Argentine Central Bank fends off $4 billion run on the peso
Argentina's Central Bank was forced to shed $4.15 billion in reserves to contain demand for U.S. dollars from financial speculators - a record for any single one-week period since the nation's December 2001 financial crisis.
The run on the peso, prompted by renewed fears the nation's ballooning foreign debt may soon require emergency measures to service, also forced Central Bank President Federico Sturzenegger to raise the discount rate by 300 basis points today, to 30.25%.
The dollar, which traded at around 17.50 Argentine pesos for most of the second half of last year, reached 20 pesos in February. This week's run pushed it past 21 briefly, before closing Friday at 20.90 after the interest rate hike.
Economy Minister Nicolás Dujovne appeared on television in an attempt to calm markets, noting that with Central Bank reserves at $58 billion, "this was nothing."
"Don't get so nervous," he admonished viewers.
Most analysts, however, now consider the Argentine peso overvalued as a result of a doubling in prices since President Mauricio Macri took office in late 2015.
Pressure on the peso has intensified since a record $27 billion in short-term LEBACs matured on December 18. These were largely redeemed (some 63%) rather than rolled over, with many of the proceeds wired offshore - a risky speculative practice known locally as the "financial bicycle."
The resulting purchase of dollars, whose trade was deregulated by the Macri administration, devalued the peso by 10% in a week. This trend has mounted since March, when the Economy Ministry reported that the nation's current account deficit more than doubled in 2017 to $30.8 billion and that the foreign debt swelled by a record $52 billion, or 28.6%.
Argentina's foreign debt has grown by over $80 billion since Macri rescinded foreign exchange controls and other financial regulations within days of taking office - the sharpest two-year increase, relative to GDP, since the height of a similar 'bicycle' bubble in 1979-81.
Its collapse forced the last dictatorship to step down in 1983; a later debt bubble led to the well-publicized 2001 crisis.
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Worried Argentines talk dollars after a hectic week in Buenos Aires' financial district.
Mounting foreign debt, much of it taken on to finance trade deficits and speculative capital flight, has recently raised alarm bells among investors.
