November 26, 2014
The typical Argentine price calendar includes a calm February as a holiday month maintaining January levels followed by a far more mobile March, not least because of the start of classes and return to work in general — could this year be the complete reverse with an explosive February (taking the brunt of a major devaluation late in January) followed by an extremely stable March (without too much in the way of school) after this week’s plunge in the “blue” dollar? The big news was that this parallel exchange rate was actually below the so-called “credit card” dollar — since the latter is nothing more than the official exchange rate plus a 35 percent surcharge, this is just a glorified way of saying that the difference between the official and illegal exchange rates was under 35 percent but the impact remains striking.
Is the newfound stability for real or is this defeat of the “blue” a freak blip in a generally negative trend, inquire the markets where many still ask when the next devaluation is coming? In fact a cluster of both cyclical and structural factors point to a scenario of stability for several months to come (by which time the recessive effects of recent orthodoxy should be fully felt, according to the normal lag of monetary policies, thus cooling down the economy more effectively than any price controls). Even without post-devaluation jitters (which had the “blue” dollar as high as 13 pesos as against just over 10.50 on Wednesday), the summer holiday season is the most vulnerable period for the exchange rate with peak demand for dollars and a minimal supply pre-harvest. But now the “blue” dollar has little on which to feed — already competing with legal purchase options for over a month, it is also tamed by the new Central Bank policies upping interest rates and halving money supply expansion from 40 to 20 percent (not to mention the brutally effective resolution obliging banks to sell all dollars beyond 30 percent of their assets and 10 percent of their futures). In the immediate term the very fact that informal greenbacks are cheaper than credit cards should increase demand in an in-built recovery mechanism but in a very near future the inflow of soy dollars should steady the ship until August.
Against all this, the sceptics argue that January’s 44 percent increase in public spending places it out of control and makes the next crisis inevitable but they should not count on it — surgery has already been announced for transport and public utility subsidies while an administration which has already devalued the currency against all previous vows is capable of almost anything to do what is necessary.