When exchange is robbery

By Michael Soltys

Buenos Aires Herald Senior Editor

The current disarray in the exchange market threatens to produce all the evils of devaluation without the advantages of an actual depreciation for hapless exporters in an increasingly less competitive economy. And where exports stay competitive, notably in grain commodities, nobody feels inclined to sell at an official exchange rate of under five pesos if the “blue” dollar is close to eight. The same applies to the oil industry investments so frantically sought to reverse the soaring fuel import bill whose payment has contributed to the currency restrictions — world oil prices multiplied by the eight of the parallel exchange rate yields almost three times as many pesos as the US$70-dollar local barrel multiplied by five, so what overseas investor would be interested in a price much less than half the international value? Labour and other costs, especially imported inputs, also climb automatically.

The parallel exchange market is literally the mouse that roared — a tiny daily volume which the slightest fraction of Central Bank reserves (or soy export dollars, if and when they are cashed) would provide ample firepower to crush. And yet this picture could also be deceptive — the US$42.65 billion of Central Bank reserves (down by some US$10 billion from the time of President Cristina Fernández de Kirchner’s re-election two years ago) not only undershoot a money supply of some US$60 billion but are also outweighed by an even higher sum of advances to the Treasury to cover the deficit of a state announcing record revenue hauls (65.7 billion pesos last month alone). With such monetary anarchy underlying the supposedly solid Central Bank reserves, neither the exchange market chaos nor inflation can be much surprise — the “blue” dollar surge might thus be more than a holiday phenomenon, reflecting a deeper imbalance.

Meanwhile the real economy faces problems other than the monetary — thus the newly nationalized YPF not only has to cope with the mismatch between global prices and local official pegs but the Chevron environmental lawsuit (hard to defuse since it is mounted by CFK’s ideological ally, Ecuador’s Rafael Correa) makes it almost impossible for YPF’s main overseas recruit over the past year to operate here. Meanwhile, the mining mega-project of Brazil’s Vale is on ice while Brazil itself, entering its third year of stagnation, is no more leaving Argentina “condemned to success” than the withheld soy exports resisting the official exchange rate. The International Monetary Fund finally spelling out its criticisms of Argentine statistics might well be the least of problems.