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July 23, 2014
Wednesday, January 8, 2014

‘Blue’ dollar reaches new high of $10.93

Traders reportedly ran out of greenbacks yesterday.
Gap with official exchange rate surges to 65 percent as devaluation continues

The government suffered a setback yesterday in its struggle to reduce the gap between the black market and official dollar rates, with the so-called blue peso sliding to an all-time low of 10.93 amid heightened tourist demand at the peak of the summer season.

A 40-cent surge in just 24 hours sparked an intense debate over what lies ahead for the exchange rate, with the government’s allies focusing on how the upswing is merely seasonal and anti-government sectors arguing the fluctuation responds to the lack of a structured approach to the economy, which pushes citizens to counter the effect of inflation by getting their hands on greenbacks.

Several black-market traders reported that bureaus had dried up yesterday, unable to meet the demand for the US currency.

A sudden spike on Monday had already sent the “blue” dollar above its previous record of 10.45 pesos, seen in May last year.

Chasing down the “blue” dollar by devaluating the official peso — which depreciated only half a cent yesterday — gathered a more rapid pace with the appointment of Axel Kicillof as Economy minister and Juan Carlos Fábrega as Central Bank governor.

“It’s a difficult market to characterize, because you also have the so-called stock market dollar and ‘contado con liqui,’ (bond swap) which are related to a huge amount of financial elements,” Kicillof told Radio del Plata yesterday, dismissing the black-market exchange rate as largely irrelevant for the economy as a whole.

Instead of the black-market exchange rate, Kicillof is “looking closely at the performance of the trade surplus, the financial expirations of the government and movements.”

The “blue” rate initially remained steady as the official rate rose, but the inherent objective of curbing the depletion of reserves — which stand at a seven-year low and attracting foreign investment as well as strengthening exports — by discouraging recourse to the cheaper but illicit dollar — has seemingly returned to square one.

Alberto Ramos, who analyzes the country for Goldman Sachs opined that “the authorities fear the impact on inflation, which is already approaching 30 percent. Since they do not seem ready to tight fiscal and monetary policy, they continue to resort to heterodox measures such as price controls and so-called voluntary price agreements,” in reference to the deal with supermarkets and suppliers launched Monday.

The soybean factor

Monday ended with the loss of US$78 million, meaning that reserves have fallen US$150 million in the first four working days of the year.

In early December, Cabinet Chief Jorge Capitanich insisted that soy farmers are hoarding more of the oilseed than usual, discouraging producers from engaging in what he defined as speculative behaviour and pinpointing such behaviour as one of the top causes behind the recent depletion of Central Bank reserves.

A week later, the Lebac dollar-linked note — at 3.65 percent plus devaluation — was constituted in a bid to lure in the sector’s retained capital, which is held back precisely to counter the effects of devaluation, capturing US$165 million in its first week, but falling short of expectations.

The underperformance of the sector’s promise of earlier settlement to Fábrega thus appears to have undermined the perception of soybeans’ ability to sustain the economy.

The psychological factor is significant, as the ever-rising “blue” market seems to be dissuading farmers and export companies from settlement due to the prospect of more certain bang for their buck.

Nonetheless, last year the sector has actually settled about the same as in 2012, at US$23.162 billion and US$23.069 billion, respectively, according to sector chambers.

In November, the government had already demanded the largest companies in the sector seek credits abroad instead of domestic banks in a bid to inject dollars into the formal economy. The Kirchnerite administration reportedly hoped to rake in US$2 billion through both measures.

Vicious circle

The vicious circle of low confidence and falling Central Bank reserves — down US$13 billion in 2013 to end the year at a little more than US$30 billion — is likely to continue in the months ahead as labour unions get set for tough wage negotiations based on private inflation estimates.

Widely discredited official figures put inflation in the 12 months through November at 10.5 percent, while private economists say Argentine inflation is running at more than 25 percent annually.

“Without meaningful efforts to bring inflation down, especially in terms of reducing fiscal spending, pressures on reserves will likely remain high in 2014,” said a report issued on Monday by the Eurasia Group consultancy.

Herald staff with Reuters

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