Monday, June 1, 2020

Debt Default Crippling The Peso For Argentina

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Argentina’s debt problems are dragging the economy into a downward spiral as the central bank’s foreign currency reserves dry up.

Another devaluation of the peso could be on the way as the price of imports starts to increase, inflation bites and investors send their cash out of the country.

To try to maintain the status of the peso, the government has started to restrict exchanging the currency for valuable US dollars.

Anyone wanting to exchange dollars in a bank has to earn at least $1,050 a month – way above the average wage and effectively closing the door on cashing in on the dollar for all but the well-off.

But as hard as the government tries to grapple with the exchange rate, the black economy is undermining their efforts.

The official exchange rate is 8.5 pesos to the dollar, but the black market rate is 15.75 pesos.

Empty words

An annual rate of inflation running at 40% officially, and probably nearer 60% unofficially, is not helping much.

Oil rich Venezuela has similar problems, but not triggered by defaulting on foreign debt like Argentina.

Inflation is raging at 65% or more and the government has promised devaluation for months without any result.

Speculators are interpreting this as empty words and multiple currency exchange rates are offering no stability to business or investors.

Of course, Venezuela sits on vast oil reserves and will eventually float out of the financial and economic problems brought on by this prevarication on the back of this pool of black gold.

Rouble slipping to all-time low

Russia is another nation on the brink of economic problems as a result of sanctions put in place over the skirmish with The Ukraine.

The USA and Europe are turning the financial screw on Russia, and as a result the rouble is suffering as investors and money men send their cash out of the country to safe havens like London and New York.

The rouble is slipping to all-time lows against other major currencies and looks like free-fall is on the way unless The Ukraine issue is resolved. Inflation is rising as well – hitting around 7.5% year-on-year.

It’s not all bad news. The US dollar and Pound are growing stronger, especially against the Euro as inflation sinks to 0.3% and a lack of action by the European Central Bank leads speculators to sniff the spectre of deflation fast approaching.

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