June 18, 2013
The buck stops where? II
The parallel dollar eased off in the second half of last week but a gap with the official exchange rate peaking at 50 percent destroys credibility. Even if the parallel market is overrated, the “blue dollar” becomes a benchmark for an economy where almost any good or service is perceived as being worth more than the national currency (perhaps such seemingly brainless monetary policies are really a cunning plot to keep the consumer boom alive at any cost). Many factors feed this basically artificial exchange crisis but perhaps paramount is the extreme contrast between the scarcity value of a hounded greenback (along with its “forbidden fruit” attractions) and a super-abundant peso money supply increasing by six million bank-notes a day since May — rather than a mismatch between supply and demand, this market is pure demand, inflated by midyear bonuses and tourism from the Northern Hemisphere summer.
If the parallel dollar eased off in the second half of the week, the same cannot be said for world soy prices, which reached a record 645 dollars per ton by the end of the week — this alone gives the lie to an entirely artificial dollar shortage. It would be simplistic to multiply Argentina’s harvest by that price because three-quarters of that harvest has already been sold — indeed the fact that Argentina has largely shot its bolt contributes to the shortage feeding that record price alongside the prime cause of the drought in the United States. But even allowing for this factor, next month’s Boden 2012 commitments and an incessantly mounting fuel import bill, the combination of such windfalls (with maize sales abroad freed last week for some more quick dollars from export duties) and savage import curbs makes for a still robust trade surplus while Central Bank reserves remain sturdy at 46.8 billion dollars.
Overrated as the parallel market is, the exchange restrictions have been remarkably effective in producing stagflation — the idea of running all the nation’s transactions in an inflationary peso might go up the flagpole but nobody salutes. This hurts the housing market in particular — and last week’s extreme dollar volatility is hardly better for that market than a pesofication which is not so effortlessly achieved when many people are still stuck with dollar commitments. Last week the Buenos Aires province midyear bonus tug-of-war finally snapped and the transport subsidy bubble burst — how much longer can this travesty of an exchange market continue?