MercoPress. South Atlantic News Agency

Argentina's financial hot summer: record devaluation of the Peso, record loss of reserves

In a month the Argentine dollar-short central bank lost almost 2.5bn dollars in reserves

The Argentine currency ended trading on Friday, the first month of 2014, at 8.01 Pesos to the US dollar with an accumulated devaluation in January of 18.63%, the greatest loss in a single month since 2002. However market analysts described the situation as a depreciation 'sustained and managed' by the government of President Cristina Fernandez.

 The peso devaluation concentrated on 23/24 January when the exchange rate jumped from 6.92 to 8.0183 Pesos to the dollar with peaks of 8.40. But then the Central bank intervened and balanced the dollar exchange rate in the range of 8 Pesos. Since January 2013 when the US dollar was selling at 4.9768 Pesos the Argentine currency lost 60.95% of its value in the official market.

But despite the soaring price for the dollar, according to primary data, the Central bank on Friday lost 170 million dollars, totaling in January an erosion of 2.499 million dollars which means the level of international reserves now stands at 28.100bn. January is now the worst month in eight years for reserves.

The reserves January drop represents a loss of 8.17% compared to the end of December 2013, a year in which the central bank had its worst performance since the Kirchner couple took office in 2003. Last year the Argentine central bank lost 12.691bn dollars.

Taking the 28.1bn declared at the end of January, international reserves loss accumulated 19.423bn (40.87% less) compared to the 47.5bn of 31 October 2011, when they stood at 52.564bn dollars.

However the efforts of the Cristina Fernandez government to stabilize the official dollar with the daily drainage of reserves was not sufficient to impede the rise of the dollar exchange rate in the parallel or blue market, which closed trading on Friday, and January, at 12.65 Pesos to the greenback. This represents a 26.5% devaluation of the Peso in the blue market during the single month of January.

Likewise the gap between the official rate and the blue market stands at 58%, in a month when the government partially lifted the clamp on holding and saving dollars, even paying an extra 20% over the official rate of Pesos, and despite certain strong limitations as to who can purchase and the amount purchased.

Those Argentines who managed to overcome the bureaucratic barriers imposed by AFIP, the tax office, before buying dollars with a limit of 2.000, had to pay 9.62 Pesos which represents a 31.50% gap with the blue dollar market.

The Argentine government is trapped with scarce hard currency, strong tourism demand and the energy bill which this year is estimated could climb, following the devaluation, 45% equivalent to 13bn dollars.

The large influx of dollars can only begin to appear sometime in March and onwards when farmers begin selling summer crops. With no access to international money markets and growing demand for dollars, the Argentine government can only delay imports, and blame exporters and farmers for not marketing what is left from the previous crop, which according to these organizations is not that much, and equally important it is hard currency any moment.

But farmers were quick to reply: “In a market where all its inputs are tied to an unknown future dollar price, with an inflation rate surpassing 30%” it is only understandable that some farmers have decided to stockpile their grain production.

The farmers united in the Liaison Board added that “the government is looking for someone to blame for its own mistakes, as it always does.”

They urged President Cristina Fernández administration to carry out “an anti-inflationary policy,” to stop “wasting the national reserves” and to stimulate “the production giving signs of trust.”

On Friday early morning at his daily press conference Cabinet Chief Jorge Capitanich questioned “top agricultural producers” for not selling their output due to “miser and speculative” reasons.