Then Thursday trading hit, slashing another 12% from the peso’s value despite a dramatic rate hike of 15%, which brought the central bank’s interest rate to a towering 60%. The rate has more than doubled since April 2018, and Argentina now has the highest interest rates in world.

The Macri administration has been plunged into a perfect economic storm. Will it be able to weather it with more ‘gradual austerity,’ or are people already fed up?

IMPACT

New declines in the Argentine peso removed any idea of the first IMF agreement being sufficient enough to stem the crisis. They came quick on the heels of President Macri’s request to accelerate the dispensation of the IMF funds, a move that further fueled doubts over the immediate health of government finances. The Fund’s Christine Lagarde has publically stated that the terms of Argentina’s initial bailout package could be revised given the “adverse international market conditions” of the past few weeks.

The cratering Argentine peso has brought several other currencies with it, advancing a trend of emerging market vulnerability over the past two weeks. The Turkish lira fell almost 3% on Thursday in its fourth straight day of declines, and the Indian rupee and Indonesian rupiah have also been tracking lower.

The Argentine peso collapse stems from a crisis of investor confidence, one that the government has been desperately trying to stem, turning to the despised IMF and hiking interest rates to unprecedented levels. But though the Argentinian government faces real challenges in the form of its short-term USD-denominated financing demands and ballooning current account deficit, the severity of these problems doesn’t necessarily reflect the severity of the peso’s decline. Should confidence actually be restored, we might see a limited and sharp recovery in the peso’s value.

But this begs the million-dollar question: How can confidence be restored? The Argentine government has made some extreme attempts to stem the bleed, but nothing has worked so far.

With officials having already working through the monetary policy toolbox, the focus now shifts to government finances. On Thursday, in the depths of the peso plunge, Treasury Minister Nicolas Dujovne announced that a new set of economic measures are being prepared and that the fiscal deficit for 2019 will be no lower than 1.3% of GDP. The deficit is expected to come in at around 2.2% for 2018.

But investors will likely be more focused on future considerations in their political risk assessments. These deficit numbers assume a base level of economic growth that might not come to pass. Treasury Minister Dujovne has previously announced that he expects the GDP to contract by 1% in 2018, and the figure could well be worse due to the government’s (arguably justified) steep interest rate hikes. A record drought is also ravaging the country’s agriculture-reliant economy, and the 2018 soy crop is expected to be the worst in several decades. Disappointing soy and wheat crops are rippling through the Argentine supply chain, hurting downstream industries like meat and dairy, and resulting in hundreds of millions in losses.

Outside pressures of capital flight and IMF bailout conditions are combining with internal economic pressures to create a perfect storm for the Macri administration. President Macri has long enjoyed high approval ratings, even throughout the early stages of the peso’s decline this year. His popularity stemmed from disenchantment with ex-president Cristina Kirchner (now the subject of a high-profile corruption trial) and a widely-held faith that his policy of ‘gradual austerity’ would help Argentina move away from the ‘magical policies’ of the past and rehabilitate its image as a perennial economic underachiever. Obviously, things have not turned out that way, and Argentinians are beginning to tire of austerity, gradual or not. Macri’s approval ratings are now at the lowest point they’ve been since he took office in 2015, and given that there’s more austerity policies to come, his approval ratings are likely to fall even further.

This political and economic drama is unfolding just as new general elections loom in October 2019. Many assumed President Macri would cruise to reelection before the currency crisis; now they’re not so sure. If a bombshell revelation in the Kirchner corruption trial were to remove the former president from the ticket, her replacement might be able to give a sagging Macri a run for his money. Of course, this scenario would make hard for either candidate to advance the kind of austerity policies that Argentina needs to squarely get its fiscal house in order.

Either way, the next year will be a rough ride for Argentina.