Attempting to calm turmoil in financial markets, Economy Minister Martín Guzmán said yesterday that the government was not planning a rapid devaluation of the peso.
In statements delivered during an interview with a local radio station – as the unofficial black-market or ‘blue’ dollar soared against the peso – the US-educated economist said that the government would not take such a move.
"There will be no devaluation. We are going to continue with the rate of depreciation of the peso against the dollar that we have been maintaining, going hand-in-hand with inflation,” he told Radio Con Vos. “In a process in which we are seeking to gradually and persistently reduce inflation, at the speed you can.”
Stressing the exchange rate could not be stabilised “from one day to the other,” Guzmán admitted that the gap between the the official and unofficial exchange rate “is very high” and that it was sparking concern in the government.
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Argentina’s main parallel exchange rate, the so-called “blue dollar,” has soared over the last two week and the last five days has offered little different. Standing at 178 pesos per ‘blue’ greenback last Friday, it closed at press time at 195. By comparison, this week saw the official exchange rate at the Banco Nación move up from 82.50 to 83.25 pesos ahead of the 65 percent surcharges.
"Today we have a very high exchange rate gap. But there is also a circumstance in which there is a trade surplus, there are no foreign debt payments, and despite what is said there are 41 billion dollars of reserves, of which 12 billion are embedded deposits. And there are capital controls," said Guzmán.
"There are problems, without a doubt, the gap is a problem, but the reserves are reaching [it]," he said, arguing the Central Bank’s dwindling stockpile was sufficient.
The price of the blue dollar, said the minister, is "less important than the cash with liquidation" price, a reference to the so-called ‘CCL’ (contado con liquidación) and, by extension, the ‘MEP’ (mercado electrónico de pagos) rates based on bond and share transactions, both encouraged in order to provide non-official alternatives to the blue – the CCL fell almost seven percent yesterday to 168.83 pesos and the MEP almost five percent to 155.17 pesos.
While admitting that the country had a “serious problem” with its fiscal deficit because of the coronavirus pandemic and its accompanying lockdown, the minister argued that “signs of recuperation” were evident in the economy.
He also acknowledged that currency devaluation expectations hurt the economy, but said exchange stabilisation could not be achieved “from one day to the other.”
Guzmán’s comments come just days after President Alberto Fernández declared there would be no devaluation in the coming weeks.
Economic activity down 11.8% in August
Emphasising the extent of the challenges facing Argentina, the INDEC national statistics bureau reported Thursday that economic activity slumped by 11.6 percent in August year-on-year.
Data indicated that activity rose just 1.1 percent compared to July, despite the lifting of some coronavirus restrictions.
INDEC reported that in the first eight months of the year, economic activity has fallen by 12.5 percent compared to the same period the previous year.
The year-on-year drop, however, was an improvement of dramatic contractions registered in July (down 13.1 percent), June (down 11.7 percent), May (down 20.1 percent) and April (down 25.5 percent)
INDEC said in its report that government "authorisations that allowed activity to resume in some sectors, to a greater or lesser degree, are beginning to be seen.”
With the exception of financial services (up 4.1 percent), all other sectors witnessed falls in August, with the largest in hotels and restaurants (down 56 percent).
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In recession since 2018, Argentina’s GDP contracted by 2.5 percent last year. The International Monetary Fund (IMF) forecasts a fall of 11.8 percent in 2020 with a recovery of 4.9 percent in 2021.