Reneige
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- Sep 9, 2013
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This follows on from my comments here from last night : http://baexpats.org/...ws/page__st__90. As I said, then the Peso is headed Way down and fast! Though I hadn't anticipated it would be this fast.
Currently the government has 29 billion dollars of foreign reserves. The government is commiting 10 billion to try to pay off the so called "paris club" of creditors who still own their defaulted bonds. That theoretically leaves 19 billion. However, in the past year Argentina has spent about 15 billion dollars in energy subsidies. When foreign reserves crossed the 30 billion point, the central bank and government knew it was game over. Those 30 billion needs to be preserved at all costs including the cost of allowing the peso to fall. Maybe that's why Cristina was in hiding for so long?
Today the central bank withdrew support for the currency on international markets, and according to FX traders, the slide was entirely demand driven, the central bank has stopped supplying dollars (source : http://www.ft.com/in...l#axzz2rGtRDKZs), As written in my previous post, this is equivalent technically to "black wednesday" in the UK in 1992. ((George Soros, where are you!?
))
If the central bank continues this policy, the peso will free fall toward the blue market rate. The problem is that international transactions were conducted at the official rate which when pegged to the US dollar effectively imposed US dollar inflation on international goods (to the extent that the peso was not allowed to devalue further pushing up the price of US dollar / international goods). Now there is no more inflation support for imports. Whilst Argentina has the potential to be an exporter of Australian calibre (think energy and materials) we all know that it is not. This country is incredibly dependent on imports. The result will inevitable be massive inflation as the prices of imports skyrocket in the devaluation. Basically, your energy bill is on it's way up. Basically anything you buy that contains materials or inputs of some sort that are purchased overseas, will eventually skyrocket in price as the peso plunges.
With the current insane monetary policy (effectively printing pesos to be transferred to the treasury so Cristina can buy votes with "social programs"), the government will have no way to curb domestic inflation, beyond the "imported" inflation that will occur with the devaluation. Furthermore, the plunge of the Peso will become exacerbated as people rush to get their money out of the country to protect it from the devaluation, a situation referred to as "Capital Flight". The government will probably impose further capital controls - ie, that thing you wanted to buy online will become even harder than it did yesterday, and don't even dream of trying to get your money out of the country.
This country is effectively headed for a massive recession, far beyond how bad it has been the past few years. All the years of economic mismanagement of the Kirchner governments is about to open like a can of worms. I think it could get really ugly, like civil unrest ugly. Especially if social programs are cut rapidly. The government has basically promised way more than it could offer, printed money and lied about the effects, and bought the votes of the economically illiterate. If all those promises suddenly get revoked, people may take to the streets. I have no idea if Argentinians are as fiery as Greeks, but if anybody can give me their 2 cents on that, I would be curious to know your thoughts.
These are all my predictions and by no means are guaranteed to happen. Argentina could miraculously become a net exporter in the massive devaluation, and thus solve it's woes quickly, but that seems pretty unlikely. I just wanted to share my thoughts on this.
As a newcomer to this country, I am concerned I will soon not be able to convert my foreign savings which are GBP denominated into Pesos, if the government goes Venezuela-style making it a criminal activity. Does anyone have any recommendations, should I try to convert money asap?
Cheers,
Reneige
Currently the government has 29 billion dollars of foreign reserves. The government is commiting 10 billion to try to pay off the so called "paris club" of creditors who still own their defaulted bonds. That theoretically leaves 19 billion. However, in the past year Argentina has spent about 15 billion dollars in energy subsidies. When foreign reserves crossed the 30 billion point, the central bank and government knew it was game over. Those 30 billion needs to be preserved at all costs including the cost of allowing the peso to fall. Maybe that's why Cristina was in hiding for so long?
Today the central bank withdrew support for the currency on international markets, and according to FX traders, the slide was entirely demand driven, the central bank has stopped supplying dollars (source : http://www.ft.com/in...l#axzz2rGtRDKZs), As written in my previous post, this is equivalent technically to "black wednesday" in the UK in 1992. ((George Soros, where are you!?
))If the central bank continues this policy, the peso will free fall toward the blue market rate. The problem is that international transactions were conducted at the official rate which when pegged to the US dollar effectively imposed US dollar inflation on international goods (to the extent that the peso was not allowed to devalue further pushing up the price of US dollar / international goods). Now there is no more inflation support for imports. Whilst Argentina has the potential to be an exporter of Australian calibre (think energy and materials) we all know that it is not. This country is incredibly dependent on imports. The result will inevitable be massive inflation as the prices of imports skyrocket in the devaluation. Basically, your energy bill is on it's way up. Basically anything you buy that contains materials or inputs of some sort that are purchased overseas, will eventually skyrocket in price as the peso plunges.
With the current insane monetary policy (effectively printing pesos to be transferred to the treasury so Cristina can buy votes with "social programs"), the government will have no way to curb domestic inflation, beyond the "imported" inflation that will occur with the devaluation. Furthermore, the plunge of the Peso will become exacerbated as people rush to get their money out of the country to protect it from the devaluation, a situation referred to as "Capital Flight". The government will probably impose further capital controls - ie, that thing you wanted to buy online will become even harder than it did yesterday, and don't even dream of trying to get your money out of the country.
This country is effectively headed for a massive recession, far beyond how bad it has been the past few years. All the years of economic mismanagement of the Kirchner governments is about to open like a can of worms. I think it could get really ugly, like civil unrest ugly. Especially if social programs are cut rapidly. The government has basically promised way more than it could offer, printed money and lied about the effects, and bought the votes of the economically illiterate. If all those promises suddenly get revoked, people may take to the streets. I have no idea if Argentinians are as fiery as Greeks, but if anybody can give me their 2 cents on that, I would be curious to know your thoughts.
These are all my predictions and by no means are guaranteed to happen. Argentina could miraculously become a net exporter in the massive devaluation, and thus solve it's woes quickly, but that seems pretty unlikely. I just wanted to share my thoughts on this.
As a newcomer to this country, I am concerned I will soon not be able to convert my foreign savings which are GBP denominated into Pesos, if the government goes Venezuela-style making it a criminal activity. Does anyone have any recommendations, should I try to convert money asap?
Cheers,
Reneige
