummeted.
"The political pressure to make a personnel change (at the central bank) was enormous," said Benjamin Gedan, former South America director on the White House’s National Security Council under President Barack Obama, and current director of the Argentina Project in Washington.
Caputo’s appointment "gives the central bank the opportunity to restore credibility to the central bank that was rightly or wrongly lost, and it consolidates economic decision making with Minister Dujovne."
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