Argentine financial market dismisses Fernández’s management with devaluation and inflation

The Argentine presidential administration of the Peronist Alberto Fernandez will be remembered, among other evils, for a strong loss of peso value and a crazy inflation for four years, which encouraged an evident dollarization of portfolios by investors in the domestic financial market.

Argentina’s foreign exchange and asset businesses moved with selectivity this Thursday in the last round before the presidential replacement, since the libertarian will take office on Sunday Javier Milei after a national holiday this Friday.

The outgoing center-left Government leaves a drastic statistic with an official peso devalued at 83.5% and inflation around 930% since December 2019, regardless of poverty close to 45%, high fiscal deficit and net reserves of the central bank by below US$10 billion in the red.

Fernández’s management “lost the war against inflation by a landslide, the party from November 2019 to November 2023 finished 929 to zero. “None of the policies he carried out, both fiscally and monetaryally, were aimed at reducing the acceleration of prices.”said Emilio Prado, economist at the Freedom and Progress Foundation.

He added that “Fiscal deficits and the uncontrolled issuance of money were a constant in each year of his Government, added to the price controls that never gave results.”

The official currency was quoted in this weekly business closing with a fall controlled by the BCRA of 0.14% to 364.1 per dollar, while in the marginal round (“blue”) fell 3.54% to 990 units, for a market that has suffered a firm depreciation of 93% in four years.

Between both quotes, the exchange gap It is located in a 171.9% complex.

The Argentine peso is expected to suffer a large devaluation from next Monday, a Reuters poll revealed. The official exchange rate would be 650 per dollar, which implies a potential loss of 44%, according to the median estimate of 13 analysts surveyed from December 1 to 5.

The existing exchange obstacles (stocks) mean that importers try to cover their emergencies in different ways, one by demanding scarce foreign currency from the BCRA, an entity that accumulated sales of US$ 365 million in December.

Latin America’s third-largest economy seeks to curb inflation projected at 180% in 2023, avoid a constant devaluation of its currency, avoid an imminent recession, undo a series of capital controls and rebuild battered reserves.

Milei chose the financier Luis Caputo as his Minister of Economy, and the economist Santiago Bausili for the ownership of the BCRA, waiting for them to make public the exchange and monetary strategy that the new political administration will take.

“It would be a pleasant surprise if the Government obtains international financing to capitalize on the central bank“, and achieve less volatility in the price of the dollar, control inflation a little and have an interest rate that is at sustainable levels,” stated analyst Salvador Di Stefano.

“Many (exchange) regulations that prevented the free access of economic agents to the purchase of dollars in the market will fall,” he claimed.

The Buenos Aires stock market recorded an advance of 0.92% in its S&P Merval index, to climb a historic 352% in the course of 2023, while sovereign bonds gained an average of 1.1% with a country risk that fell to the area of ​​1,891 basis points (1500 GMT).

Once again the purchases of assets as exchange coverage were directed at those tied to the devaluation and the inflation as an investment safeguard.

“In our base scenario for 2024, we would witness a ‘classic’ adjustment process where short-term stagflation should give way to a situation with better fundamentals, greater access to external financing and sustained reduction in nominal value,” said the consulting firm Delphos Investment.