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Is The ‘Macri Effect’ Responsible For Argentina Blue Dollar Volatility?

By | [email protected] | November 11, 2015 4:43pm


After a few months of electoral uncertainty which saw Argentina’s blue dollar, or parallel exchange rate, rise to well over 16 AR$/US$, this week has been volatile. On Tuesday morning, the rate fell to US$14.35, then bounced back to US$14.70 the same day. Today it’s back up above US$15.05 and rising. What’s going on?

A few factors are at play here, but none add up to such a spectacular drop. It is the beginning of the month, meaning banks are again selling “savings dollars” to individuals that meet the requirements. Last week, savings dollar sales were higher than US$374 million to roughly 600,000 individuals, representing a 15 percent increase over the same period last month. These individuals take these physical dollars directly from the bank to their neighborhood cueva and exchange them at the blue rate — pocketing the difference. While this influenced the market, it is not sufficient to account for such a precipitous drop. This has been going on monthly and typically has been accompanied by additional moves by the government to get the blue dollar down. So this month’s sale should not have surprised the market.

Evolution of Blue Dollar (Image/InfoBAE)

Evolution of Blue Dollar (Image/InfoBAE)

Economists and news outlets pointed to the “Macri Effect.” As expectations that Cambiemos’ Mauricio Macri may likely be Argentina’s next President rise, so too does confidence that he would make good on his promise to unify the currency market and devalue the official rate to around 14 AR$/US$. In this scenario, the blue dollar has dropped because holders of physical dollars in Argentina have decided to sell US dollars and buy pesos in their exuberance that Macri may be President-elect in under two weeks. Again, that doesn’t make so much sense. The “Macri Effect” should cause the value of Argentine stocks and bonds to rise, not flood Buenos Aires with physical dollar bills.

For the “Macri Effect” to have a direct effect on the blue dollar, either people currently holding dollars in Argentina would have to suddenly want more pesos immediately (this is unlikely), or people with money outside Argentina would have to transfer the money into the country using cuevas rather than via the Central Bank or using bonds in a contado con liquidacion (ccl) or “blue chip swap” operation. The price to transfer money in and out of Argentina via cuevas has not moved from last week to this week, meaning more money hasn’t suddenly come flooding into the country to buy up property or invest.

Finally, many factors at play should be pushing the blue dollar up. Exporters and commodity products are currently holding their products until after the election and changeover if possible. This has the double effect of depriving the Central Bank of the dollars that exporting the goods would bring in, and the inflationary result of pushing up prices at home.

Multiple news outlets reported anecdotal evidence from owners of cuevas that could explain the sudden drop and subsequent bounce back. Cronista reported rumors that cueva owners intentionally held prices down during the period that “savings dollars” were sold, knowing that people would sell their dollars for a lower price because their economic situations did not permit them to hold the cash and wait for a better price. That is feasible — the blue dollar market is relatively small (estimated around US$25 million per day), so an extra US$300 million over a week is reason enough to cooperate to keep the rate low and exchange fewer pesos for these dollars. Another rumor was that cueva operators known as pitufos, or smurfs, coordinated efforts to refuse to exchange a US$6 million dollar order for pesos. A US$6 million dollar sale is large for this market and would ordinarily be planned well in advance or processed over a few days to not upset exchange rates.

The reality is that we are days away from a runoff election that will have drastically different ramifications depending on the outcome. That means risk, and risk means volatility. Even if Macri wins the runoff, the volatility will remain as we wait to see if he can deliver on a difficult and risky campaign promise: the quick reunification of the currency market.