November 27, 2014
Pieces of eight
“The real is the rational and the rational is real,” wrote Georg Wilhelm Friedrich Hegel but just try applying that to Argentina’s dollar markets, especially the sector assigning the colour “blue” to the greenback. The government insists on shrugging off the unofficial “blue” dollar’s surge towards the eight-peso mark as a purely seasonal phenomenon and they might well be right — it is striking how this week’s spurt comes at the turn of the month with a new holiday shift when those going abroad have to make last-minute dollar purchases if out of luck with the red tape surrounding the official exchange rate (and we do know that people are going abroad because the Atlantic coast has just posted its worst January in a decade with tourist earnings down 20 percent as holiday-makers flee inflated local prices — a paradoxical result of currency curbs). But while the rational might tell us that this “blue dollar” is seasonal, marginal and even psychotic, the reality is that an exchange rate gap of almost 60 percent between the official and parallel exchange rates is far from neutral for the mainstream economy — the consumer suffers higher prices due to this benchmark, the private sector loses investment and even the public sector sacrifices the revenue which should accrue from legal exchange transactions.
But the government is also laughing all the way to bank with this “blue” dollar surge if it is paying out well under five pesos for every dollar earned by soy and other exports — this phenomenon might thus not be simply seasonal. Far from running out of control, a rampant parallel exchange rate is one of the many self-inflicted wounds from the currency curbs of the last 15 months which have been gradually strangling economic activity but the country’s loss continues to be the state’s gain so that there seems no reason to expect changes any time soon.
The government might shrug off a soaring dollar as a “silly season” problem and wait for harvest exports to deflate the “blue” market (if these are ever cashed with this growing exchange rate lag) but in the meantime a 16 percent surge on the parallel market in just one month sends out the message that this is the place to invest savings (the annual interest rate for bank deposits yields around 14 percent) — surely not the result sought by the “productive, competitive and inclusive model” so tirelessly proclaimed by President Cristina Fernández de Kirchner.