Argentine peso steadies, along with nerves

A day after government announces measures to shore up currency, Argentines hope the worst is behind them.

    Economists are watching to see whether a desire to skirt currency controls causes the black market exchange rate, known locally as the "blue dollar", to diverge sharply from Argentina's official exchange rate [File: Agustin Marcarian/Reuters]
    Economists are watching to see whether a desire to skirt currency controls causes the black market exchange rate, known locally as the "blue dollar", to diverge sharply from Argentina's official exchange rate [File: Agustin Marcarian/Reuters]

    Buenos Aires, Argentina - Hector Vera has worked for 31 years in a currency exchange store in Buenos Aires and if there is one thing the sexagenarian has learned, it's to remain calm in a financial crisis.

    So as panic started to take hold in the Argentinian capital on Friday, Vera decided he would remain unperturbed.

    "Everyone was running around on Friday, telling you to take your money out of the banks, they're going to steal it", he told Al Jazeera, as he walked through the bustling micro centre of Buenos Aires, bundled up against the cold. "Three days later, did it happen? No. It's a system, and you know full well that all systems are perverse."

    Things have been far from calm in Latin America's third-largest economy, as it tries to claw its way out of a crisis of confidence that has driven it to the edge of default, and seen the peso lose more than 34 percent of its value this year.

    The sharpest dive started after August 11, when citizens, fed up with a recession, rising costs and unemployment, rejected the neo-liberal, pro-market blueprint for the economy pushed by Argentina's President Mauricio Macri. He lost the presidential primaries by a stunning 15 points to a left-wing Peronist ticket including opposition leader Alberto Fernandez, and his running mate, former president Cristina Kirchner.

    Macri, who initially blamed the peso's slide on voters casting their lot with a populist ticket, has since taken a page from the economic populists' playbook - rolling out tax breaks and price controls to alleviate the economic pain ahead the October 27 general election.

    Last week his government announced it will ask for more time to pay off about $100bn in debt, including to the International Monetary Fund - a restructuring many believed was inevitable given the economic turmoil gripping the country in the wake of Macri's primary thumping.

    The latest move came on Sunday, when the government unveiled capital control measures - the kind Macri had harshly criticised Kirchner for - in order to shore up the country's reserves and defend the peso.

    Companies now require permission from the Central Bank of Argentina to sell pesos in order to buy foreign currencies or precious metals and to distribute earnings abroad. Exporters must liquidate their foreign exchange earnings in the local market within five days. Individual Argentinians can now freely buy up to $10,000 a month, but need permission for anything more. There are no limits on how much companies or individuals can withdraw from their bank accounts.

    "They are uncomfortable measures," said Hernan Lacunza, Argentina's treasury minister, at a Monday news conference. "They are not what we want for Argentina, but they are emergency measures to avoid greater evils that I would summarise in a single word, which is that poverty does not increase."

    He said the priority, as directed by the president, was to protect the reserves that bolster the value of the currency and that back the savings of ordinary Argentinians.

    "Argentina lost voluntary credit after the primaries," said Lacunza. "This is not a value judgment, it's a concrete fact: the country risk doubled on August 12, and the debt renewals we made in the following weeks were much lower. Before you could renew 90 pesos of every 100, now it is less than 10."

    The peso strengthened slightly on Monday, trading at 57.5 to the US dollar, from Friday's 59.5.

    Fernandez, who is in Spain this week, did not comment on the developments.

    Economists meanwhile are watching to see whether a desire to skirt currency controls causes the black market exchange rate known locally as the "blue dollar" to diverge sharply from official exchange rate, as it has in the past.

    'Volatile weeks' ahead

    A holiday in the United States meant that Monday saw low levels of trade, and it is not yet clear what effect the new measures would have, said Martin Vauthier, an economist and associate director of the Buenos Aires consultancy Eco Go.

    What is clear is that last week's decision to restructure debt,"brought back very bad memories, of going to the bank looking for pesos that weren't available," said Vauthier, referring to the 2001 "corralito" that practically froze bank accounts and banned the withdrawal of US funds.

    More people withdrew dollars from their accounts last week, and continued to do so on Monday, said Vauthier, who noted that one of the main goals of the currency controls is to ensure that the average person can access the money they want.

    "Until the October elections, I think we're going to keep seeing volatile weeks, where we are going to have to be very attentive to the situation," he said. "We'll see in the next few days whether the measures are enough or not, but I think they are on the correct path, to try to restrict a bit the movement, to try to stabilise the market."

    The measures announced on Sunday don't have a direct effect on people such as Beatrice Tolaba, 45, who works in a Buenos Aires tourism office and doesn't have excess cash lying around to buy US dollars.

    "I live day-to-day. I rent," she told Al Jazeera. "But it does matter to me because when they start with currency controls, you don't know where things are going to end up with this economy. I end up doubting how things are going to go forward."

    For Gustavo Torres who owns a service company in Buenos Aires that employs 40 people the problem is political.

    "Both this government and the opposition play with the public. The only thing they care about is negotiating political posts, and it's the middle class that ends up paying the price," he told Al Jazeera, after getting his shoes shined in the city centre. "I believe in Macri's model, but I don't agree with the way he handled things," he added. "My attitude was that I woke up today, and I went out to work harder than ever. Because I have already lived through all the economic variables."

    Melany Uillay, a 20-year old student, said she has had to tighten her spending as prices have gone up. But she's optimistic things will improve. "I think this is a process that we have to confront. At some point things are going to be better," she said.

    Blanca Salvatiera, a 58-year old artistan sees the measures adopted by the government as the "lesser of two evils before things explode in the hands of the general public."But she worries about a run on the banks.

    "This society is a bit schizophrenic. And the dollar is psychological," she said. "It's crazy. It goes up a bit, and everyone goes out to buy. And when it's cheap, no one moves."

    SOURCE: Al Jazeera News