| BUENOS AIRES
BUENOS AIRES Jan 7 Argentina's peso slid to an
all-time low on Tuesday as supermarkets implemented food price
freezes in an agreement with the government aimed at protecting
poor families from one of the world's highest inflation rates.
The year-long price deal on 200 on basic food products,
agreed to last week and implemented on Monday, signals a
deepening of President Cristina Fernandez's interventionist
policies. With two years left in her second term, food prices
are being pumped higher in part by the devaluation of the peso.
Polls show her reputation has been battered by 25 percent
inflation, falling central bank reserves and electricity
shortages caused by low investment after implementing tight
currency and trade controls and seizing the country's top energy
company YPF last year.
Investors eager to get in on Argentina's vast grains sector
and promising shale oil reserves had hoped for a change toward
business-friendly policies when Fernandez lost congressional
clout in the October mid-term election. But since then she has
doubled-down in defense of her unorthodox policy model.
Nervous about holding the anemic peso, Argentines are
desperate to get their hands on U.S. dollars. The trend had
compounded the strain on the local currency, which slid to an
all-time low of 10.73 to the greenback on Tuesday, according to
the unofficial (black market) exchange rate.
"Food prices are going up in part because of the pass
through from the currency depreciation. The price freezes
address the symptom, not the root causes of the problem," said
Gary Kleiman, head of the Kleiman International consultancy.
"For that you would need disciplined fiscal and monetary
policies, and a more open policy toward foreign investment," he
said. "The price deal shows the government is not going in that
direction. If anything, it is hardening its previous stance."
The black market peso was at about 7 per dollar a year ago.
Tuesday's slump widened the gap between the official
and unofficial exchange rate to more than 62 percent.
Uncertainty about how fast the U.S. Federal Reserve will
continue to reduce its bond purchases has contributed to the
peso's slide by sapping investors' appetite for higher-yielding,
riskier emerging market assets.
The country is meanwhile trying to attract tens of millions
of investment dollars to its Vaca Muerta shale oil formation.
Lying beneath the Patagonian plains, the Vaca Muerta (Dead
Cow) field is estimated to hold 661 billion barrels of oil and
1,181 trillion cubic feet of natural gas. It could be one of the
biggest formations of its kind in the Western Hemisphere.
KICILLOF'S FIRST MOVE
The supermarket price freeze is the biggest policy move yet
by fledgling Economy Minister Axel Kicillof, a leftist academic
appointed in November.
The choice of Kicillof to guide Latin America's No. 3
economy shored up her support in the Campora, the organization
of young socialists headed by her son Maximo Kirchner. To
balance the appointment she named Chaco Governor Jorge
Capitanich, a practical political operator, as cabinet chief.
The main supermarket chains operating in Argentina include
units of Chile's Cencosud, France's Carrefour
and the United States' Wal-Mart Stores Inc.
Grains powerhouse Argentina is the world's No. 3 soybean and
corn supplier as well as its top provider of soymeal animal feed
and soyoil, used in the booming biofuels sector.
Locked out of the global bond market since its 2002 default,
Argentina wants a more competitive peso to strengthen exports.
This is the motivation behind the acceleration of the pace of
currency deprecation over the last few months, said Alberto
Ramos, who analyses the country for Goldman Sachs.
"But the authorities fear the impact on inflation, which is
already approaching 30 percent. Since they do not seem ready to
tight fiscal and monetary policy, they continue to resort to
heterodox measures such as price controls and so-called
voluntary price agreements," he said.
The vicious circle of low confidence and falling central
bank reserves - which shed $13 billion in 2013 to end the year
at $30 billion - is likely to continue in the months ahead as
labor unions get set for tough wage negotiations based on
private inflation estimates.
Widely discredited official figures put inflation in the 12
months through November at 10.5 percent while private economists
say Argentine inflation is running at more than 25 percent
"Without meaningful efforts to bring inflation down,
especially in terms of reducing fiscal spending, pressures on
reserves will likely remain high in 2014," said a report issued
on Monday by the Eurasia Group consultancy.