Larry Kudlow: Treasury Dept. "deeply involved" in economic crisis talks in Argentina

Speaking to Fox News business host David Asman this weekend, National Economic Council Director Larry Kudlow revealed that the U.S. Treasury Department is "deeply involved" in talks with Argentine officials over the possibility of pegging the slumping peso with the U.S. dollar.

Kudlow revealed news of these as-yet undisclosed discussions in response to Asman's concerns over the current economic crisis in Argentina.

"They are in deep trouble," he reminded Kudlow. "They've had to go to IMF in order to get an emergency loan for the trouble they're in."

The country's current crisis began in April, when reports that the current account deficit had doubled (to a record $31 billion) and that its foreign debt expanded by $52 billion in 2017 alone set off a wave of capital flight - some $25 billion so far this year.

Efforts to stem capital flight, including raising central bank discount rates from 27% in April to 60% now, have thus far failed: The peso has since lost half its value, pushing inflation from 25% to an offically projected rate of 42% this year.

Higher interest rates are in turn exacerbating the recession, with GDP down 6.7% as of June and retail sales down 8% in August.

The crisis intensified on August 29 after President Mauricio Macri falsely claimed to have secured IMF approval for an $18 billion advance on the $50 billion bailout package agreed to on June 8.

Return to convertibility?

"I know the Argentines," Asman noted. "They would much rather deal with the U.S. Treasury. Is there any chance that that could happen?"

"Yes," Kudlow replied. "The treasury is deeply involved in this discussion. And as you and I learned, the only way out of Argentina's dilemma is to set up currency board - the peso linked to the dollar - but you can't create a single new peso unless you have a dollar reserve behind it."

"That worked in the 90's. It brought down inflation and kept prosperity - that's what they need to do again. And you know what? Treasury Department people are on it."

Kudlow referred to the dollar convertibility adopted by the Argentine Central Bank between 1991 and 2001, which pegged the peso to the dollar at a 1-to-1 parity.

Convertibility intially succeeded in stabilizing hyperinflation and boosting the Argentine economy, which had been in a deep crisis since the last dictatorship's speculation-driven debt bubble collapsed in 1981.

The plan, however, led to a second debt bubble after privatization proceeds dried up in 1994, and ended in a historic collapse and bond default in 2001 that took five years to recover from.

At: http://www.foxnews.com/transcript/2018/09/08/larry-kudlow-on-where-trump-economy-is-headed.html

Trump economic adviser Larry Kudlow has the answer for Argentina's financial woes:

The same debt-fueled plan that led to a collapse in 2001.