OBSERVERS of the Argentine economy could do worse than listen to Puff Daddy. Ask what the gravest cost of July’s default has been, and the answer will be along the lines of “It’s all about the Benjamins”. Had the Argentine government resolved its debt situation, it might now be able to tap international markets for hard currency. Instead it is struggling to manage its meagre reserves, which currently hover at around $28 billion.
The prospect for dollar inflows looks grim. The price of soya, Argentina’s main export and the government’s main source of dollars, has plunged by nearly 35% over the past three months to four-year lows. In hopes that this trend will reverse itself or that the government will devalue the peso, farmers are stockpiling soy rather than selling it.
Meanwhile, the government cannot tighten outflows much more than it already has. Argentines have not been able freely to buy dollars through official channels since 2011, when the government plugged them in order to stem capital flight. Since January, when the government devalued the peso by 20%, Argentines earning more than about $1,000 have been able...Continue reading
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