2023-10-10 18:49:07
Buenos Aires (AFP) – New monetary crisis in Argentina: the dollar crossed the record threshold of 1,000 pesos per dollar on the parallel market on Tuesday, against a backdrop of exchange rate volatility and political uncertainty, twelve days before a crucial presidential election for a notoriously fragile economy.
The dollar, at 365.50 pesos at the official rate since a devaluation in mid-August, traded on Monday at 945 pesos on the informal market (compared to 880 on Friday). At midday, it reached 1,035 pesos, according to specialized sites.
But in truth, the “arbolitos”, unofficial street money changers, had deserted the tourist hyper-center of Buenos Aires, waiting for a little stability to do business…
“Never in pesos, never in pesos!” he insisted. “This waste is not even used as fertilizer,” he said, explaining that dollarization of the economy – a measure with risky social costs and very controversial among economists – would be easier to achieve with a dollar strong against the peso.
The parallel dollar market does not represent a large volume, but it is a reliable thermometer which reflects the anticipations, in this case the nervousness, of the Argentines. Who, subject to exchange controls, rush to buy dollars at the street rate, and store them in anticipation of the worst: a safe haven, in a de facto bi-monetary economy.
But in the center of Buenos Aires, traders complained on Tuesday that wholesalers, “who already asked to be paid in cash, now sell you some at the parallel rate, in return for a discount. Otherwise they don’t sell to you”, laments to AFP Angela Sambrano, a bookseller.
— Banks warn Milei —
The Minister of the Economy Sergio Massa, presidential candidate of the government bloc (center-left), and a priori doomed to a second round against Milei, described the latter as “irresponsible”.
“Agitating, telling people to withdraw their deposits irresponsibly… when I see candidates capable of setting the house on fire to win an election, that worries me,” he said. This “does not harm me, but millions of Argentines”, and Milei “plays with people’s savings”, he accused.
And the government announced on Tuesday a partial reconciliation of exchange rates (Argentina has several) for certain types of expenses, in order to discourage the purchase of dollars.
Against this backdrop of extreme nervousness, the Central Bank published a reassuring press release on Monday evening, affirming that “the Argentine system presents a solid situation of solvency, capitalization, liquidity and provisions.” In other words, that Argentines do not have to worry about their savings.
On Tuesday, the Association of Private and Public Banks attacked Milei, without naming him, calling in a statement “candidates aspiring to govern to show responsibility in their campaign and declarations”, and not to “unnecessarily generate anxiety for many people.
The specter of the “Gran Crisis”
Because many Argentines remain haunted by the memory of the “Gran Crisis” of 2001, when a lack of foreign exchange reserves – like today -, added to external shocks, led to too much demand for dollars for the offer, leading to a bank failure and the freezing of withdrawals.
A wave of panic, scenes of looting, riots followed, which left 39 dead in December 2001. Without doubt the crisis which most traumatized Argentines since the dictatorship of 1976-1983.
Many economists, however, converge to estimate that the situation in Argentina will be very different in 2023, in particular a much more solid banking system, which the banks recalled on Tuesday. This, despite “dangerously low foreign exchange reserve levels”, warned the IMF in mid-August.
But the consensus is also that the “official” peso remains overvalued compared to the dollar, and many Argentines fear a new post-election devaluation, like the one that occurred in mid-August after the primaries. And which has further eroded purchasing power already eroded by inflation at 124% over one year (80.2% since January).
The October 22 vote promises to be undecided, with Milei around 33-35%, according to an average of several polls, and doomed a priori to a second round with Massa (29-30%), the candidate of the opposition bloc (center-right) Patricia Bullrich being significantly behind at 25-26%.
© 2023 AFP
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