Existing weakness of Argentine peso further exacerbated by strong dollar

By Veronica Dalto

Buenos Aires, Jul 22 (EFE).- The dollar’s strength globally is combining with factors more specific to Argentina – high inflation, a scarcity of hard currency, an elevated budget deficit and political uncertainty – to create even more weakness in the peso.

“The (strong) dollar is exacerbating a problem that Argentina had before,” Gabriel Caamaño, an economist with the Buenos Aires-based Ledesma consulting firm, told Efe, warning about expectations for triple-digit inflation, money printing to finance the budget deficit, an energy shortfall and an erosion of political confidence.

“The external shocks figure to accelerate the process,” Caamaño said.

Argentina has been grappling with high inflation for years, while the peso has been rapidly losing value against the dollar since the July 2 resignation of Economy Minister Martin Guzman, a moderate who had negotiated a deal to renegotiate $44 billion of the country’s debt.

His replacement, Silvina Batakis, who is aligned with the current administration’s left-wing faction, has criticized the International Monetary Fund and austerity policies in the past but says Argentina needs to fulfill its agreement in January with the IMF.

“The main impact of the (stronger dollar) is lower prices for commodities and, secondly, the depreciation of emerging-market currencies,” Caamaño said, referring to a scenario of falling profit margins for Argentine exporters.

While Argentina has a tightly controlled official exchange rate used for foreign trade operations, businesses and individuals looking to buy scarce greenbacks are forced to resort to the black market.

And at present the wide 130 percent gap between the official peso-dollar rate and the so-called “Dolar Blue” rate reflects current expectations for a peso devaluation.

“That’s why no one wants to accept” pesos, Caamaño said.

In fact, in neighboring countries there have been cases of Argentine pesos either not being accepted at all or only accepted at an exchange rate less favorable than the official one.

Earlier this month in Bolivia, an Argentine was denied medical attention due to a refusal to accept payment in Argentine pesos, while in border provinces some Argentines unable to gain access to dollars prefer to accumulate bolivianos.

The budget deficit and efforts to cover shortfalls through money printing are behind the weakness of Argentina’s currency and high annual inflation that came in at a whopping 64 percent in June, Caamaño says.

Additionally, an internal crisis within the ruling Peronist coalition that has seen moderates aligned with President Alberto Fernandez at loggerheads with a left-wing faction aligned with Vice President Cristina Fernandez has dented the administration’s credibility and made it more difficult for it to stabilize the economy.

“Deep down, the weakness of the currency is related to” a lack of understanding about “how this is going to be resolved without another crisis,” Caamaño said.

Since no one knows when that “set of problems that’s been building and deepening” is going to be resolved in the form of a crisis, Argentines are taking refuge by purchasing dollars and that is reinforcing the bimonetarism that characterizes Argentina’s economy, he added. EFE

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