Peso Devaluation Coming In October? Impacts?

[GS_Dirtboy]

People who are much smarter than me are saying that they expect an official devaluation of the Peso sometime just after the mid-term elections in October. I'd be interested in your thoughts about the impacts of that action on:

1. Real Estate Prices and activity.

2. Tourism.

3. Prices for local goods and services.

4. Other impacts you deem important.

Thanks in advance.

GS

 

[Rich One]

People who are much smarter than me are saying that they expect an official devaluation of the Peso sometime just after the mid-term elections in October. I'd be interested in your thoughts about the impacts of that action on:

1. Real Estate Prices and activity.

2. Tourism.

3. Prices for local goods and services.

4. Other impacts you deem important.

Thanks in advance.

GS

The peso is devaluated every day? consequences If the devalution is 20% or more or like in 2001 1:3 ?
One can say with certainty the peso will be devaluated after October .. How much?

 

[Inferno.]

My two cents on the topic. A devaluation can bring both positive and negative aspects. All countries have two main activities, exports and imports. One of them brings money into the country (selling wheat, soy for example), the other one involves money leaving (buying supplies that are not being manufactured in the country). As you can imagine, is better to have more money coming in, than money coming out (deficit-superavit).

By decreasing the value of the currency, the country will be more competitive against others as their currency (usd, eur, etc) will buy more products. The negative side, life here will become more expensive and salaries will have less buying power. There is no direct correlation, it doesn't mean that a devaluation of 50% will mean that everything will increase 50%. Stores selling imported products (such as technology) will increase minimum, at the same rate of the devaluation. Those who gave services, will increase their prices a little if they use some of imported product or none if they dont. If a product is being manufactured here in arg and uses something from brazil, the price will increase due to that part. So, in other word, prices will raise in almost everything, some of them will increase a lot, others wont (or shouldn't, but fear and speculation will make some of them increase even if they don't have why).

My opinion on those points:


1. Real Estate Prices and activity.
I don't think a devaluation will change much this. This market uses dollars to set prices today, so if this happens, it will increase prices in pesos as it has been happening since the currency controls, nothing new on this aspect. A devaluation will probably drive the price of the blue dolar higher, making properties a hard thing to buy if you earn in pesos.

2. Tourism.
Will increase from people from other countries, as their currency will allow them to buy more things than before. This will push sales and economy as foreigns will come to buy things. Tourism for people leaving argentina will decrease, as it will be x% higher than before, making that trip to europe a plan for the future.

3. Prices for local goods and services.
Everything will increase, some of them at the rate of the devaluation, others will increase less because they don't use imported products. I don't think prices will stay steady on many stores, one way or another, almost all activities have some sort of relationship with the outside world.

4. Other impacts you deem important.
If the currency controls stays, the situation wont change much as we have been seeing today. If they put the official peso at a rate of 8 pesos 1 dollar, the blue rate will spike at less say, 14. People will see this as a warning -an a lesson- for not buying before, making the price of the blue dollar going higher and higher each day as we have been seeing with each announcement. A devaluation will be good if they lift the restrictions and leave the price to be fixed by the market as any other country does.

Oh, I wrote a lot again, sorry about that

 

[syngirl]

The peso is devaluated every day? consequences If the devalution is 20% or more or like in 2001 1:3 ?
One can say with certainty the peso will be evaluated after October .. How much?

Evaluated, yes ;D and then devaluated -- friends of ours that run businesses here are preparing for up to 50% devaluation. They buy their product abroad in dollars and sell in pesos and are somewhat presuming that they will be kept afloat by their operations in Brazil and Chile, and that Argentina is going to take a hard hit.

 

[Rich One]

Evaluated, yes ;D and then devaluated -- friends of ours that run businesses here are preparing for up to 50% devaluation. They buy their product abroad in dollars and sell in pesos and are somewhat presuming that they will be kept afloat by their operations in Brazil and Chile, and that Argentina is going to take a hard hit.

Well a $7,50 peso after a 50% devaluation will that imply a $12 peso blue rate with a 60 % spread.

 

[pmacher]

The discussion seems to be ignoring the impending consequences of the existing bondholder litigation, the fallout from which will have a large effect within the next couple of weeks. To gain some further insight into what is likely to happen in the lawsuit by the evil vultures (you know, the ones who wanted Argentine to pay back the money it borrowed) against Argentina see http://www.shearman....t’s-Inquiry.pdf


The Fed Ct very well may order the trustee, Bank of NY, (through which all bond payments are made) to disregard any of Argentina's directions to the contrary and to pay to the plaintiffs a high proportion of the money Argentina earmarked for payment to holders of the substituted bonds. In that case Argentina may very well default on payments to all bondholders. Among other things, that would have serious consequences for the Argentine peso.
A couple of weeks ago the Argentine Economy Minister dictated to the illegal cuevas (money changers) that the black market rate should not exceed 8.4 or else! As a result of that threat the rate of exchange retreated from almost 9 to 8.4. It is now climbing back up (at 8.7). It will probably keep climbing now. This will (once again) make life complicated for my friends and family in Bs As. As a small consolation, it will make dining out for those with access to dollars/ foreign currencies a lot cheaper because inflation will not keep pace with dollar appreciation.

 

[ajoknoblauch]

My two cents on the topic. A devaluation can bring both positive and negative aspects. All countries have two main activities, exports and imports. One of them brings money into the country (selling wheat, soy for example), the other one involves money leaving (buying supplies that are not being manufactured in the country). As you can imagine, is better to have more money coming in, than money coming out (deficit-superavit).

By decreasing the value of the currency, the country will be more competitive against others as their currency (usd, eur, etc) will buy more products. The negative side, life here will become more expensive and salaries will have less buying power. There is no direct correlation, it doesn't mean that a devaluation of 50% will mean that everything will increase 50%. Stores selling imported products (such as technology) will increase minimum, at the same rate of the devaluation. Those who gave services, will increase their prices a little if they use some of imported product or none if they dont. If a product is being manufactured here in arg and uses something from brazil, the price will increase due to that part. So, in other word, prices will raise in almost everything, some of them will increase a lot, others wont (or shouldn't, but fear and speculation will make some of them increase even if they don't have why).

My opinion on those points:


1. Real Estate Prices and activity.
I don't think a devaluation will change much this. This market uses dollars to set prices today, so if this happens, it will increase prices in pesos as it has been happening since the currency controls, nothing new on this aspect. A devaluation will probably drive the price of the blue dolar higher, making properties a hard thing to buy if you earn in pesos.

2. Tourism.
Will increase from people from other countries, as their currency will allow them to buy more things than before. This will push sales and economy as foreigns will come to buy things. Tourism for people leaving argentina will decrease, as it will be x% higher than before, making that trip to europe a plan for the future.

3. Prices for local goods and services.
Everything will increase, some of them at the rate of the devaluation, others will increase less because they don't use imported products. I don't think prices will stay steady on many stores, one way or another, almost all activities have some sort of relationship with the outside world.

4. Other impacts you deem important.
If the currency controls stays, the situation wont change much as we have been seeing today. If they put the official peso at a rate of 8 pesos 1 dollar, the blue rate will spike at less say, 14. People will see this as a warning -an a lesson- for not buying before, making the price of the blue dollar going higher and higher each day as we have been seeing with each announcement. A devaluation will be good if they lift the restrictions and leave the price to be fixed by the market as any other country does.

Oh, I wrote a lot again, sorry about that

No apologies necessary - that's a really good summary. For "superavit," however, use "surplus" in English.

 

[syngirl]

The discussion seems to be ignoring the impending consequences of the existing bondholder litigation, the fallout from which will have a large effect within the next couple of weeks. To gain some further insight into what is likely to happen in the lawsuit by the evil vultures (you know, the ones who wanted Argentine to pay back the money it borrowed) against Argentina see http://www.shearman....t’s-Inquiry.pdf


The Fed Ct very well may order the trustee, Bank of NY, (through which all bond payments are made) to disregard any of Argentina's directions to the contrary and to pay to the plaintiffs a high proportion of the money Argentina earmarked for payment to holders of the substituted bonds. In that case Argentina may very well default on payments to all bondholders. Among other things, that would have serious consequences for the Argentine peso.
A couple of weeks ago the Argentine Economy Minister dictated to the illegal cuevas (money changers) that the black market rate should not exceed 8.4 or else! As a result of that threat the rate of exchange retreated from almost 9 to 8.4. It is now climbing back up (at 8.7). It will probably keep climbing now. This will (once again) make life complicated for my friends and family in Bs As. As a small consolation, it will make dining out for those with access to dollars/ foreign currencies a lot cheaper because inflation will not keep pace with dollar appreciation.

Yes I had written out a post regarding the same Buitres that may go ahead and screw up Cristina's plan(? assuming she has one) royally. Argentina's offer was ludicrous, it was, in layman's terms: we'll pay back your bonds with more crappy bonds that aren't going to mature for another 20 years when this govt is long gone. I do think the offer should be thrown out, though it will be bad for Argentina. Fortunately for CFK Capriles didn't win bbecause he had all intention of calling in the 13bn that she owes his country as well.

Everything is coming to a head at a slow roar -- buitres due, other debts due, inflation growing, amount of cash that govt needs to continue funding "work" programmes is eating up funds etc.

The peso is going to have to be slashed eventually -- the black market rate really is a more proper valuation of the peso to the dollar.

All of the dancing for joy by expats with dollars is really going to cause a lot of tension on this board between the haves (of dollars) and the have-nots (those with peso salaries and savings). Hopefully those dancing for joy with their dollars will have a bit more sympathy when the time comes.

 

[ajoknoblauch]

Yes I had written out a post regarding the same Buitres that may go ahead and screw up Cristina's plan(? assuming she has one) royally. Argentina's offer was ludicrous, it was, in layman's terms: we'll pay back your bonds with more crappy bonds that aren't going to mature for another 20 years when this govt is long gone. I do think the offer should be thrown out, though it will be bad for Argentina. Fortunately for CFK Capriles didn't win bbecause he had all intention of calling in the 13bn that she owes his country as well.

Everything is coming to a head at a slow roar -- buitres due, other debts due, inflation growing, amount of cash that govt needs to continue funding "work" programmes is eating up funds etc.

The peso is going to have to be slashed eventually -- the black market rate really is a more proper valuation of the peso to the dollar.

All of the dancing for joy by expats with dollars is really going to cause a lot of tension on this board between the haves (of dollars) and the have-nots (those with peso salaries and savings). Hopefully those dancing for joy with their dollars will have a bit more sympathy when the time comes.

It probably won't be as bad as 2002, but it may be more difficult to climb out of.

 

[syngirl]

Yes, we're also in a different situation economically on the global level this time round, lots of regions in recession, bailouts and restructuring going on in multiple nations etc.