Argentina’s President Says No Peso Devaluation Is Coming

(Bloomberg) -- Argentina’s government is not going to devalue the peso, President Alberto Fernandez said Tuesday night amid widespread speculation on the issue.

“If someone is speculating about a devaluation, speculate as you wish because there isn’t going to be one,” Fernandez told Argentine TV station C5N. “We have to go, not in the immediate sense, but over the course of time toward a point where the different values for hard currency converge.”

Fernandez’s government has amplified currency controls since taking office last December, but lack of clarity about his economic plans boosted various peso-dollar unofficial exchange rates to more than double the official one. The gap between those rates is now the widest since 1989, when it hit 215%, according to the book “Historia Economica de la Argentina,” by Domingo and Sonia Cavallo.

The disparity between exchange rates has strained Argentina’s export sector, one of the main economic engines that brings dollars into the country. Fernandez’s administration recently cut export taxes on several key commodities to incentivize exporters to sell before the end of the year. He conceded Tuesday that so far the policy hasn’t worked.

“Up till now, it hasn’t produced what we hoped it would produce,” Fernandez said.

Amid elevated uncertainty, Argentines are pulling their dollar deposits out of the banks while others seek to exchange pesos for hard currency on the black market without restrictions. Fernandez blamed the weakening unofficial exchange rate on a lack of foreign tourists bringing greenbacks into the country due to the Covid-19 pandemic.

“There’s huge scarcity of dollars that come from abroad because tourism is completely closed off, and that’s where there’s a major tension regarding the value of foreign currency,” he said.

Peso Jitters

In mid-September, Argentina tried to limit the drawdown by adding severe restrictions on dollar purchases, both by individuals and companies, but demand for greenbacks showed no signs of slowing. Instead, reserves have continued to decline, with some analysts estimating the its net liquid reserves are already in negative territory.

On top of tighter capital controls, the central bank’s vow to “add more volatility” to the currency market -- quickening the pace of devaluation as part of its crawling peg -- has yet to materialize. The central bank also adjusted some interest rates late Thursday in an attempt to bring two key rates closer together.

©2020 Bloomberg L.P.