Argentina devaluation

By Paul Segal and Ingrid Bleynat, King’s College London

Argentina’s macro-economic policy has been accused of being incoherent, inconsistent, and out of control. Analysts blame ‘populist handouts’ for President Cristina Fernández de Kirchner’s popularity. Yet that cannot explain approval ratings around 50 per cent after nearly 8 years in power. There is a logic, and a history, behind Argentina’s policy that observers are overlooking.

Consider the challenge facing the government. They were elected to support domestic industry, and to redistribute income in favour of middle and lower class workers. What to do? Enter the economic theory of the second best, also known as (heavily) constrained optimisation. Read more

The devaluation is done and the peso has stabilised (for now). But can the government in Buenos Aires prevent another storm from brewing? The signs are not good.

Argentina’s forex reserves are still in freefall. The central bank haemorrhaged roughly 9 per cent of reserves in January to leave it with $28bn, according to Bloomberg. Piling on the pressure, the country’s farmers – even with a weaker peso – refuse to liquidate grain stocks for export. Jorge Capitanich, the cabinet chief who has an eagle eye for “speculative attacks” on the currency, is set to twist their arms later on Monday. Read more

When the oppressive heat in Buenos Aires becomes just too much to bear at the height of the austral summer, those who can afford it prefer to jet off to cooler climes to see in the New Year.

But some may have been forced to rethink their holiday plans after the Argentine government moved to stem an alarming decline of foreign currency reserves by bumping up the price at which it sells dollars to Argentines travelling abroad, in what amounts to a stealth devaluation. Read more

The words certainly sound familiar. But not in a good way.

In a nationally televised address on Monday evening, Argentine President Cristina Fernández de Kirchner vowed not to devalue the peso while she was in office, because to do so would hurt the poor and the middle classRead more

Wiping 20 per cent off the value of the Argentine currency this year “isn’t off the wall”. So says Guillermo Moreno, the internal trade secretary and one of the tough guys in the government of Cristina Fernández.

What is this – rare honesty from an administration that denies the country has a problem with inflation? Read more