November 21, 2014
Peso sees sharpest devaluation since 2002
Official dollar exchange soars to average of 8 pesos, while wholesale rate ends at 7.75
The peso yesterday suffered its steepest daily devaluation since the country’s devastating 2002 financial crisis, extending the previous day’s losses as the Central Bank delayed its intervention in the market, causing the official dollar to soar as much as 8.30 pesos before closing at an average of 8 pesos in foreign exchange houses throughout the City, although the state-owned Banco Nación reported that the wholesale rate was at 7.75 pesos last night.
Even though at the beginning of the day Cabinet Chief Jorge Capitanich denied the government has promoted a devaluation, the official dollar broke a new record yesterday only one day after the dollar had already soared 23 cents. In the afternoon, the Central Bank decided to intervene on the market and sold US$100 million in order to control the currency, pulling it down to 8 pesos — an 86-cent growth in one day.
The increase in the official rate also had a parallel effect on the black market, leading the “blue” dollar to break a new record and close at 13.1 pesos with a 95-cent raise (7.25 percent). The illegal currency had rose on Wednesday 29 cents and closed at 12.15 cents.
Yesterday’s increase was the most important since March 22, 2002, when the dollar rose 59 cents (24 percent). Due to the boost in devaluation, the currency accumulates a 22.7-percent increase so far this month, confirming the change of strategy of the Central Bank regarding the currency market. The average devaluation between January and November of 2012 was 1.99 percent, followed by a 6.54 percent rate in December after the Cabinet reshuffle with Juan Carlos Fábrega named as the new head of the Central Bank.
“The Central Bank decided to change its strategy over the currency market by adding much more volatility. Continuing with an managed devaluation as had been applied would mean losing more reserves,” Esteban Domecq, economist and director of Invecq agency, told the Herald. “The dollar exchange rate has not kept up with inflation. A competitive dollar for the economy would have to be at 8.50 or even 9 pesos.”
An official source, however, denied there was a change in strategy.
“The Central Bank’s policy was of a managed exchange rate and when it was understood that the price was not the appropriate one, the decision was made to intervene,” an official source told state-run news agency Télam.
‘Farmers forced the government to devalue’
Economists agree on a lack of explanations by the government over the measure but relate it with a drop in the Central Bank’s international reserves, used to intervene on the exchange market. On Wednesday, the Central Bank decided not to intervene at all and yesterday’s sale of US$100 million happened after the peso had reached 8.30 pesos.
Cabinet Chief Jorge Capitanich, at his usual morning conference, was the only government officer to talk about the record devaluation, saying it has not been “promoted by the state” and reassured the government’s authority to “intervene or not on the exchange market.”
As the devaluation led to concerns across the country yesterday some were eager to point fingers. Yesterday’s devaluation was due to “an important purchase of dollars carried out by the head of Shell oil company Juan José Aranguren,” official sources told Télam.
Aranguren allegedly bought US$6 million at a 7.14 exchange rate across the City, pushing the dollar to reach higher levels. The government is now investigating both operations.
The previous devaluation drip prior to the Cabinet reshuffle led to speculation by farmers and exporters, who, considering they are blocked from the formal exchange market, chose not to sell their crops in order to obtain a higher revenue later. The Central Bank had already created a bond to avoid that situation but this new strategy for the exchange market could put and end to it and boost the decrease in international reserves.
“This new strategy favours exporters and holders of dollars and hurts working people who has incomes in pesos. The government has to carry out other policies to compensate the devaluation,” Estanislao Malic, economist for the Centre of Financial Studies for the Development of Argentina (Cefidar), told the Herald. “Agriculture exporters benefit much more from this devaluation than with the Central Bank bond. They forced the government to devalue by not selling their crops.”
Economist José Luis Espert told the Herald the government decided to “boost the devaluation after last month’s high inflation” and asked for a plan to avoid the possible effects of the devaluation.
“There has been several stages of the devaluation. Until November, the government wanted to maintain the dollar below the inflation rates. But that changed after the inflation soared in December and January,” Espert said. “A fiscal, monetary and exchange plan has to be implemented.”
Buenos Aires City Mayor Mauricio Macri evaluated the devaluation as “a good news” for exporters and asked the federal government to have “a competitive exchange rate.”
For his part, the head of the Argentine Rural Society (SRA) Luis Etchevehere said farmers are asking for “more competitiveness” adding that “it’s more convenient to speculate with the inflation and the dollar than producing goods.”