The suffering of Argentina’s economy seems far from reaching the end point, despite the recent agreement to restructure the country’s foreign debts and get out of default.
With the continuing record recession of the South American economy amid the repercussions of the Covid-19 epidemic, Argentina entered into a new local currency crisis (the peso). The gap between the currency rates in banks and the black market has reached high levels, which raises speculation about difficult decisions that may increase the suffering of Argentines.
Argentina has suffered continuous crises during the past three years, represented by the shrinking of the economy, the acceleration of inflation, the collapse of the currency’s value, in addition to a sharp rise in external debt.
Argentina’s economy has entered a recession since 2018, before it was hit further by the Covid-19 epidemic crisis that pushed GDP to contract by 19.1% in the second quarter of this year on an annual basis.
Argentina’s foreign reserves witnessed a decline of more than $ 10 billion over the past few years, to $ 41 billion, but it is estimated that liquid reserves do not exceed $ 5 billion only.
After Alberto Fernandez took over the presidency of the country at the end of last year, Argentina demanded the restructuring of debts that exceeded its ability to repay before it witnessed default on its foreign obligations for the ninth time in its history.
Last August, Argentina reached an agreement with creditors on restructuring $ 65 billion in debt, after marathon talks lasting several months.
Argentina’s new government is seeking to negotiate with the International Monetary Fund (IMF) to restructure $ 44 billion in loans that were granted to the administration of former president Marquesio Macri in 2018.
However, with the debt crisis temporarily subsiding, Central Bank Governor Miguel Pesci announced in mid-September, restrictions on citizens’ purchases of dollars, and demands that debtor companies exceed one million dollars a month to find a way to delay payment of their obligations.
The decisions were to impose fees of 35% on citizens’ purchases of dollars, in addition to another 30% in the form of a solidarity tax, while the maximum limit of 200 dollars per month continued to be activated.
The Central Bank also asked securities regulators in the country to raise the minimum period for maintaining dollar assets received from abroad to fifteen working days.
With the inability of Argentine citizens to buy dollars at the price officially announced in banks, they turned to demand green currency on the black market.
The price of the peso in banks stabilized at 77.14 pesos per dollar, at a time when the price on the black market reached about 164 pesos last Friday, making the gap between the actual and official rates reaching 112%. Argentina has not witnessed this widening gap between the official and actual rates of the dollar since 1989, when the difference between the price on the black market reached about 215% of those recorded in banks.
Even at the official bank rate, the peso has fallen 22% against the US dollar since the beginning of this year, with the acceleration of the decline in early October after the tightening of capital controls.
. (Fitch, Bloomberg, Buenos Aires Times, Financial Times, numbers)
