Argentina minister defends peso amid default risk

image source, Getty Images
image captionTreasury Minister Hernan Lacunza was appointed last week

Argentina will use its dollar reserves to shore up declines in its currency, Treasury Minister Hernan Lacunza has said, as markets brace for a default.

Debt ratings agency Fitch said the peso's recent depreciation "suggests a real risk of default".

Fitch said it also "raises the potential for a sharper deterioration in economic growth".

Much of Argentina's debt is priced in dollars and the peso's decline makes it harder to afford the interest.

Default occurs when the original terms of a loan are not met and can lead to anything from a delayed interest payment to a much more serious failure to repay the debt.

Argentina's central bank has spent $709m to bolster the peso since the 11 August primary election, which triggered a collapse in the value of the currency.

President Mauricio Macri was beaten in the nominating contest by centre-left candidate Alberto Fernandez, who is now expected to win the presidential election in October.

Since that result, traders have been worried that Mr Fernandez could take Argentina back to populist economic policies.

The peso fell 0.53% at 55.03 to the US dollar. Prior to the poll, a dollar bought just 45 pesos.

Analysis by Daniel Gallas, BBC South America business correspondent

Argentina is getting poorer.

That's not only due to recession, which economists say will see the country's output shrink by 2.5% this year. The devaluation of the Argentine peso is also making the country poorer.

More than 80% of the government's debt is in foreign currency - and the recent devaluation of more than 20% will make it harder for authorities to repay it. Interest rates above 60% - used to control inflation - turn the picture even gloomier.

Fitch says that in 14 cases of sovereign debt default since 2001, eight of them were preceded by a massive devaluation of the currency, just as we are seeing in Argentina.

And it all of this trickles down to ordinary lives, with now one in every three Argentines living below the poverty line.