ECONOMY-ARGENTINA: Unstoppable Demand for Dollars

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 26 2002 (IPS) - The Argentine peso continued to suffer Tuesday after plummeting 22 percent Monday with respect to the dollar, in spite of government measures implemented following a 20 percent depreciation Friday.

Long queues began to form early Monday morning outside banks and currency exchange houses, and masses of people spent the night in an attempt to be among the first to purchase dollars at the best rate Tuesday, which had reached 3.3 pesos per dollar, compared to 2.9 to 3.1 pesos the day before.

For 11 years, the peso and the dollar had been pegged at one-to- one parity under the so-called “convertibility” regime, which was dismantled in January.

The main offices of the three public banks and six private banks reached an agreement under which the Central Bank would supply them with dollars to sell at a rate of 2.9, with a maximum of 1,000 dollars for individuals and 10,000 for companies.

But the massive demand Monday forced a limit of 500 dollars per person, and the distribution of numbers to those who were left waiting in line.

Meanwhile, the price of the dollar in the exchange houses rose more rapidly than at the banks. By midday Tuesday they were selling dollars for 3.5 to 3.6 pesos.

Some people have taken advantage of the difference in prices to purchase dollars at the banks and then sell them to the exchange houses at a profit. There are also those who charge a modest fee – approximately four dollars – to hold a place in the queue at the banks.

The uncertainty surrounding the peso’s decline is feeding fear among economists and the general public of a new bout of hyperinflation, like the one Argentina suffered in the late 1980s and early 1990s with price increases of up to four digits annually.

President Eduardo Duhalde himself has not ruled out that possibility. He stated that he would serve out his term – until September 2003 – even if the dollar reaches an exchange rate of nine pesos and hyperinflation returns.

Cabinet chief Jorge Capitanich admitted that the president is concerned. “Obviously we are worried about the situation of the dollar because stability in exchange rates has a direct impact on the structure of prices,” he said.

This came just a day after the presidential secretary, Aníbal Fernández, stated that the rise in the dollar is not causing Duhalde to lose any sleep.

Leaders from the opposition Radical Civic Union party met Monday night with the Peronist Duhalde and recommended that the government try to “anchor the dollar” because the freely floating exchange rate “is not working here.”

For the moment, prices are rising, but not so much as a consequence of the exchange rate, but due to the recession and the drop in demand.

Supermarket sales declined in January and February six percent compared to the same period in 2001, reported the National Statistics and Census Institute. The major retail centres suffered a 35.5-percent drop in sales for the two-month period.

But in some cases, the measurements were made by receipts and not volume of sales, which means the reduction in consumption could be even higher.

Duhalde had predicted over the weekend that, in spite of the currency exchange fever, the Central Bank would abstain from intervening in the market Monday, in keeping with recommendations from the International Monetary Fund (IMF) – which is making future credits contingent on the Argentine government taking strict measures now.

Maril Blejer, president of the Central Bank, travelled to Washington to meet with IMF executives and to report on the measures adopted in order to let the dollar float without sapping Argentina’s reserves.

The Economy Ministry spent the day monitoring the performance of the market, though did not issue opinions or risk making predictions. The official news agency, Telam, however, reported that ministry officials did not rule out the possibility of taking steps to “discipline” the currency market.

The dollar, which was kept on par with the peso for more than a decade, was floated in January by Argentine law, and immediately jumped to 1.4 pesos.

But the intense economic, social and political crisis thrashing Argentina caused further depreciations of the peso. The price of the dollar rose from 2.6 to 3.1 pesos – sales rate – Friday, as Duhalde met in Monterrey, Mexico, with the top leaders of the multilateral financial organisations, like the IMF and World Bank.

The IMF demands new policy adjustments before it will begin negotiations with Argentina on a disbursement, which would be at least 6.0 billion dollars.

Duhalde returned to Buenos Aires on Saturday and met with his ministers to determine how to confront the opening of the exchange markets Monday.

The government decided to increase the budget for subsidies for unemployed heads of household, beginning in May, from 400,000 to two million dollars, a move intended to quell social unrest.

The Economy Ministry and the Central Bank announced Sunday that they would limit loans to banks with temporary problems of liquidity. They also recommended that banks should attract deposits by offering attractive interest rates.

To that end, one bank is offering its savers 14-day fixed deposits in pesos that would be paid out at the value of the dollar on the day the deposit comes due.

The government also ordered exporters to liquidate currency for their foreign sales within five days of transactions in order to pump dollars into the market and help prevent greater depreciation of the peso.

The Economy Ministry is also engaged in several actions aimed at partially halting the court rulings that allow savers to withdraw their deposits in pesos – frozen by government order since December – and which are largely used for purchasing dollars.