March 7, 2014
Further spike in ‘blue’ is seen as unlikely
After reaching almost 12 pesos last week, crucial week begins for parallel rateAfter the so-called “blue” dollar surged last week, almost breaking the 12-peso mark on Friday, economists largely agree this week is likely to be calmer as few expect any big spikes in the parallel exchange market.
The “blue” market has been highly volatile since the beginning of the year, surging 83 cents last week, while the official currency’s devaluation is also gathering momentum as the peso deprciated 10 percent last week.
The gap between the parallel exchange rate and the official dollar now stands at 75.6 percent, a gap the government is seeking to narrow. But it will be a difficult task due to strong demand generated by speculators and tourists that is reportedly behind the accelerated depreciation, economists told the Herald.
The quickening devaluation also has a snowball effect, pushing people to move forward any planned dollar purchases in order to try to beat the double effects of inflation and depreciation.
‘A few cents’
Economist Jorge Colina believed that the blue dollar would rise a few more cents this week but he said that what will determine the movements of the blue dollar is public spending.
“If the government cuts down on public spending, it will lower inflation, and the blue dollar would decrease as a result,” Colina said.
General Sarmiento National University (UNGS) economist Ricardo Aronskind did not want to risk predicting what would happen this week telling the Herald “there are too many players in the market, making it unpredictable.”
But Aronskind did make a point to recall what happened after previous sharp increases of the “blue” dollar, highlighting that previous big spikes in the parallel exchange rate always appeared to have no ceiling but ultimately ended up lowering.
“We are now in another bubble, which has an important speculative component,” Aronskind said. The UNGS economist believes that the government is trying to calm the local exchange markets.
“The renewed Paris Club negotiations, the YPF-Chevron agreement and other similar policies will help,” he said.
Although many business leaders and economists also believed that the Paris Club negotiations were a positive factor, Economist Ricardo Delgado, a Renewal Front consultant, did not agree with Aronskin’s assessment that the Paris Club would be able to keep a lid on the spike of the blue dollar.
“This will normalize the country’s financial relations with the world, but not with the supply of dollars in the short term,” said Delgado. The Renewal Front economist was of the opinion that the parallel market would hike reaching even higher levels supported by “the Central Bank that has accelerated the official currency’s devaluation since November.”
Delgado believes that for the next two months the low supply of dollars will be a constant and the ANSeS pensions fund will be crucial in determining movements in the market.
Economist Ernesto Mattos of the Arturo Jauretche Foundation told the Herald that the spike in blue dollar was a “seasonal increase,” which is the same argument espoused by the government last year when the “blue” dollar had jumped to 7.29 pesos. The blue dollar subsequently lowered a little following the early 2013 hike but then increased again.
Mattos says the government will be able to close the gap between the exchange rates in June, when the second corn and soybean harvests finish.
The Agricultural sector liquidated US$23.16 billion last year, only a small increase from the US$23.06 billion in 2012. But how much revenue will finally be available from the harvests to help assuage the affects of the “blue” dollar will depend on a number of environmental variables.
Former Economy minister Roberto Lavagna wasn’t very optimistic though, telling Perfil newspaper that the “blue” dollar would continue rising as long as economic policies did not change.
Does it matter?
Many economists though were quick to minimize the importance of the “blue” market as a whole, saying the parallel market was not really relevant to the economy as a whole.
“This doesn’t matter,” Buenos Aires University (UBA) Emeritus Economics Professor Abraham Gak told the Herald. “It is just caused by the media.”