March 11, 2014
2014 arrives earlier for US$
Currency reaches value set in next year’s Budget
The official dollar rose two cents yesterday and closed at 6.34 pesos, exceeding by one cent the amount the government estimated for the US currency in the 2014 budget.
The figure means that before 2013 has ended, the peso has already reached the level the federal government predicted as next year average.
After months of breaking records due to an increasing rate of devaluation, economists estimate the currency will continue growing next year, leading to price increases and opening the door for higher wage requests.
The Central Bank sold US$100 million yesterday to calm the market. The dollar in the illegal market closed at 9.75 pesos, while the tourism dollar (the official dollar with the 35 percent tax increase applied to dollar purchases) closed at 8.56 pesos. The gap between the legal and the illegal markets closed to 53.78 percent.
“Since the beginning of the year, the devaluation reached the same levels of the inflation and in some months it exceed it,” Lorenzo Sigaut Gravina, chief economist of Ecolatina agency, told the Herald. “When Fábrega became head of the Central Bank, the government sped up the devaluation and broke new records.”
The official dollar closed in November at 6.13 pesos, growing 3.5 percent in one month, while so far this month the dollar has strengthened 21 cents. Economists estimate the growing trend will continue in the next few months and estimate a 30 percent devaluation for next year.
“The devaluation has been boosted by the government but such rates are not going to be maintained throughout 2014. I estimate a 30 percent devaluation, depending on international and local scenarios,” Agustín D’Atellis, economist and member of La Gran Makro pro-government group, told the Herald. “A devaluation is needed to boost the country’s competitiveness.”
Risks of the strategy
But the government’s decision to boost the devaluation doesn’t come without side effects. The Central Bank’s international reserves have continued to drop as a direct consequence of the devaluation and even though improvements have been seen in the last two weeks, the decrasing trend is likely to continue.
Debt maturing before the end of the year, plus the decision of exporters to postpone selling their goods and of importers to rush their shipping to Argentina all contribute to the decline in reserves.
“Since the devaluation can be predicted, exporters prefer to wait a few months and sell their goods later at higher values. The same takes place with importers who bring their supplies to pay less,” Sigaut Gravina said. “A stability in the exchange rate is needed.”
Higher price increases as well as rising wage protests are also consequences of the devaluation. With an average inflation of 25 percent according to private economists, goods and services could become even more expensive and because of that unions could demand higher salaries.
“The main risk of a growing devaluation is the impact on income,” D’Atellis said. “That’s why a price agreement is really important.”