By Hugh Bronstein
BUENOS AIRES Jan 7 Argentina's peso slid to an
all-time low on Tuesday as supermarkets froze prices in a deal
with the government aimed at shielding poor families from one of
the world's highest inflation rates.
The year-long price fix on 200 basic food products signals
continuation of President Cristina Fernandez's interventionist
policies even as polls show her image has been battered by 25
percent inflation, falling reserves and electricity shortages.
Tight currency and trade controls, as well as last year's
state seizure of Argentina's top energy company YPF
have taken a toll on confidence, while the electricity grid,
ailing from lack of investment, fails to keep air conditioners
humming at the height of the Southern Hemisphere summer.
Investors eager to get in on Argentina's vast grains sector
and promising shale 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 has
compounded the strain on the local currency, which slid to an
all-time low close on Tuesday of 10.93 to the greenback,
according to the black market exchange rate.
The breach between the black market and official peso rate
widened to 65.6 percent as of Tuesday's close.
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.
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. His appointment shored up Fernandez's
support in the Campora, an influential organization of young
socialists headed by her son Maximo Kirchner.
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.
The vicious circle of low confidence and falling central
bank reserves - down $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
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
"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.
Argentina is meanwhile struggling to attract the tens of
millions of dollars it needs to develop its Vaca Muerta shale
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