The economic crisis in Argentina has grown more extreme with news that the country’s central bank has raised its benchmark interest rate to 60% — the highest level in the world — in an attempt to halt a sharp decline in the value of the peso.
The peso fell more than 13% against the U.S. dollar on Thursday, closing at an all-time low of 39.2 against the greenback. Argentina’s central bank said in a written statement that it was hiking its benchmark interest rate by 15 percentage points to 60% in response to the currency problems and the risk of greater impact on local inflation, which is already running at about 30% on an annualized basis.
The tumult in the exchange market came a day after Argentina President Mauricio Macri said he was asking for an early release of some International Monetary Fund (IMF) money under a $50-billion U.S. backup financing arrangement. Some financial experts said the announcement, combined with the interest rate hike, has led to a crisis of confidence.
President Macri has struggled to calm markets and bring confidence to Argentines who continue to lose purchasing power. Many are frustrated with layoffs, higher utility rates and a rise in poverty levels. People also have bad memories of the IMF and blame its free-market economic policies for contributing to the country's worst economic crisis ever back in 2001-02, when one of every five Argentines went unemployed and millions fell into poverty.
President Macri, a pro-business conservative who took office in 2015, had promised to trim Argentina's fiscal deficit, reduce poverty and curb inflation. He has cut red tape and tried to reduce the government's budget deficit by ordering layoffs and cutting utility subsidies, but it triggered labour unrest. Then last December, officials announced a rise in the inflation target, which caused investors to begin doubting President Macri's commitment to taming price rises.
