Turmoil in Argentina underscores policy challenges

The surprise resignation of Argentina’s central bank governor, Luis Caputo, and nationwide strikes – in protest against President Macri’s austerity plan – underscore the difficulty of fixing the country’s economic mess. Mr. Caputo reportedly clashed with the IMF over exchange rate policy, with the latter objecting to the former’s frequent FX interventions and pushing for a fully free-floating peso as part any new credit line. Mr. Caputo will be replaced by Guido Sandleris, a little-known academic. At the very least, the turmoil at the helm of the BCRA and tensions over FX policy will prolong ongoing negotiations with the IMF. Meanwhile, the nationwide strikes could gather momentum in the coming months as austerity ramps up. This doesn’t bode well for President Macri’s re-election prospects next year, raising the risk of a populist shift.