The exchange rate gap peaked at 60%, with President Javier Milei’s economic plan facing challenges due to high inflation and growing poverty.
Argentina is once again facing significant economic challenges, with the strength of the dollar continuing to put pressure on financial transactions in the country.
The exchange rate gap has reached 60%, creating difficulties for President Javier Milei’s economic plan, which already faces a context of high inflation and growing poverty.
The government declared that continued devaluation pressure not only distorts foreign trade but also makes maintaining official parity complex, with a controlled monthly increase of 2%. This comes at a time when retail price increases exceed 20%, contributing to investors’ reluctance to target the local currency.
The dollar’s global strength, influenced by the US Federal Reserve’s expected continuation of the US Federal Reserve’s interest rate status quo, is further hampering the Argentine government, which took office on December 10. While the official dollar rose just 70 cents to $819.30, the parallel rate stood at around $1,240, close to its nominal peak of $1,250, a gap of 51.4%. Just two weeks ago, that gap averaged 25%.
At the same time, the electronically traded currency, known as “MEP”, reached a record high of $1,244, while the “consolidated liquidation” through stock transactions exceeded $1,300 for the first time, presenting a gap of the exchange rate of 60% compared to the official rate.
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The “carry trade” is experiencing a decline as Argentina faces one of the highest retail price increases globally, reaching 211.4% in 2023. Meanwhile, the official dollar rose 118% in a single day on December 13, reaching 800 pesos.
Despite the dramatic fluctuations, December saw some stabilization for free market dollars, led by market confidence in a sustainable 2% monthly increase for the official dollar. However, early 2024 saw a sudden 20-30% rise in the dollar, shattering the optimism linked to peso interest rates.
The government is currently negotiating in Congress, where it holds a minority, to unblock an omnibus bill aimed at laying the groundwork for broad economic deregulation. This effort comes on top of an existing decree that is facing judicial objections, hindering part of its implementation.
Since September 1, 2019, Argentina’s financial market has been subject to strict exchange controls, limiting access to dollars, distorting the economy, and encouraging business outside traditional channels. The new government promised to dollarize the economy, close the Central Bank, eliminate the fiscal deficit, curb inflation, and reduce poverty levels in society.
Original article published on Money.it Italy 2024-01-26 07:00:00. Original title: Argentina, brutte notizie per Milei: la svalutazione del peso non basta
