Argentina’s currency run: the dollar climbed to $385, the Central Bank lost US$56 million and the gap is close to 100%

The run against the peso broke out again despite all the measures announced by Minister Massa.

The dollar rose in the parallel market but reached new historical records in the alternative legal segments.

The dollar is increasingly unstoppable, reflecting the fall in demand for pesos and the intensification of the inflationary process.

Despite the arsenal of measures announced by Sergio Massa’s team, including the foreign debt repurchase program, the foreign exchange run is still in progress and affected all alternative markets.

The parallel dollar increased US$2 on Wednesday and closed at a historical nominal record of US$385.

It accumulated an increase of US$98 since the outbreak of the exchange rate crisis in November last year, the equivalent of a 34.2% jump in less than three months.

The dollar’s yield comfortably surpassed fixed-term peso deposits during this period.

Likewise, despite the Central Bank’s active intervention, the dollar in the spot market climbed to $369.62 on Wednesday, while the dollar traded on the stock exchange rose to $354.61.

Both parties are historical records; the Government failed to moderate the run (at least) on the legal parties.

The official exchange rate closed the day at a parity of US$192.74, marking a slight increase of 50 cents.

This exchange rate segment is adjusted for inflation in a crawling-peg regime, whose monthly devaluation oscillates at 5.7%.

As a result of the day’s operations, the BCRA lost US$56 million.

The most problematic fact is the growing exchange rate gap concerning the official parity.

The gap is a typically destabilizing element for the price level and the accumulation of reserves, the heart of the exchange control system operating in the country.

The exchange rate differential reached 99.8%, considering the most extreme parallel dollar since September 2022.

The gap concerning the MEP dollar exceeded 83%, and the differential with the CCL dollar reached almost 92%.

The Government intends to keep this gap stable at around 90% for the year’s first quarter. Still, even this thoroughly conservative and unambitious goal challenges the economic team.

The exchange rate gap causes severe incentives for the under-declaration of exports and the over-invoicing of imports, which contribute to the progressive collapse of the exchange rate ceiling and the draining of the Central Bank’s international reserves.

The Government used reserves to finance its US$1 billion debt repurchase program and negotiated with Banco do Brasil to postpone the payment of Brazilian imports in Argentina until 2024.

But this did not calm the exchange market or reduce the gap.

The only feasible alternative to preserve the exchange rate peg without sacrificing new reserves is to strangle the volume of imports through quantitative restrictions.

However, choosing this path would imply a high cost in terms of economic activity.

It should be recalled that the economy is heading for a recession: general activity fell by 1.45% between August and November 2022, industry by 1.64%, and construction by up to 6.48%.

Applying more quantitative controls on foreign trade would severely aggravate the situation of actual activity. The Massa Plan is falling apart and fails to achieve results.

With information from Derecha Diario