Is it coming a sharp devaluation of the currency in Argentina?

Is is a sharp devaluation of the currency in Argentina? April 9th, 2009 that the dollar loses bet, said the then Minister of Economy of Argentina, Sigaut Lorenzo in 1981. The truth was at the time that those who bet the dollar was the winning and benefited from the sharp depreciation that occurred afterwards. Today, Argentina is living in a context of high inflation uncertainty where the Argentines do not know how to protect their savings and are turning en masse back to the U.S. currency. Past experience tells them that the dollar is the best shelter in times of uncertainty. Since the beginning of the year, the dollar's upward trend observed accumulating in the year up 23 cents in the year. However, in recent days it slowed and even reversed the upward trend observed the dollar, which generates the following questions Why has this change in behavior? Is it over the upward trend of the dollar? On the day of yesterday, the U.S. dollar exchange rate in Argentina experienced a rise of a cent to close at $ 3.71 at the top retail sales clerk.

However, in April, the dollar is down 1.1%. Why has slowed in recent days the upward trend of the dollar in Argentina? The decline in the price response to an oversupply caused by the exporters (mainly agricultural), that liquidated their holdings. These assessments were performed after an implicit agreement between the government and the field where the first eliminated the temporary tax cuts that favored soybeans imported for processing and export. There have also been dollar settlements for other reasons though on a smaller scale. The restructuring of the foreign exchange settlement restored power to the supply of dollars easing fears about the sustainability of government that jeopardized exchange reserves of the BCRA, but now generating a new risk in the short term that represents an unwanted appreciation.

If the dollar rises, the government is concerned. If you lower the dollar, too. So what does the government, a dollar higher or lower? No doubt, as I said in a recent article, the government wants a dollar to $ 4 by the end of the year. With this level you can keep the real exchange rate of the end of 2008. Competitive improvement, if any, will be minimal. The government of Cristina Fernandez de Kirchner, who is in full campaign seeking the popular vote to ratify it on 28 June, is to listen to the popular vote Argentine savers being felt their discomfort with the current economic situation and economic policy being carried out. The Argentine savers expresses fear about the situation of Argentina's economy by changing the composition of its "investment portfolio?, Fleeing to the dollar. Product largely on the behavior of small investors, is that the Argentine financial system, slowly, but surely, is dollarized. Time deposits in dollars grew 30% in the last twelve months (and only 15.9% in the first three months of the year). The fixed deposits now stands at U.S. $ 5,500 million and 86% of them are retail deposits (less than $ 1 million). The dollarization of private sector deposits is evident.

At February 3, private deposits in the banking sector accumulated weights in the year up 0.4% versus 15.9% increase in dollar deposits already mentioned (increase amounting to 22.3% when valued in the local currency). Earlier this year, dollar deposits accounted for 16.6% of total private deposits. Currently account for 19.5%. This increase in dollar deposits is increasing while currency mismatches in the system, it is low in percentage terms (total deposits in dollars from the private sector amounted to U.S. $ 9,141 million, while private lending dollar amount U.S. $ 5,997 million). While there is currently no concern about it, is an issue to monitor. Beyond the increased appetite for the demand for dollars, for the moment until the legislative elections, everything suggests that the price of the dollar will remain stable. One can imagine a range of tolerance that may be imposed by BCRA would be $ 3.65 to $ 3.75. The exchange agreement with China and made in the G20, have given more firepower to the Central Bank to control the U.S. currency.

Probably the excess of dollars to do these days that the BCRA to take a stand selling that serves to control (and stop if necessary), the falling dollar also taking advantage of this situation to recover reserves. This excess dollars in the foreign exchange market will remain for a long time making the BCRA should return to restrain the rise of the dollar. While the goal, at least until the elections, is to keep the exchange rate with some stability, then allow the monetary authority, let slip the price toward $ 4, but in a smooth and controlled. For many economists, the current exchange rate does not seem simple to be sustained for long. Eduardo Fracchia, director of Academic Economics IAE Business School, said in an interview granted to the site "iProfesional?:" I think the $ 3.7 level will not be able to hold more, despite the Bank Central has many reservations and could do it. I get the impression that going to a slightly more pronounced devaluation that has nothing to do with exchange rate adjustments that occurred in other circumstances?.

The prominent economist Miguel? Angel Broda (one of the few economists who are not afraid to move away from its economic forecasts average), as risky as ever in their forecasts anticipate: "After the elections is likely devaluation adjustment?. As I said above, I have no doubt that the devaluation process occurs after the election, but this will entail a risk of speculative behavior generated from demand to pressure to accelerate the process of devaluation. No doubt this will represent a risk to be fighting against the Central Bank. The Argentine government wants to voluntarily take the dollar to $ 4. Do not be an easy task to achieve in the best way is to avoid generating unwanted side effects (greater inflationary pressures, uncertainty of context, speculation, runny deposits in the banking sector, among other undesirable effects). Is betting the dollar in Argentina lost? No, of course not. If there is excess demand, it will be government's need to adjust, but the dollar in Argentina will continue to strengthen.