Argentines turn to the underground market to get rid of the weight, which faces a vertiginous fall
The value of the US dollar soared in the Argentine parallel market. With a monthly purchase limit of U$S 200, the population turns to money changers to get rid of the pesos, which face a sharp fall. On Friday (22.Jul.2022), the parallel dollar was sold for 338 pesos on the streets of Buenos Aires, while the official one is trading at 130 pesos.
The difference between the official dollar rate and the value at which the currency is being traded on the parallel market is 160%. According to the broker Personal Investments Portfolioa difference like this was last seen during the period when Argentina was facing hyperinflation, in 1989 and 1990.
The blue dollar is an informal and illegal exchange rate. Despite this, it is a common practice among scalpers.
Matias Vernengo, former manager of the Central Bank of Argentina, told Power 360 that the exchange rate is controlled in Argentina and is segmented.
The Central Bank intervenes in the official market. The parallel dollar has a large “goodwill between the 2”.
“The parallel exchange, called blue since 2011, is much more devalued than the official one. There are several types of controls. For example, exporters are required to settle gains from sales on the official market within a specified period. There are limits for buying dollars on the official market of $200 per month. This is if the person has not used this limit on the international credit card”, declared.
According to Vernengo the rules are “arcana” and change constantly. There is specificity for companies that import goods considered strategic. “Basically these companies buy dollars directly from the Central Bank“, said. “So, in a simplified way, exporters have to sell the dollars to the BCRA and the BCRA sells to importers, giving priority to some sectors. The problem is that with high financial obligations (interest on dollar-denominated debt), low reserves, and low interest rates (below expected exchange rate devaluation) that encourage capital flight, the situation is now very criticism”, he added.
Consecutive political crises added to domestic indebtedness and rising inflation raise fears of a return to the past.
Argentine inflation reached 64% in June in the 12-month period. The projection is that it will reach 90% by the end of the year. The economic situation has led the population to protest, as well as rural producers, who also face shortages of diesel and problems in Argentine supply chains.
After defaulting on foreign debt in 2020, Argentina has great difficulty in getting credit and, therefore, is self-financing with the printing of money and internal debt.
Pressured by Vice President Cristina Kirchner’s political group, on July 2, former Economy Minister Martín Guzmán resigned from his post. He was replaced by Silvina Batakis.
Shortly before leaving the government, Guzmán completed a lengthy $44 billion debt renegotiation with the IMF (International Monetary Fund).
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