Up until last year, Laura Gil was able to save, and like every Argentine, she did so in dollars to avoid losing out against high inflation. Yet since President Javier Milei took office, her income has disintegrated. Laura is emptying her piggy bank. In a recessive economy, the peso has worth, though no-one is celebrating the fact.
“I’ve always saved in dollars, because in Argentina it’s the only safe thing. I used to buy 200 [US dollars] a month. Ever since December I’ve been selling 300 [US dollars] at a time and I can’t make ends meet,” explained Laura, a 49-year-old bank clerk and mother-of-two kids, both of whom attend school.
Restrictions on the purchase of foreign currency, first imposed in 2018 to discourage the demand for dollars, has helped several kinds of exchange rates flourish in Argentina – from the illegal but widely traded “blue” to specific variants for the stock market.
Over the last few months, they have all collapsed and the foreign exchange gap has been reduced to less than 20 percent against the official exchange rate. The so-called ‘brecha’ between the two reached 100 percent last October.
Following his inauguration on December 10, Milei devalued the peso by more than 50 percent, with a ‘crawling peg’ taking it down a further two percent each month since.
“The devaluation made this type of exchange rate very convenient for all exporters, which is why they are liquidating their foreign currency, thus expanding the supply of US dollars in the market,” explained independent economist Pablo Tigani.
Prices reflect the blow of the devaluation and inflation has soared even higher, further pulverising the purchasing power – and the savings – of Argentines.
“Those who had saved dollars are burning through them to pay their bills. Nobody has a peso left,” said one money-trader – or "arbolito" – on the streets of Buenos Aires. Business is not as hectic as it once was, they explain.
With a 254-percent inflation and increased rent, transport fares, electricity costs, healthcare and education fees, the castigated middle class is selling the greenbacks they kept under the mattress.
Tigani pointed out that “over the last few months there has been inflation in dollars: people make their money in pesos and prices increase in dollars.”
Yet the pressures of the middle class, the historical dollar purchasers, are only part of the explanation for the fall in the demand for the currency. Imports have also crumbled by 13.4 percent in January, especially in capital assets feeding the industry, which meant a lower demand for dollars to pay abroad.
Seasonal factors have also had an impact on the greater supply of foreign currency. Agricultural producers will begin selling, peaking in April and May, as they bring in dollars.
In that context, the Central Bank has managed to repair the country’s battered international monetary reserves, lifting them to their highest level in the six months.
“Argentina has been in a recession for over 14 months, but the last four were the most intense. Price increases were very sharp and consumption has collapsed,” said independent economist Federico Glustein.
Inflation was 20.6 percent in January and private analysts estimate 18 percent for February. The rate will be published next week.
“Inflation is slowing down, but it’s still very high,” stressed Glustein, warning that “there are economic adjustments to be made, such as more [utility] rate increases, which could send it soaring again.”
Recession has hit consumption, and also industry, and demand for energy has been depleted. This affects the availability of foreign currency in a country that imports part of the energy used by its factories.
Looking only at SMEs (small and medium-sized enterprises, or PyMES), the fall of industrial activity in January was 30 percent year-to-year, according to the Argentine Confederation of Medium-Sized Enterprises.
“Argentina is importing less energy, and thus fewer reserves are spent and the Central Bank can afford to buy the excess,” pointed out Glustein, who interprets the fall in the demand for dollars as “a symptom of the crisis.”
by Sonia Avalos, AFP
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