The "pesification" of the economy has always been the obsession of the Argentine president. And, with the measure approved last night by the Central Bank of the Argentine Republic (Bcra), it is moving in this direction. This is not a definitive move, but a temporary measure with which Cristina Fernandez de Kirchner tries to replenish the too light coffers of the Argentine state as best she can. The Bcra has announced that "access to the local foreign exchange market for the purchase of foreign assets is suspended".
No saver will be able to choose to change their pesos into dollars to secure their savings from a possible devaluation of the local currency. In this way, the monetary authority hopes to incentivize its citizens to keep their financial surpluses in the national currency. The Bcra added that the purchase of foreign currency will continue to be permitted in the case of tourism, the purchase of real estate, imports, the purchase of scientific materials or for aircraft and ships. But the bank run has already begun.
Will this move be enough to find the necessary capital for Cristina to support her social policies and repay the foreign debt? Argentina has approx $17 billion of debt maturing over the next five years, equivalent to 36% of central bank foreign exchange reserves. Until now, the hypothesis that the Buenos Aires government could decide to convert domestic issues denominated in dollars into pesos was unlikely, as it would have resulted in a selective default. But now it is not excluded that this could happen. Argentina's hunger for dollars should not be underestimated.
Yesterday the Casa Rosada (the seat of government in Buenos Aires) obtained 6 billion dollars from the Central Bank in the form of "extraordinary" measures to deal with current costs and another 4,165 billion dollars for the payment of sovereign debt to private and multilateral creditors . This year, Kirchner has already used nearly 10 billion dollar reserves of the central bank to service the debt - last year it had withdrawn 7,5 billion - increasing inflationary pressure in the country. The Minister of Economy, Hernán Lorenzino, justifies the request "by virtue of the challenges that economic policy will face in the coming months" and by "the context of the international crisis which shows no prospects of recovery in the short term". Yet according to many private analysts, the causes of the slowdown in the Argentine economy are largely linked to internal problems.
Meanwhile, again since yesterday, the major banks operating in the country were forced by the Government to lend 5% of their deposits to give credit to businesses. It is at least 15 billion pesos (about $3,3 billion) to a interest rate lower than inflation with the aim of giving the economy a breather in a moment of sluggishness. In May, the deposits of all banks at the Central Bank amounted to 434 billion pesos, according to the Bcra itself. Banks holding deposits worth more than 1% of the total will have to enter into these contracts at a fixed rate of 400 basis points more than the benchmark deposit rate. In June, the average rate paid by private banks for 30-day deposits worth more than one million pesos was 12,1%. “At the rates now imposed by the banks, no one is asking for a loan anymore,” said President Kirchner, “. The central bank will have to establish the conditions that will make credit accessible”. Yesterday, on the Buenos Aires Stock Exchange, the banking sector lost up to 7%.
According to Cepal data, South America's second largest economy to grow 2.75% this year, almost a third of 8,9% in 2011 and 9,1% in 2010. According to the estimates of many independent economists, as well as the Monetary Fund and Goldman Sachs, inflation is well over 20%. While the national statistics agency, whose data has been questioned by many international institutions, said that consumer prices increased by 9,9% year on year in May.
