Argentina’s black market rate suggests intense fear for the near future

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The novelty of the quarantine is long gone, citizens all over Argentina and the world are starting to come back to the world. Despite the risks of generating a second wave of COVID-19 infections and accelerating deaths in the Buenos Aires metropolitan area following in the footsteps of several major cities around the world, the coronavirus depletion has started to erode the extraordinary character of the situation, which means that several interested parties are putting serious pressure on governments to ease blockages. This, in Argentina, means that society interprets a dichotomy between the public health emergency and the economic crisis. And, as the foam recedes, the outlines of an imploded economy will become visible. This is partly what the runaway value of the black market exchange rate, or “dollar blueSuggests, hitting record highs of nearly 140 pesos in recent weeks that have stretched the black market premium to nearly double the value of the official rate.

Argentina’s economy faces a triple threat that could end up being deadlier than the coronavirus epidemic. First and foremost, the besieged nation has already suffered an intense recession that has been exacerbated by a series of violent devaluations that forced the previous administration to impose capital controls, the infamous cepo who was eliminated with great fanfare by Mauricio Macri at the start of his 2015-2019 presidency. Thus, before the onslaught of COVID-19, Argentina was already on an unsustainable path as the economic apparatus produced less than the living costs of the country and, of course, the state. It is therefore one of the main drivers of relentless inflation that has become the norm, given the need to constantly print money to finance chronic and structural budget deficits. And together, these circumstances place Argentina in a situation where it is forced to renegotiate – once again – its massive debt with foreign creditors, which means it is once again on the verge of default. . It would be the ninth time in the nation’s history, the third in this century. Thus, the threat of recession-inflation-default has created a vicious cycle that is best exemplified by the black market dollar-peso exchange rate.

The effects, of course, are exponential in both directions. The first thing President Alberto Fernández did was declare an emergency. Although this was a vigorous move by the Peronist governments, it also responded to an extraordinary situation in which the agony of a demand shock would inevitably generate a supply shock as companies were at the forefront. edge of insolvency. Within the private sector, it was no secret that the “payment chain” was about to break down, questioning how companies would pay wages, worrying about paying suppliers to a later stage. The lack of access to credit made the situation worse. So the speed at which the new coronavirus has gone from ‘less threatening than dengue’ to an existential foe we are at war with has actually helped pull a few off the brink, as government bailouts have helped. cover salaries and the state of emergency. meant that obligations did not need to be honored at that time.

Yet as the Central Bank led by Miguel Pesce embarked on a money-printing frenzy (initiated by Guido Sandleris) to fund the emergency response to the pandemic, upward pressure began to s ‘step up on the exchange rate. Under tight currency control, the peso had remained relatively unscathed against its peer group of emerging market currencies, particularly in Latin America where Brazil suffered a steep devaluation. The pesos injected into the system – an emergency tool that few people have questioned at home and abroad – have not been purely used to finance the direct consumption of basic goods and services such as food , or absorbed into assets denominated in pesos. As is the norm in Argentina, they have found their place in US dollars. Throughout Buenos Aires, delivery men and girls wearing the uniforms of companies like Rappi, Glovo and PedidosYa have become ubiquitous as delivery becomes the norm. Not just for the food, however, like our famous “cuevas“where underground currency exchanges have also picked up the new trend, creating a new black market rate which is known as”dollar delivery” Where “dolar Rappi”- The moral of the story is that Argentines will always find a way to buy dollars.

The value of the US dollar in Argentina has always acted as a kind of “fear index”, but it also has direct effects on prices, which means that it adds to inflationary pressures when it rises. Sovereign Debt Restructuring talks led by Economy Minister Martín Guzmán will end with the wire, fueling panic and therefore demand for dollars as Argentines escape the besieged peso. Stagflation is a reality in Argentina despite the national statistics agency INDEC showing a drop in inflation for April to 1.5% – its lowest value since November 2017, when the Cambiemos coalition (“let’s change”) de Macri had beaten Cristina Fernández de Kirchner in the midterm elections and apparently announced the end of her political career. Food and beverage inflation actually rose 3.2%, and several top economists are already indicating that the risks of Pesce’s aggressive currency expansion could lead to triple-digit price growth next year. It is true that Minister Guzmán has made it clear that printing money is not a viable solution for Argentina, but there is no alternative at this stage.

This is because Argentina is excluded from voluntary debt markets, of course. A few weeks ago, Peru sold $ 3 billion in bonds to fund its emergency response to the coronavirus, seeing its lowest financing costs on record below 3%. Its stimulus package is expected to cost around 12% of GDP. In a context where German bonds are offering negative interest rates and the United States is approaching zero, Guzmán’s offer to bondholders is like an oasis, offering an average interest of 2.3%. The offer could be a mirage, however, as Argentina would actually have to generate sustainable economic growth in order to return that money, which is why bondholders have been locked into a tense negotiation with Guzmán’s team, asking for higher returns and more money sooner. Both the minister and the president have made it clear that they want to avoid a brutal default, and reports indicate that Vice President Fernández de Kirchner agrees, despite the tough stance Guzmán described in early public appearances. Either way, the uncertainty will push the black market rate up.

The government must exercise caution. It has the opportunity to continue to effectively navigate the public health crisis while seeking to resolve the debt crisis, conditions that would give it additional leeway in the form of continued public support. The internal strife and political expediency of the opposition and the government – a return to griette – are also a major concern, especially given the appearance of a growing Kirchnerite influence over the government through appointments linked to the youth organization La Cámpora led by Máximo Kirchner. Even if they do well, there might be no real possibility of recovery in the short term, but allowing division and polarization to emerge in the wake of the coronavirus depletion will ultimately lead us in one direction. : take the same path once more.

This room was originally published in the Buenos Aires hours, Argentina’s only English-language newspaper.


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