The Argentine peso (ARS) is suffering its fastest fall since the country’s 2002 financial crisis as the Central Bank of Argentina abandoned its policy of intervening in the foreign exchange (FX) market and withheld its declining reserves rather than attempt to slow the decline.
The currency has lost 16% of its value against the US dollar (USD) in two days at the official rate, falling from ARS6.88 to 8 per dollar.
President Cristina Fernandez de Kirchner insisted last May that the government wouldn’t devalue the currency, but Argentina’s dollar reserves have since fallen by 31% to a seven-year low of US$29.4bn amid annual inflation of over 28% percent.
Since changing her economy minister, cabinet chief and the head of the central bank two months ago, the peso has fallen 25%. The central bank is reported to have spent US$5.9bn last year in efforts to support the currency.
Earlier this week the government imposed restrictions on online shopping in an effort to curb the flight of capital and prevent a possible balance of payments crisis. Consumers buying goods through international websites such as Amazon.com must sign a declaration and produce it at a customs office before collecting the package. In addition, Argentines can buy only buy two international items tax-free annually, up to a $25 total at which point a 50% tax applies.
In response to the peso’s decline, Neil Shearing, chief emerging markets economist for London-based Capital Economics, commented: “The sharp drop will aggravate inflation, although the impact may be mitigated by the fact that some imports will already be purchased at the – much weaker – black market exchange rate.
“The bigger picture, though, is that the economic mismanagement of the past decade has once again pushed the country to the brink of a balance of payments crisis.”
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