The country will let the peso float starting Thursday, prompting a devaluation of the tightly controlled official exchange rate, Finance Minister Alfonso Prat-Gay told reporters at a press conference in Buenos Aires on Wednesday.
FILE – In this January 23, 2014 file photo, USA dollar bills and Argentine pesos are displayed for the photographer on a table at a currency exchange business in Buenos Aires, Argentina. Over the a year ago, while the official exchange rate was fixed around 9 Argentine pesos to the dollar, on the black market a dollar fetched as much as 16 pesos.
The currency controls (“el cepo”) were imposed by Argentina’s former president Cristina Fernandez, with the aim of protecting central bank dollar reserves. The new, free-market rate is expected to settle close to the black-market rate – a steep devaluation. They will begin being paid in stronger export dollars while the average consumers risk having their purchasing power drop.
Argentines also found other creative ways to circumvent restrictions, from organised day-trips to neighbouring Uruguay to get USA dollars from cash machines to Bitcoin trading.
This should make exports more competitive and attract more foreign investment to Argentina, Torres said. The devaluation is seen fueling inflation that private economists already estimate around 25 percent and thereby hurting private consumption.
The Argentine economy is so dependent on USA dollars that grandmothers give their grandchildren 10-dollar bills as birthday presents and adults hoard them under the mattresses.
That rate is now around 14.2 pesos per dollar, compared with the official exchange rate of 9.8275.
Macri still has much work to do to restore the country to free-market fundamentals, i.e., by slowing inflation, trimming subsidies, and negotiating with foreign holdout creditors. First to benefit could be farmers, particularly of soya, who have been stockpiling grain waiting for better export conditions.
Argentina is ending its currency controls today. The Wall Street Journal noted that since Argentine President Mauricio Macri came to office, he has moved to undo the economic legacy of the previous government, who expanded the government’s role in the economy. Macri urgently needs them to start exporting again – a key source of hard currency for the central bank. Supermarket prices shot up in early December in anticipation of the devaluation.
The central bank is scrambling for the reserves it will need to keep up with U.S. dollar demand.
The South American country has also sealed a deal with grains exporters to liquidate $400 million of produce per day over the next few weeks, Prat-Gay said.
Worldwide banks, meanwhile, are on the verge of loaning the country at least US$5 billion at an interest rate of seven percent, according to Finance Secretary Luis Caputo. That is the rate at which the currency has been trading on the black market.