Argentina’s alternative monetary policy has thus far failed to reign in the rise of the informal/illegal/parallel exchange rate. And now the “blue dollar” exchange rate (the way that the media calls the black market exchange rate) has reached 14.20 pesos.
Both the Central Bank of Argentina (BCRA) and the private sector have taken steps to curb the blue rates ascent, but thus far these steps have only served to exacerbate the volatility in the market and increase uncertainty for those directly affected by this peculiar currency conundrum.
The BCRA announced yesterday a 100 basis point (or 1 percent) increase in the short term fixed rate it pays to banks to withdraw pesos from the market via Letras del Banco Central (Lebac) notes, as well as increasing the long term rate paid via Notas de Banco Central (Nobac) notes. This move should have put downward pressure on the currency by increasing the demand for pesos-denominated notes and thus increasing the relative value of the peso. Shockingly, this minuscule enticement failed to entice really anyone to have faith in the value of the peso.
On the currency intervention side, the BCRA also sold US $40 million and the private banks chipped in by buying up ARS $2800 million. On the ruin the real economy’s life side, the BCRA yesterday did not permit importers to buy foreign currency. Want to bring in a tractor to increase soy production or parts to build air conditioners? Too bad, you cant.
Besides the pressure from the drama of the vulture fund-induced default playing out on the world stage, the currency is under pressure from the US $96 million paid for imported energy.
Argentina’s quest for dollars has taken another hit from the export angle. According to data from the Oil Industry Chamber of Commerce and the Center of Grain Exporters (Ciara-CEC), last week exporters only repatriated US $63 million per day, partially in response to rate cuts. The week before rate cuts the same firms brought in US $101 million per day, and at the beginning of July they brought in US $150 million daily.
The moral of the story? Holding pesos is a risk. Take a look at the real estate market. According to the local newspaper El Cronista, only 9 percent of real estate agents advertise property sales in pesos.
To avert a currency crisis Argentina must hash out a long term solution that includes stable access to foreign currency. Stability is assisted by assuring that access is via multiple channels, including accessing international capital markets for debt issuance and exporting a variety of products and commodities. If Argentina’s reserves keep dwindling there will be a crisis, and no amount of capital controls or televised diatribes by a talented orator will halt the consequences.