November 27, 2014
A slippery slope II
The clash with the vulture funds may be at the forefront but it should not be allowed to overshadow the fact that the exchange rate situation is alarmingly similar to last December as the government’s continuing indifference to inflation has wiped out at least two-thirds of the benefits from last summer’s maxi-devaluation. The government’s scorn for the “blue” dollar as both illegal and marginal in scale is quite valid and yet it ignores the parallel market at its peril — when the gap between the official and unofficial exchange rates reaches 60 percent, the latter ends up contaminating formal transactions. When devaluation is in the air, exporters tend to hold back in order to earn more pesos later on (according to official estimates, nearly 20 billion pesos worth of grain from the current harvest is already being held back) — even without such distorting factors, the harvest season is starting to end, thus making the Central Bank’s ability to replenish reserves from export dollars less automatic. Meanwhile importers try to bring forward their purchases abroad before they become more expensive, thus intensifying the collision course with the curbs designed to minimize the outlay of dollars to that end.
Whatever the urgency of the default crisis, now would be a good time to start tackling the inflation eroding the exchange rate and thus industrial competitiveness because that crisis has fallen into abeyance for the next fortnight or even a month. On Friday Manhattan judge Thomas Griesa incorrectly called President Cristina Fernández de Kirchner’s bill to repatriate foreign debt bond payments “illegal” even before it had become law (since all kinds of amendments are theoretically possible during passage in Congress) — perhaps he was at least sufficiently aware of that factor to stop short of declaring Argentina in contempt of court. The next major installment (on Par bonds) falls due at the end of next month and a second failure to collect might indeed prompt a “once might be an accident but twice looks like carelessness” attitude on the part of mainstream, non-litigant creditors but no D-day in particular looms until then.
The jury is still out on whether the second CFK term has been piling on the red ink because of its own mistakes since the 2011 landslide or whether this is the result of the pre-existing subsidy system snowballing but either way the warning in last Friday’s editorial should be heeded — that an outgoing administration which has been remarkably successful in avoiding any appearance of a lame-duck presidency risks becoming precisely that unless it pays more attention to the real economy.