Until last year, Laura was able to save and like every Argentine she did so in dollars to face high inflation. But since the liberal president Javier Milei took office, his income has been pulverized and he is emptying the piggy bank. In an economy in recession, the peso appreciates although no one celebrates.
“I always saved in dollars because in Argentina it is the only safe thing. Before I bought 200 per month. Since December I have been selling 300 per month and it is not enough,” Laura Gil, a 49-year-old banker and mother of two children, told AFP. school age.
I always saved in dollars because in Argentina it is the only safe thing. Before I bought 200 per month. Since December I have been selling 300 and it is not enough.
Appetite for the dollar in Argentina as a refuge against inflation collapsed under the Milei government, but What looks encouraging from afar, up close reveals recession, a drop in imports and a collapse in income..
The restrictions on the purchase of foreign currency imposed in 2018 to discourage demand for dollars caused various exchange rates to flourish, from the illegal 'blue' to the one operated through the stock market.
In recent months, all collapsed until the contribution gap with respect to the official exchange rate was reduced to less than 20%a difference that had reached 100% last October.
A protester wearing a Milei mask.
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What happened?
After taking office on December 10, Milei devalued the peso by more than 50% and since then the devaluations have been monthly at a rate of 2%.
“The devaluation made this exchange rate very convenient for all exporters, which is why they are liquidating their currencies” expanding the supply of dollars in the market, independent economist Pablo Tigani explained to AFP.
Those who had dollars saved are burning (spending) them to pay the bills. Nobody has a weight.
But prices reflected the blow of the devaluation, inflation shot up even more and pulverized the purchasing – and saving – power of Argentines..
“Those who had dollars saved are burning (spending) them to pay the bills. Nobody has a peso,” summarizes a 'little tree', a street money changer, in the no longer so busy 'City' of Buenos Aires.
With inflation of 254% year-on-year and increases in rent, transportation, energy, health or education, The punished middle class must sell the dollars it keeps under the mattress.
In front of the Casa Rosada, protesters demanded social and economic improvements.
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Tigani pointed out that “inflation in dollars has been unleashed in recent months: people earn in pesos and prices increase in dollars.”
But the pressures of the middle class, historical buyers of dollars, are only part of the explanation for the drop in demand for the currency.
Imports also collapsed 13.4% year-on-year in January, especially in capital goods that feed industry, which meant lower demand for dollars to pay abroad.
It also affects a greater supply of foreign currency a seasonal factor, which is the beginning of the liquidation of agricultural exports, with its peak in April and May.
In this context, the Central Bank managed to rebuild the country's battered international monetary reserves and bring them to their highest level in the last six months.
Mobilization against the government of the president of Argentina Javier Milei in Buenos Aires.
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bad symptom
“Argentina has been in recession for 14 months, but the last four were the most intense. The price increase was very strong and consumption has collapsed,” independent economist Federico Glustein explained to AFP.
Argentina has been in recession for 14 months, but the last four were the most intense. The price increase was very strong and consumption has collapsed.
Inflation was 20.6% in January and private analysts estimate it at 18% in February, a figure that will be known next week.
“Inflation is slowing down but it is still very high,” Glustein noted, warning that “economic adjustments need to be made, such as more rate increases, which could make it rise again.”
The recession hit consumption, but also industry and therefore reduced demand for energy. This has an impact on the availability of foreign currency in a country that imports part of the energy consumed by its factories.
Javier Milei.
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Only in the SME line (small and medium-sized companies), The drop in manufacturing activity in January was 30% year-on-year, according to the Argentine Confederation of Medium Enterprises.
“Argentina is importing less energy, so fewer reserves are spent and the Central Bank is allowed to buy the surplus,” said Glustein, who interprets the drop in demand for dollars as “a symptom of the crisis.”
AFP
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