Despite the little effect that the government’s constant economic tinkering is having on the run against the peso, President Alberto Fernández tried to convey a message against a massive devaluation this week, as the country’s highly-restricted official exchange rate continues to hover around 80 pesos per dollar while the free market value of the peso plummets.
But the government’s conviction about holding the official value of the peso at all costs has led to an explosive supply of pesos in alternative markets, as both big investors and ordinary Argentines try to look for a stable store of value wherever it’s available. Demand for dollars in black-market “cuevas” and in the legal blue-chip swap trades used to move cash away from Argentina is skyrocketing, reaching a new high above 170 pesos-per-dollar last Friday.
This has led to the biggest gap between the value of the peso in free markets and its worth in those controlled by the Central Bank in the last thirty years, as this chart from libertarian economists Roberto and Iván Cachanosky shows. The last precedent of such a big gap came in the late days of Raúl Alfonsín’s government, marked by a hyper-inflationary explosion that led to his early exit and the arrival of massive pro-market reforms from his successor Carlos Menem.
Of course, a similar gap does not mean that hyperinflation is necessarily around the corner. As the chart shows, Argentina has seen periods with even higher gaps, like that of the failed Plan Gelbard in the 70s and the 1982 debt crisis that ended the dictatorship’s economic plans. Both those crisis saw big inflationary jumps and devaluations, although none of the scale of 1989.
In any case, the gap does signal that the official value of the dollar is not a sustainable one. Whatever the efforts of Economy Minister Martín Guzmán and Central Bank chief Miguel Pesce, the difference is just too big to be narrowed without a big drop of the peso, though the timing of that drop can be delayed by weeks and even months with some more creativity.