The central bank of Argentina on Monday hiked its benchmark interest rate to 45%, up from 40%. The early-week move comes after the peso currency plummeted in response to a local corruption scandal, which has been exacerbated by the currency crisis in Turkey.
The central bank also announced that it would issue less in lebac, or short-term debt from the central bank that will mature to reduce indebtedness. The International Monetary Fund (IMF) said in a statement that issuing less in lebac “should remove an important source of vulnerability.”
Argentina’s treasury ministry said in a statement that they have instructed the central bank to discontinue its daily sale of U.S. dollars due to liquidity in the peso.
According to the Maddison database, Argentina used to be one of the world’s richest nations, ranking as high as #10 in the 1930s and 1940s (see chart). But decades of Peronist policies exacted a heavy toll, which dropped Argentina to about #45 in 2008.
Venezuela was ranked roughly #30 in 1950 pertaining to the richest nations. After years of socialist and generally statist policies, Venezuela is ranked much lower. Decades of bad policy have led to decades of sub-par economic performance. And Argentina and Venezuela stagnated, other nations become richer.
According to the latest Maddison numbers, Argentina is now ranked #62. Above is a chart from 2011, data appended.