18% devaluation of the peso and 118% increase in interest rates
The new devaluation came as a shock to consumers, as companies automatically raised product prices by double-digit percentages. [Reuters]
Argentina is engaged in yet another struggle for survival together with its citizens, for whom the economic crisis has been the normality of life in the country for many years. Immediately after the surprise victory of far-right and ultra-liberal economist Javier Millay in Sunday's primary election, Argentina's government devalued the currency by 18% against the dollar and hiked interest rates by 118% in a desperate bid to restore confidence . On the black market, one dollar now buys 705 Argentine pesos, when the official exchange rate is 361 pesos to the dollar. Thus, the largest Argentine currency note in circulation does not exceed 3 dollars in value. Economy Minister Sergio Massa, who has long resisted pressure from the International Monetary Fund to devalue the currency, has promised not to devalue again before the October election, but analysts say he will be unlikely to keep his word.
The new devaluation came as a shock to consumers, as companies automatically raised product prices by double-digit percentages. In particular, prices of imported items such as laptops and electronics jumped 20% overnight as stores tried to recoup losses from the currency's new devaluation. Even before this latest devaluation, much of the country's population had fallen into dire straits. With inflation at 116%, about 40% of Argentines live below the poverty line, and all indications are that Argentina's economy is heading full speed into recession. In an attempt to prevent further price hikes in basic food and necessities, the government resorted to extreme measures. He announced, among other things, a plan to temporarily suspend Argentine beef exports in the first phase for two weeks.
The new devaluation of the currency is estimated, however, to facilitate talks with the IMF, as it was a persistent request of its executives. That is the goal of the finance minister as he struggles to secure final IMF approval to disburse the last $7.5 billion tranche of the $44 billion loan the wintering country has received. Economic analysts, however, remain extremely pessimistic about Argentina's ability to overcome the current crisis. Speaking to the Financial Times, Goldman Sachs economist Alberto Ramos, in charge of Latin American issues, emphasized that “it seems really unlikely that either Sergio Massa or anyone else will be able to fix the state of the economy in a reasonable period of time.” He explains that things have deteriorated too much and “the imbalances of the economy are so great that we have probably lost the ability to manage its adjustment”. Few believe, however, that the IMF will let Argentina collapse and the prevailing belief is that the Fund will proceed to disburse the last tranche.
