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Back to reality: a year of Central Bank struggles

Reserves fell again in November, though sales smaller than in previous months

By | [email protected] | December 2, 2020 10:24am

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After a week in which the country could hardly think of anything else than Maradona’s death and its aftermath, the latest economic figures serve as a reminder that Argentina is still navigating an almost three-year long economic crisis, of which it still hasn’t really gotten out.

The country’s Central Bank has been struggling with a run against the peso since early 2018, and burnt resources of all kinds to try to stop it: from an entire IMF loan during Mauricio Macri’s administration, to whatever was left of its currency reserves in the year since Alberto Fernández took office, despite added restrictions on who can buy foreign currency at the Central Bank’s official price, which have been increasingly imposed since late 2019.

Monthly variation of Central Bank foreign currency reserves

(Source: Martín Polo)

November has been no exception to this dynamic, as the graph above shows, with the Central Bank continuing its streak of seeing its foreign currency reserves diminish when compared with the month before.

There was one silver lining though. Central Bank hard currency sales were not really as bad as the chart makes it seem. According to Reuters estimates, Argentina’s monetary authority only really sold USD 335 million throughout November. The remaining loss in reserves (almost USD 1 billion) was mostly explained by the drop in the value of gold and other assets, with the precious metal down 5 percent vs the US dollar throughout the month. Still, the figures remain worrying, as gold has been mostly up throughout the year, and Central Bank hard currency reserves obviously haven’t.

According to Reuters, the USD 335 million sold in November were still a relative improvement to the USD 1.09 billion sold in October, the USD 1.62 billion sold in September, the USD 1.28 billion sold in August and the USD 568 million sold in July.

This combined with the recent global weakness of the US dollar, the rise in soybean prices, Economy Minister Martín Guzmán’s recent round of debt raising to stop the run against the peso, plus his austerity measures ahead of negotiations with the IMF, to cause the price of Argentine assets to bounce over the last month, with the Merval stock market index up 33 percent since October 30, even though the situation remains clearly fragile.