Argentine Black Market Peso Falls to Record Ahead of Elections

Updated on
  • Black market peso fell to record low of 15.96 per dollar
  • Argentines seek protection in dollar ahead of elections

Argentina’s black market peso fell to a record low Tuesday as the government ramps up spending and contains the depreciation of the official exchange rate ahead of elections in October.

The street value of the peso fell to 16.05 per dollar before paring losses to close 0.8 percent weaker at 15.96, according to Ambito.com. That surpassed a previous record low of 15.95 pesos per dollar in September last year in the aftermath of Argentina’s second default in 13 years.

Since devaluing the peso in January 2014, President Cristina Fernandez de Kirchner’s government has slowed the pace of the peso’s depreciation to contain inflationary pressure ahead of elections on Oct. 25 in which the front-runner is from her party. Demand for dollars has increased in the past weeks since Argentines tend to seek protection in the U.S. currency ahead of elections while the central bank has also boosted peso printing, said Miguel Kiguel, director of Buenos Aires-based consultancy EconViews.

“In all of the elections of the past four or five years, there’s been a tendency to dollarize,” Kiguel said by phone from Buenos Aires. “The central bank hasn’t put a brake on monetary emission -- it’s at record levels for the past 10 to 15 years -- which means there are more pesos in the economy.”

Argentina's multiple exchange rates

Bloomberg, Ambito.com

Dollars are also becoming more scarce as the soy harvest season comes to an end and export fall amid dwindling demand from Brazil. Argentina’s July trade surplus fell 75 percent from a year earlier to $204 million as exports fell 12 percent to $5.9 billion.

The government, which is locked out of international capital markets due to a legal battle with hedge funds seeking payment on defaulted bonds, faces a $6.3 billion debt payment Oct. 3. That’s currently about 19 percent of reserves.

Since devaluing the official peso rate 20 percent in January 2014, the government has let the currency weaken just 13 percent compared with a tumble of 29 percent for Brazil, its largest trading partner.

As recently as April, the peso in the black market traded at 12.38 pesos per dollar. Due to restrictions imposed in 2011, Argentines turn to the street market to obtain foreign currency when the government doesn’t give them authorization to buy at the official rate.

The depreciation of China’s yuan and of other currencies in the region is also being reflected in the black market peso’s value, Kiguel said.

“There’s pressure on all emerging market currencies and since the official exchange rate is frozen because the government won’t touch it, the pressure is transferred to where it can move, which is the black market,” Kiguel said.