Argentine Central Bank fends off $4 billion run on the peso
Argentina's Central Bank was forced to shed $4.15 billion in reserves to contain demand for U.S. dollars from financial speculators - a record for any single one-week period since the nation's December 2001 financial crisis.
The run on the peso, prompted by renewed fears the nation's ballooning foreign debt may soon require emergency measures to service, also forced Central Bank President Federico Sturzenegger to raise the discount rate by 300 basis points today, to 30.25%.
The dollar, which traded at around 17.50 Argentine pesos for most of the second half of last year, reached 20 pesos in February. This week's run pushed it past 21 briefly, before closing Friday at 20.90 after the interest rate hike.
Economy Minister Nicolás Dujovne appeared on television in an attempt to calm markets, noting that with Central Bank reserves at $58 billion, "this was nothing."
"Don't get so nervous," he admonished viewers.
Most analysts, however, now consider the Argentine peso overvalued as a result of a doubling in prices since President Mauricio Macri took office in late 2015.
Pressure on the peso has intensified since a record $27 billion in short-term LEBACs matured on December 18. These were largely redeemed (some 63%) rather than rolled over, with many of the proceeds wired offshore - a risky speculative practice known locally as the "financial bicycle."
The resulting purchase of dollars, whose trade was deregulated by the Macri administration, devalued the peso by 10% in a week. This trend has mounted since March, when the Economy Ministry reported that the nation's current account deficit more than doubled in 2017 to $30.8 billion and that the foreign debt swelled by a record $52 billion, or 28.6%.
Argentina's foreign debt has grown by over $80 billion since Macri rescinded foreign exchange controls and other financial regulations within days of taking office - the sharpest two-year increase, relative to GDP, since the height of a similar 'bicycle' bubble in 1979-81.
Its collapse forced the last dictatorship to step down in 1983; a later debt bubble led to the well-publicized 2001 crisis.
At: https://translate.google.com/translate?hl=en&sl=es&tl=en&u=http%3A%2F%2Fwww.ambito.com%2F919614-jornada-frenetica-del-dolar-supero-los--21-pero-con-alza-de-tasa-y-ventas-del-bcra-cerro-a--2090
Worried Argentines talk dollars after a hectic week in Buenos Aires' financial district.
Mounting foreign debt, much of it taken on to finance trade deficits and speculative capital flight, has recently raised alarm bells among investors.
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Un poco de indigestión, tal vez.
Nicolás greets one of his own kind.
This looks like two thugs watching a drunk sailor staggering in the street on leave after payday! There's a chance he might be surprised to see them step from behind a building later in his travel around the area!
The information posted in this article was helpful, sandensea, for those of us who didn't quite grasp the timing of the two huge blows to Argentina's economy. So many US Americans didn't really hear a peep about any part of it through US mainstream media: too busy covering the really big stuff, and shortening first page articles to typical 4 paragraph stories to be continued, if necessary, on later pages, while the small papers got devoured by the 2 or 3 giant "news" organizations left standing, owned by right-wing interests, of course.
Some saw a deeply sad program on the Public Broadcasting Chanel as it closely covered how savagely ordinary citizens were broken into small pieces, and forced to live in ways they earlier would have never dreamed. All brought to the world through the auspices of fascist greed. It happens here, in some ways, when the right-wing gets control, plunders the treasury, then buries the poor and working class in taxes and hard times. Democrats here help restore the economy, as we saw with Roosevelt, Clinton, and Obama, then the cycles start all over again, after a season of seething hatred and unrelenting vicious hostility poured out against the Democratic Presidents from the first moment in office until the last. You undoubtedly learned long ago, because you study, about the attempt to overthrow Franklin D. Roosevelt with a coup by powerful Republicans.
It appears that same pattern has dominated Argentina time and time again, as well. Macri is taking them down so swiftly, so brazenly. I recall your reference to some speculation that he may not run again, after getting so much damage done already! I think it was mentioned he is also a little frail, health-wise? (Not totally sure I got that right.)
Each one of these reports is so large-scale reading it is like being hit by a tsunami! So much damage done to so many for the benefit of so few.
Wow.
Thank you, sandensea. Your information is so valuable.
They say history repeats itself first as tragedy, then as farce.
As many times as they've been through these debt bubbles, and their inevitable busts, you'd think they'd have seen the signs by now (then again, with Faux News-style outlets like Clarín...).
And of course you're right: there are some parallels to this in U.S history.
I remember Argentina and its past crises being mentioned quite a bit during Bush's 2008 calamity.
But I was confident it wouldn't happen here because, unlike Argentina and most other places, we have a Fed that can print virtually unlimited amounts of dollars in an emergency to paper over bad speculative debts (and they did: to the tune of $21 trillion, as you know).
While I'm also confident Macri's people will be able to control this latest panic (albeit by sacrificing the recovery through very high interest rates), I can certainly understand why Argentines are beginning to feel jittery in the first place, given the history.
A little gallows humor always helps though:
Macri: "We're making every effort to put the brakes on the dollar; but I don't know how much longer we'll be able to keep this up. What do I do!?"
"If I were you, I'd buy dollars."
