By Walter Bianchi
BUENOS AIRES Jan 23 Argentina's exchange rate
on Thursday suffered its steepest daily decline since the
country's devastating 2002 financial crisis, extending the
previous day's losses as the central bank gave up its battle
against the peso's decline.
Having shed more than 30 percent of its reserves last year,
the central bank this week abandoned its policy of supporting
the peso by intervening in the foreign exchange market.
The new policy set the stage for Thursday's loss in the
value of the currency and increased worries about what is
already one of the world's highest inflation rates.
The peso-dollar interbank exchange rate hit the 8
mark, down 11 percent on the day following a 3 percent decline
on Wednesday. Argentina's black market peso fell 7.25
percent on Thursday to close at 13.1 per dollar.
"Yesterday the central bank neither bought nor sold dollars,
which tells you what its position is with respect to the
exchange rate," cabinet chief Jorge Capitanich told reporters on
Central bank reserves stood at $29.44 billion.
On Thursday the bank intervened but by an inconsequential
$100 million, according to local foreign exchange traders.
Due to local currency controls, the black market is the only
way for many Argentines to get their hands on dollars as
confidence in Latin America's No. 3 economy falls and inflation
soars. Given the country's history of repeated financial crises,
Argentines like to save in dollars.
According to private analysts, consumer prices rose more
than 25 percent in 2013, although discredited official data
clocks inflation at less than half that.
Unorthodox policies, from currency controls meant to stop
capital flight to heavy stimulus spending unencumbered by
inflation targeting, have made Argentina a no-go zone for all
but the most risk-hungry investors.
Argentina's key grains sector has cut exports as farmers
hoard their crops rather then expose themselves to the swooning
local currency. This has contributed to the scarcity of dollars
that is debilitating the peso.
Every time President Cristina Fernandez tightens capital
controls in a bid to shore up the country's wobbly balance of
payments, it increases the scramble for dollars. This in turn
contributes to the fall in the value of the black market peso
and higher inflation.
The new year has begun with analysts expecting a 30 percent
rise in consumer prices in 2014. That would be the highest rate
since 2002, when millions of middle class Argentines were pushed
into poverty by a crisis punctuated by a sovereign bond default
and 41 percent inflation.