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One week into office, Argentina's new president has slashed taxes, ripped out capital controls and restored the peso to its natural level. It takes guts, but this blaze of reforms has worked wherever it's been tried.
The markets certainly think it will, with some stocks rising as much as 5% and the overall market not panicking in the wake of President Mauricio Macri's announcement that capital controls are now a thing of the past. The move triggered a wrenching 27% devaluation of Argentine currency, causing it to fall from 9.8 pesos to the U.S. dollar to 13.9.
It will likely force prices to rise by half in the short term and could trigger protests from the country's powerful Peronist unions. But it's the speed with which the move took place that puts time on Macri's side and a sign that the distasteful maneuver will work.
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Economists such as Johns Hopkins University's Steve Hanke have pointed out in the past that free-market reforms tend to have the best results when they are executed quickly, with conviction.
The underlined point is important, which is why he chose to do these changes right away.
I'm sure will be tough on many for the time being. I will have to keep an eye on this.
This was also interesting...
A few days before that, Macri moved to protect savers somewhat by firing the central bank chief and having the new one hike interest rates from 7% to 38% to alleviate the shock of devaluation.
If that much of a change alleviates a shock of devaluation - how bad would it have been if they remained on their previous course?
I work in Peru with several Argentines...they believe this may help. I believe it might but it's going to take some time to adjust, build investor confidence, all while the world market for mining metals is in the toilet....going to be a tough go.
Extreme capitalism works for a while, but then it collapses under it's own weight. Iceland was uber successful for a while until it was revealed the economy was build on sand causing the whole thing to crumble.
The devil will be in the details. doing things like this fast.....there may be benefits from doing so, but your execution has to be spot on, or able to rapidly respond to any bumps.
SMH.....can only imagine the destruction this will bring to the country and its workers.
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