Argentina’s rebalancing: progress, but more to be done

Argentina’s rebalancing process has entered a more challenging phase and the government now faces the tricky trade-off between maintaining a strong exchange rate to bring down inflation or loosening its grip on the currency to improve external competitiveness. With elections on the horizon, the authorities are likely to prioritise the former but doing so would run the risk of renewed macroeconomic imbalances. That would leave the peso vulnerable to sharp falls if the recent improvement in investor confidence reverses.