The shock waves of the electoral earthquake caused by the victory of Javier Milei in the primaries of Argentina were strongly felt in the exchange market. The official value of the peso plummeted 18.3% on Monday, to 365 pesos per dollar, 67 pesos more than on Friday. The collapse was repeated in other prices, including the parallel market, which validated an exchange rate close to 685 pesos per US unit. The financial Black Monday that followed the result of the primary elections on Sunday shows the market’s reaction to the scenario of great uncertainty that is presented until December. There are two and a half months left for the October general elections and four for the transfer of power.
The Central Bank of the Argentine Republic also imposed a record rise in interest rates of 20 points, up to 118%. The measure sought to anchor exchange rate expectations and minimize the impact of the devaluation on prices. He didn’t get it. Throughout the day, many suppliers canceled sales until further notice due to lack of prices. In retail stores in downtown Buenos Aires, they planned to apply a general increase of between 10% and 20% in their merchandise, but they were waiting for suppliers.
Economists consider the measures approved by the monetary authority almost inevitable due to the lack of reserves with which to support the peso, but they warn about the shock that it will cause in the pockets of an already hard-hit population. “It will mean more inflation, a stronger than expected recession and a sharp drop in real wages,” sums up Elisabet Bacigalupo, head of the macroeconomic team at the Abeceb consultancy.
The Minister of Economy and Peronist candidate for the presidency, Sergio Massa, is forced to perform as a tightrope walker in the midst of an economic storm. “The government has to avoid a macroeconomic crisis because if it doesn’t, it doesn’t have a chance in October, but at the same time it can’t deepen the deterioration of the economy too much with adjustment measures, because it’s going to be hard for it to keep the votes,” warns Bacigalupo. Peronism suffered a historic defeat, with its worst electoral result in a primary since they were implemented, in 2011. Even so, it was three points behind Milei and one point behind the center-right coalition Juntos por el Cambio, which is why it remains competitive ahead of the presidential elections.
The decisions announced this Monday help Massa to contain the crisis, but they distance him from the chances of a victory at the polls. It is a risky strategy that has initially been poorly received on the street. “They don’t know what to do, they are desperate. I voted for them, but I regret it. I want them to leave now”, commented the client of a pharmacy with the clerk this noon. “I voted for Milei because everyone else failed,” he replies. The far-right candidate La Libertad Avanza has vowed to burn down the central bank, which he accuses of being responsible for the country’s successive fiscal crises, and curb decades of high inflation. He also says that he will dollarize the economy, a proposal welcomed by an electorate tired of not being able to buy dollars due to exchange restrictions and seeing how the peso loses value at full speed.
The market reaction has been harsh, but not as harsh as it was four years ago, when the polls also did not predict Peronism’s overwhelming victory over Mauricio Macri in the primary elections. The following Monday, the peso plummeted 25% and the banks extended their normal hours to allow deposit withdrawals to those clients who wanted to do so.
The highest denomination bill circulating in Argentina, 2,000 pesos, is equivalent to five and a half dollars according to the official price. In the streets of the center of the Argentine capital, where money changers popularly known as Little trees, you couldn’t even buy three dollars. With the currency on the ground, Argentina is cheap for foreigners, but every day more expensive for the local population. Inflation is 115.6% and the year is expected to close at around 150%, a record for the last three decades. Wages have lagged behind, especially those of the most precarious workers, who do not even make ends meet with several jobs.
Stock market sources consulted by EL PAÍS were convinced that the official devaluation of this Monday had been agreed in advance with the International Monetary Fund as part of the agreement closed at the end of July. After weeks of negotiations, the agency agreed to a disbursement of at least 7.5 billion dollars for Argentina between October and November. A large part of these funds are already committed to creditors who lent money to the Argentine government so that it could meet its latest debt commitments with the organization, from which it received a loan of 44,000 million dollars in 2018 that it has been unable to repay in the agreed deadlines.
“What was done today was an orthodox adjustment package, which is what ends up happening when you run out of dollars,” say these sources, who see it as difficult for the government to sustain the fixed exchange rate between now and October. The market reacted with falls in sovereign bonds of up to 10%, although they later partially recovered their value.
The International Monetary Fund reported that the board of directors will meet on the 23rd to discuss the technical agreement reached with the Argentine government in July. “We value the recent policy actions of the authorities and the commitment to safeguard stability, rebuild reserves and strengthen fiscal order,” the international organization said in a statement. The Fund did not officially confirm a possible increase in the disbursement of 7.5 billion dollars initially agreed.
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