Moreno's attempt to cool trading of black market dollars, known in Argentina as blue dollars, came after unofficial exchange rates climbed to 8.75 pesos to the dollar, while the official rate remained steady at just over 5 pesos to the dollar. So far, the moves appear to have succeeded, with the black market rate falling to 8.27 pesos per dollar on March 25.
Argentina's black market dollar exchange is an unregulated affair with multiple points of sale. Larger currency exchanges are known as cuevas, or "caves," and bill themselves as financial consultant groups. Individual vendors called arbolitos, or "little trees," sell blue dollars from street corners — sometimes at a higher rate than can be found at the cuevas — and often to tourists. Many, if not most, points of blue dollar sales are well-known by national authorities. Though technically illegal, the cuevas are tacitly permitted to operate by Argentine authorities. Unofficial estimates place the blue-dollar exchange at between $10 million and $40 million per day, or between 2 percent and 6 percent of the number of dollars exchanged on the official market.
Argentina's Appetite for Dollars
Strong capital controls on the legal market have made the black market increasingly important for Argentine consumers and travelers who purchase foreign goods or save in dollars, since the U.S. tender has a much lower effective inflation rate than the peso. Inflation in Argentina has been increasing by roughly 30 percent per year, and the problem could worsen as October legislative elections approach and the government uses populist spending measures to court votes. A recent tax increase on electricity and a possible attempt to raise the price of gasoline sold by national energy company YPF could further exacerbate inflation in the coming year.
Even more problematic than inflation is Argentina's cyclical history of currency crises, the most recent of which occurred in December 2001 after the International Monetary Fund cut the country's access to currency stabilization funds following a period of declining growth and rising sovereign debt. The resulting currency crisis pulled Argentina into economic and political turmoil. In January 2002, after the peso had been pegged to the dollar for more than decade, the Argentine government abandoned the fixed rate, and the peso quickly lost much of its value. A long bank holiday was then declared and bank accounts were frozen. After the holiday, in an effort to boost the government's access to foreign reserves, all foreign denominated deposits were converted into pesos.
Argentina is entering a new period of economic uncertainty, and access to dollars remains the critical concern. The government is not bankrupt, but its list of challenges is growing while its resources dwindle. Rising expenditures and slow growth in the country created a primary fiscal deficit of $888 million in 2012, Argentina's first since 1996. Though Argentina remains a net exporter of agricultural products, its trade deficit in energy products could reach $4.5 billion in 2013, the highest since the country became a net importer of hydrocarbons in 2011. Since demand for dollars remains high, foreign reserves in Argentina's Central Bank are declining. Reserves reached $40.95 billion on March 22, down some $285 million from the previous week. This was the first time reserves dipped below $41 billion since June 2007, after peaking in January 2011.
Major Changes Unlikely
Still, the government is unlikely to make any sudden changes to its management of the peso, which is devaluing against the dollar by about 15 percent annually. Any serious instability in exchange rates would make it more difficult for political factions led by Argentine President Cristina Fernandez de Kirchner to secure a favorable outcome in the October elections.
The government will probably rely instead on increased regulatory pressure to stabilize black market currency trading. The timing of the current crisis is fortuitous, since the government is expecting a sizeable influx of cash into the financial system when soybean farmers and other agricultural exporters convert earnings from this year's crops to the peso in April. However, the farmers may be inclined to wait for the peso to devalue further to maximize their receipts. The government is rumored to be planning to pressure the farmers to convert their revenues as soon as possible. For example, according to unnamed government sources quoted in a report by Argentine newspaper Chronista, the government is considering using an anti-terrorism law as a way to force soy exporters to comply.
Regardless of whether the government resorts to such moves, it is clear that economic pressure will continue to rise. The government will continue to intervene in the black market in order to stabilize the situation ahead of the October elections, after which more significant changes can be expected — recalling the strict capital controls and other economic reforms that were introduced after presidential elections in 2011.
