The financial turmoil swirling around Argentina’s national currency, the peso, and its equities continued yesterday, piling further pressure on the Mauricio Macri administration.
The peso continued to hit lower lows, breaking records to end the week at 29.76 pesos to the US dollar, a devaluation of some 6.75 percent in a single week.
After having secured emergency financing from the International Monetary Fund (IMF) and replacing the Central Bank chief — along with a few other ministers along the way — the situation is looking increasingly more troublesome for the government.
On Friday, the government sold a whopping US$450 million – US$300 million from the Central Bank’s reserves and another US$150 from the Treasury – a total that was several times higher than the amount it had committed itself to when signing the recent IMF agreement that guaranteed a US$15-billion loan and another US$35 billion on stand-by over three years.
Although the Finance Ministry had increased the amount of dollars it auctions off daily to by order of the Central Bank, the demand for the dollar by large companies spiked as they fled the peso, pressuring the country’s monetary authority to jack up its offer.
“However, even the increase in the Central Bank’s sale of dollars didn’t have a major influence in the evolution of the exchange rate, as it once again reached the level it had hit in the middle of the month when it had broke historical records,” Gustavo Quintana ,of PR Corredores de Cambio, told the Cronista.com news portal.
According to market operators, there is “an excess in demand for the dollars” in the market.
“Many people are going to the dollar – nobody wants pesos. We have bad news about June inflation that it iss over three percent, and this puts pressure on the dollar, in addition to the international context,” said Aldo Pignanelli, the Central Bank’s ex-vice president in an interview with C5N TV station.
In an attempt to avoid an exchange rate crisis and prevent it from transforming into a banking crisis, President Mauricio Macri requested support from the IMF in May.
So far this year, the Argentine peso has suffered a 34-percent slide against the dollar, making it one of the worst performers in the world, AFP reported. This month, as the government received its first t tranche from the IMF, half of it was designated for interventions in the market.
STOCK MARKET TANKS
Stocks in Argentina fell across the board this weekafter analyst notes from major Wall Street banks painted a bleak picture.
GMA Capital, for example, reported that macroeconomic conditions in Argentina remained a significant obstacle which could in turn prevent the long-term objective of becoming self-sustainable in terms of energy.
A second financial heavyweight, Swiss Bank UBS, cut revenue projections for Argentine banks and lowered its price projections on the sector’s major stocks. JP Morgan also cut its rating for Argentine stocks to neutral due to the lower growth and higher inflation expectations.
The bloodbath on Wall Street was led by Edenor, which suffered a 12 percent fall, followed by Telecom—down 9.4 percent— and Galicia and Banco Macro both with an 8.9-percent slide. Industrial activity figures indicated a 1.2-percent contraction.
Positive momentum for industrial activity ended after 12 months of consecutive increases, with a May contraction according to the latest figures from INDEC. Private estimates also predicted a fall. In total, industrial activity registered a 1.2-percent drop year-to-date, though the sector managed a 2.4 percent increase in comparison to the same period last year. INDEC figures revealed the steepest falls affected the textile industry (8.6 percent), chemical products (6.4 percent), metalworking (4.6 percent), and petrol products (3.9 percent). On the other hand, several sectors managed to generate growth: tobacco (9.5 percent), basic metals (8.6 percent), automobile production (7.2 percent) and paper and carton production (6.6 percent).
In other economic news, an estimated 75.9 percent of industry owners expected that they wouldn’t be making changes in their payroll in the near future. However, almost 16 percent of them expected they would have to start laying off workers at some point.
Concerning internal demand, 50 percent of companies anticipated a stable rhythm for the period of June-August, 35.3 percent expected a decrease, and 14.3 percent expected an increase. Amongst exporters, 52 percent didn’t expect any changes to their total sales, while 33.5 percent expected exports to increase and 14.5 percent expect a decrease in sales.