Whatch and reading

Cur r e ncy cr isis r e dux? - Ar ge ntina and - F inancial T ime s [30 D ay Embar go ] (L o ndo n, England) - M ay 14 ,

20 19 Ma y 14, 2019 | Fina ncia l T ime s [30 Da y Emba rg o] (London, Eng la nd) | Colby S mith

H arrowing but unsurprising news for two of the hardest hit emerg ing markets in recent years.

According to Evg henia Sleptsova and her team at Oxford Economics, Arg entina's peso and the T urkish lira are the two currencies most vulnerable to yet another sell-off. Sleptsova calculates a 70 per cent chance of a c urrenc yc urrenc y c ris isc ris is in the next three years in T urkey, and about the same for Arg entina over the same period.

H ere's her chart of the c urrenc yc urrenc y risk ranking s across emerg ing markets, with Ukraine, South Africa and Russia rounding out the top five:

T he dire prog nosis comes despite major economic adjustments in both countries. Last year the peso and lira fell off a cliff with the currencies losing half and a third of their values ag ainst the dollar respectively.

In Arg entina, policymakers have eng ineered a debilitating recession and helped to simulatenously close the country's twin fiscal and trade deficits throug h ultra-tig ht monetary policy and austerity. In T urkey, the current account deficit continues to narrow to roug hly $13.4bn on a 12-month rolling basis — the lowest in ten years.

H owever risks remain in both countries which threaten to bring about a fresh bout of volatility, and what Sleptova calls twin or triple whammies of sovereig n and/or banking crises. H ere's her summary of the current state of affairs in T urkey:

T he g overnment's reluctance to accept a lower pace of g rowth, the central bank's severely dented credibility and the opacity surrounding FX reserve losses have proven damag ing for confidence, both domestically and among foreig n investors, and may be storing up big g er trouble for T RY down the road.

Investors are still reeling from reports that T urkey's central bank boosted its short-term dollar borrowing in order to increase its stock of official foreig n reserves. T urkish citizens have also borrowed heavily since last summer's c ris isc ris is , and with the country's long est-serving leader questioning the results of a democratic election his party lost in March, there is no shortag e of reasons for the lira to once-ag ain nosedive.

T he situation in Arg entina is equally precarious despite the backing of a $56bn IMF prog ramme, the larg est in the institution's history. Few believe the g overnment's new rule to intervene in the c urrenc yc urrenc y whenever it sees fit will help to break the cycle between peso depreciation and spiralling consumer prices, which has led to inflation nearing 55 per cent.

Even if the rule chang e were to work and the move by Macri's g overnment to freeze prices on certain g oods were to win over distressed voters, October's presidential election, which could see

the return of former leftist president Cristina Fernández de Kirchner, has markets on edg e.

As the peso has lost an additional 17 per cent of its value ag ainst the dollar this year, and the lira 14 per cent, there's the question of just how much more room both currencies have to fall considering last year's destruction.

Remember the 90s? It could be a lot further than you think.

Related Links:

Arg entina's problems don't end with its election — FT Alphaville

Arg entina is on the brink — FT AlphavilleT urkey needs a better PowerPoint — FT Alphaville

C IT A T IO N (A PA S T YLE)C IT A T IO N (A PA S T YLE)

Smith, C. (2019, May 14). Currency crisis redux? Arg entina and T urkey are still at risk.. Financial T imes (London, Eng land). Available from NewsBank: Access World News – Historical and Current: https://infoweb-newsbank- com.offcampus.lib.washing ton.edu/apps/news/document-view? p=WORLDNEWS&docref=news/1736DB8B8D3D9278.

Copyrig ht T he Fina ncia l T ime s Ltd. All rig hts re se rve d. Ple a se do not cut a nd pa ste FT a rticle s a nd re distribute by e ma il or post to the we b.