Argentine bank stabilizes Peso but uncertainty prevails
Argentina's peso closed Thursday trading at 3.39 to the US dollar, similar to Wednesday when the Central bank intervened with a billion US dollars in support of the local currency to stem a two-week slide sparked by concern the country will default.
According to Buenos Aires money market operators the Central bank did not intervene Thursday in the spot market but rather in the futures market, and was ready to pump another billion US dollars if needed. On Wednesday the US dollar began climbing from 3.36 to 3.43, when the Central Bank intervened to "set a floor" for the exchange rate, sparking the rebound. Although over a billion US dollars were traded at the end of the day the Central bank bought 200 million US dollars in pesos. The Argentine peso has dropped 5% in the past two weeks amid concern with President Cristina Fernandez de Kirchner's controversial bid to nationalize some 30 billion US dollars of private pension funds is an effort to seize the cash to avert a default. Mrs. Kirchner's nationalization plan needs approval by Congress, which began committee hearings this week on the matter. Argentina's debt payments will rise to 21.7 billion US dollars next year amid a decline in tax revenue from commodity exports. Argentina is dipping into foreign reserves built up during a five-year rally in prices on its wheat, corn and soybean exports. Reserves totalled 46.3 billion US dollars at mid week, down from 47.1 billion at the end of September, and 50.5 billion in March according to the central bank. However in spite of the positive reaction of markets Buenos Aires financial sources revealed that the order to intervene in the market on Wednesday came directly from former president Nestor Kirchner, who seems to be running the show while his wife is away in Central America for an Ibero American summit. Allegedly the idea is to let the Argentine peso slide "gradually" to the range of 3.50 to 3.60 against the US dollar in line with the depreciation of the Brazilian Real (Argentina's main trade partner) and in response from local industry concerned about the loss of competitiveness and rising costs. Hugo Biolcati president of the Argentina's main farmers lobby the Argentine Rural Society blamed "the run on the dollar" on the Kirchners' administration decision to nationalize private pension funds. "Uncertainty was triggered by the government with measures which ignore contracts, the rule of the law and private property. The Central bank has been forced to put out a bonfire started by government", underlined Biolcati. "Lack of confidence is promoted by erred government policies" he added. Biolcati also underscored that with grain export taxes averaging 35%, the farmers' export dollar is equivalent to 2.10 Argentine pesos, "unsustainable even for the most efficient farmers".