In Argentina, the is hitting record highs at over 51 percent compared to the United States dollar. Meanwhile, the country's debt risk exceeded 1,000 points as the Central Bank once again raised interest rates, this time to 70 percent, in an attempt to salvage its own currency from further depreciation.
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"Argentina is looking at an economic abyss, amidst doubts about [President Mauricio] Macri's management. ... The possibility of an Argentine default exists, with or without [former president Cristina] Kirchner," reports the Spanish newspaper, El Pais Friday.
The country risk index measures the gap between the yield of a country's sovereign bond and the United States treasury bonds' average daily yield. The higher the country risk, the greater the likelihood that such country will not be able to meet its debt obligations on time. Argentina's country risk is now the Latin American's second highest and the country's highest in at least five years.
The Argentine dollar-denominated debt exceeds 90 percent of its Gross Domestic Product (GDP), leading economists to believe that its US$34 billon debt will not be paid next year unless President Mauricio Macri administration implements more budget cuts.
Since he assumed the presidency in 2015, the Argentine recession has deepened. In an attempt to resolve the situation, Macri negotiated a US$56.3 billion loan with the International Monetary Fund (IMF) that must be paid in a three-years period.
"Do you understand why Macri keeps on saying he will be candidate? If he announces his resignation, the dollar would go to 60 pesos, country risk to 2000, hyperinflation would be unleashed and the government wouldn't last 3 days."
To contain the annual inflation, which reached 54.7 percent in March, the government announced last week a set of "emergency measures", which includes freezing commodity prices and utility rates. The Macri administration has already slashed energy and transportation subsidies along with certain ministries in order to appease the IMF's debt reduction conditions.
As part of the April 16 agreement, Macri froze the currency fluctuation band, establishing a minimum of 39.75 pesos per dollar and a maximum of 51.45 pesos per dollar. This newest currency exchange turbulence is happening just six months prior to the October presidential elections where the right-wing president is trying to renew his mandate until 2023.
However, Macri’s "gentlemen's agreement" to freeze prices on several common consumer products is not working and analyst say it's not a long term solution due to the peso's unstoppable devaluation that already downspiraled by 50 percent in the last six months of 2018. The Argentine currency lost another 15.82 percent of its value between January and April of this year.
"Last week's measures have had very low impact and are not sustainable in case the dollar [appreciates further] or inflation accelerates,” economist Martin Vauthier told Pagina 12. “There is such a fiscal restriction that either it fulfills the IMF agreement or it fulfills [Macri’s] promises."
The government hopes to remain within its projected peso value range until elections because the peso's depreciation is seen as the inflation's main cause.
According to local media Pagina 12, entrepreneurs from industrial and commercial sectors are worried about this new “high uncertainty scenario” and believe that a “breaking point” could be reached soon.
"Among small and medium business, there is a terrible uncertainty. Large wholesalers deliver their products using invoices that do not specify their prices at the expiration date. They say, ‘if you want a price, pay me in cash',” Vicente Lorenzo, a business consultant, said.
"Against this policy which destroys work and national industry; ruins small and medium enterprises, businesses and agricultural producers; generates hunger and poverty in our people and gives up national sovereignty. National Strike on April 30. Stop Macri's hand."
According to local analysts, new price hikes are unavoidably coming, which will push annual inflation rate to a 60 percent level as soon as July.