The Argentine Government and the central bank they adopted emergency measures on Thursday. The objective was to halt the fall in dollar reserves and avoid a further devaluation of the peso. But investors, businessmen and ordinary citizens do not seem convinced that the measures are sufficient and the eagerness to exchange pesos for dollars remains: the peso was devalued on Friday by 0.9%. Despite the agreement for the restructuring of the foreign debt, Argentina suffers the umpteenth crisis of confidence.
“We need to accumulate reserves,” said the Minister of Economy, Martín Guzmán. The minister announced a temporary reduction from 33% to 30% in withholdings on soy exports, in order for companies to take the opportunity to empty their silos (it is estimated that there are at least 17 million tons of grain accumulated) and they will contribute dollars to the country. The Central Bank, for its part, made it known that basic interests would rise from 19% to 24% in 24-hour operations, to stimulate savings in pesos, and that it would give a greater margin of fluctuation to the price of the Argentine currency. The immediate result was bad: the next day, Friday, the peso was devalued 0.9%.
The gap between the price of the official dollar and the dollar in the free (or illegal) market is already around 90%. This is becoming an increasingly deterrent to soy producers, the big suppliers of dollars in a country that exports little more than raw materials. “The grain producer receives after withholdings 46 pesos per dollar, but if he sold it at free value he would receive 145 pesos. Since you have already seen this movie, the producers know that it will end in devaluation; that’s why they prefer to sit on the grain and wait, ”explains Walter Stoeppelwerth, chief investment officer at Portfolio Personal.
Regarding the promotion of savings in pesos, it faces the ancestral distrust of Argentines regarding their own currency and, furthermore, the forcefulness of the facts: receiving an annual interest of 24% to 34% is not very attractive when He estimates that inflation will exceed 40% by the end of the year.
The fall in the Central Bank’s reserves has accelerated over the months, despite the exchange “stocks” established by the previous president, Mauricio Macri, and the “super stocks” imposed by Alberto Fernández. Each Argentine has the right to buy 200 dollars a month, not one more, at the official exchange rate. Now, neither politicians, nor senior officials nor those who collect subsidies are entitled to that quota. But the lust for the dollar does not give up. To save or to earn a little money with what is called “mashing”: buying dollars at the official price and selling them at the real price.
In March, 445,000 Argentines acquired their 200 dollars, which reduced the Central Bank’s reserves by just over 800 million dollars. In September there were already 4.4 million Argentines who went for their 200 dollars. In the first nine months of the year, public reserves fell by about $ 8 billion. And that despite the fact that Argentina will have in 2020, due to the fall in imports, a trade surplus close to 10,000 million.
Gross dollar reserves are estimated at about 40 billion, but if gold is discounted, the swap in Chinese yuan and elsewhere, net reserves are dangerously close to zero. At the same time, Argentina is overflowing with pesos. The budget deficit is financed with the printing of currency (in 2020 some three trillion pesos have been manufactured and it has been necessary to subcontract a printing press in Brazil to keep up) and savers want to get rid of a currency that loses value every day. This leads to the search for dollars, in which the Central Bank always suffers (private holders retain them), and to a slight increase in consumption: people prefer to buy before their currency has even less purchasing power.
“Everything seems to lead to a devaluation,” said a manager of a financial company who preferred to remain anonymous. The measures recently adopted are, according to this manager, “late and insufficient.” A miracle could happen and dollars fall from the sky, but that didn’t work at the time either: when Macri assumed the presidency at the end of 2015, foreign investment rained down; In the last two years of his mandate, 37,000 million dollars fled the country. Another option would be to apply a very severe adjustment plan, which is unlikely in a country that has 40% of its population living in poverty and in need of subsidies and with parliamentary elections in 2021.
The third option before the Government of Alberto Fernández is summarized in yielding and accepting a strong devaluation of a currency that, except for the years of parity with the dollar under the presidency of Carlos Menem (with a catastrophic outcome), has not left devalued for decades. Since 1983, the peso has lost 10 zeros. That is, a hypothetical bill of one billion back then is now worth one. The government is determined to do what it can to avoid a sharp devaluation, fearing that it would lead to an electoral defeat in 2012 and, perhaps, an unsustainable social crisis.