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Ear to the Ground

Is Argentina Entering an Economic Crisis?

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Posted on Jan 24, 2014

quimpg (CC BY 2.0)

Argentinians are fearing a new financial collapse as the peso suddenly dropped this week.

According to The Guardian:

Scrambling to protect the country’s perilously low central bank reserves, which dropped 30% last year and fell below $30bn (£18bn) this month, the government of President Cristina Fernández de Kirchner seemed at a loss how to proceed.

It started the week introducing tight controls on the purchase of online goods from abroad, to prevent Argentinians from spending dollars in ever larger quantities – especially on Chinese products which, as a result of 30% inflation, can be cheaper delivered to their door from abroad than bought at local stores.

But on Friday the government seemed to do a U-turn, saying it would relax its grip on the dollar. From next week it will remove some of the controls it introduced two years ago which banned Argentinians from trading their pesos for dollars, a customary practice in a country with a long history of inflation.

The dollar freeze paralysed the property market, which operates in dollars, but failed to stem the rush away from the peso. Instead it created a black market where the dollar has risen from eight to 13 pesos in the last year while the central bank continued using – and losing – reserves trying to keep the dollar in check.

Its battle was ultimately lost this week in view of the peso’s sudden collapse.

—Posted by Alexander Reed Kelly.

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