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Yesterday in Argentina the day was plagued by two moments of uncertainty. The first, during the period of foriegn exchange operations, between 10 in the morning and 3 in the afternoon, and then what subsequently ensued. Over the course of the rest of the day, making purchases of some items was almost as difficult as getting a dollar in the last half hour of banking hours.
This was a product of the dramatic rise of the American currency amidst a decline in confidence in the Argentine peso: in a matter of minutes the prices disappeared. Distributors and businesses went into a panic because they did not know at what price to liquidate their stocks. Would the run stop at 40? Would it continue an abysmal decline to 80? Would the trend reverse course? Are we facing the beginning of hyperinflation? Nobody knew anything and in the face of uncertainty, it’s better not to sell until the storm begins to calm.
As the afternoon wore on, suppliers of all services converted their prices into dollars, even though they had to do this all manually, without their electronic systems. People rushed to buy electronics and appliances, to get rid of the pesos they had on hand, in anticipation of further decline. Not everyone was lucky. Some prices were lowered and other prices were dollarized. This reminds the Argentines of the end of the government of Raúl Alfonsín, when similar images were seen: the economic collapse obligated to hand the office over to Carlos Menem ahead of schedule.
This morning, the market opened without major shocks and the dollar began to sell around 40. The Central Bank offered the market USD $675 million, and, for now, appears able to stabilize demand. At noon, the Argentine peso even gained more than two pesos on the dollar, and offers were registered for 37.80. But the panic did not go away completely and there are people who so far have not been able to withdraw their deposits from the banks. According to the banking entities, this was due exclusively to the lack of liquidity and will be corrected in the coming days.
Major announcements are expected on Monday morning, following a weekend of tough decisions for President Mauricio Macri.
Confidence crisis
The black day in Buenos Aires caused a catastrophic reaction on Wall Street. During the day yesterday, listed Argentine companies lost USD $4 billion. The most affected was the electric company Edenor, which fell 18.2%. For its part, JP Morgan recommended its clients to sell the Argentine shares. The influential investment bank downgraded the status of Argentine bonds from “neutral” to that of “underweight.”
Where does Mauricio Macri go from here? Once considered a favorable prospect for reelection in 2019, this crisis could give major impetus to his political rivals such as Cristina Kirchner, who has formed her own political party, and Juan Manuel Urtubey. The current governor of Salta province, he has already announced his intentions to run for president under the Justicialist Party banner.
If center-right Macri hopes to serve another four years, he must find a way for the Argentine people, and international investors, to regain confidence in the Peso. Fortunately for him, he still has over a year to do so, as presidential elections are not until October of 2019.
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