The Turkish lira collapsed last night in the “overnite” market at 2 am in that country almost 14% against the dollar, after the president Recep Erdogan dismissed the head of the Central Bank on Saturday, Naci Agbal, who had been finance minister and failed to lower Turkish inflation despite raising interest rates.
Why does this movement affect all emerging countries, particularly Argentina? In 2018, the collapse of the Turkish currency blocked international credit to emerging countries and Argentina was cut off from access to international markets. Unable to repay the debt, he forced Mauricio Macri to knock on the doors of the IMF. The rest is known history.
Now, this devaluation after a few months of certain exchange rate tranquility is accompanied by a huge rise in the rate of 10-year US bonds to 1.73% that could collapse the bonds of emerging countries, make credit more expensive for the region, flip their currencies, accelerate capital flight and increase risk country. On Friday, Turkey’s country risk closed at 427 points and is higher than that of Brazil, Chile and Paraguay. Today that indicator can grow considerably and drag down the other countries.
“This can change the rules of the game in the region. I don’t know if it will do it with the force of three years ago because today everything is relative, but it will have negative effects ”(Miguel Boggiano)
Who else can suffer the situation is Argentina, because the dollar was rising 0.17% against the six main currencies of the world. In a context where the countries of the region devalue, the anchor of the dollar against the peso will have difficulties to settle because investors can choose the United States currency to escape currencies as, probably, they will in Brazil, which had managed to reverse the devaluation of the real. In addition, it affects foreign trade because the exchange rate lag will become more evident compared to competing countries, particularly Brazil.
The Economist Miguel Boggiano he was the one who alerted to the novelty that had gone unnoticed. “This can change the rules of the game in the region. I do not know if it will do it with the force of three years ago because today everything is relative, but it will have negative effects”, He assured.
Meanwhile, the peso continues to slow down its rate of devaluation. On Friday the dollar rose just 6 cents to $ 91.36, in the week it devalued 47 cents against 51 cents of the previous one. So far this month the devaluation was $ 1.47 (+ 1.63%).
For the second consecutive round, on Friday the Central Bank did not buy dollars and reserves lost USD 47 million and fell to USD 39,726 million. It is the third low of the reserves. On three wheels they gave up USD 155 million for interventions in the bond market and debt payments.
The huge rise in the US 10-year bond rate to 1.73% could bring down the bonds of emerging countries, make credit more expensive for the region, flip their currencies, accelerate capital flight and increase country risk.
The futures of the indices of the stock exchanges of the United States did not receive in the best way the news that came from Turkey. Except for the Nasdaq, which rose 0.08%. The Dow Jones lost 0.04% and the S&P 500, 0.07%.
According to Boggiano, the one that remains committed to the devaluation of the Turkish currency is Europe because of the commitment that the continent’s banks have with the region. That is why the DAX in Frankfurt fell 0.38%; the IBEX of Madrid, 1.61%; the London FTSE, 1.75% and the Paris CAC, 1.50%.
Commodities weren’t having a good time either because oil was still down. Both Brent, which is a benchmark in Europe and WTI, which is a benchmark in the United States and Argentina, fell 0.50%. The good news is that soybeans, after two rounds of sharp falls, rose 1.71%.
For today’s round, many unknowns are opened with what will happen with the Argentine debt bonds that come from four rising wheels, with shares and alternative dollars where if there is influence of the Turkish crisis as in the past, it will be necessary to recalculate interventions.