Argentina: Black market peso drops to lowest level on record
May 18, 2013
The Argentinean peso (ARS) is trading at record lows in the black market, as demand for U.S. dollars continues to rise despite controls imposed on foreign currency trade by the Kirchner administration since winning re-election in 2011. On 9 May, the black-market peso traded at a record low of 10.43 per USD, which was double the official market quote on the same day and a whopping 25.4% below the level seen in the same day of last month. Argentineans are recurring to the underground market to circumvent restrictions on foreign exchange trade imposed by the government, as rampant inflation is eating into households, savings and consumers look at the greenback as a store of value. In addition, fears that the confrontation with the hold-outs - individuals and corporations holding Argentine defaulted bonds - may result in a technical default is further fuelling appetite for the U.S. dollar. Meanwhile, Argentinean authorities are depleting reserves to sustain the peso on the official market. Foreign currency reserves dropped below USD 40 billion for the first time in six years in April. Despite the government,s efforts, the official peso is also losing value. On 17 May, the ARS traded at 5.24 per USD, which was 1.6% weaker than the level seen in the same day last month and 17.7% lower in annual terms. Against this backdrop, on 14 May, the Kirchner administration announced a controversial plan, which offers a tax amnesty for holders of undeclared dollars who decide to invest their capital in the country. In particular, participants in the plan will have the option to invest in tax-free bonds issued by the government to finance infrastructure development by YPF - the state-owned energy company - or in deposit certificates administered by the Central Bank to invest in construction and real-estate development. Opponents to the plan warn that it may provide a money-laundering opportunity for organized crime. However, the government hopes to repeat the success of a previous tax amnesty in 2009, which provided USD 4.0 billion for the country,s coffers.
Author: Armando Ciccarelli, Head of Data Solutions