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Weakening Peso

California Central...
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Weakening Peso

I just read a report that the peso will continue its decline against the dollar and that by the 2nd or 3rd quarter it should dip to approximately 4.25 to 4.50! Good news for travelers - not so good news for Argentines! Anyone planning on shopping for Argentine-made goods (like leather) will probably do much better by offering dollars as opposed to using a credit card.

Abilene, Texas
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1. Re: Weakening Peso

It will only be good news for travelers if prices are not adjusted for the devalued peso. If so, it will not be good news for anyone.

Buenos Aires...
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2. Re: Weakening Peso

argentinepost.com/2010/02/u-s-fed-official-a…

Inflation is rising and we are seeing markets changing prices almost daily.

It has to be getting much more difficult for families here.

BA
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3. Re: Weakening Peso

You will see a lot of reports, some of them more optimistic, others really pesimistic. You should be careful who you are reading, since usually, and more particularly in Argentina, these reports are used with political intentions.

Eventhough some of the most pesimistic (or anti-government, or both)reports forecast a deep devaluation of the peso, the government denies (at least publicly) that there will be a devaluation of any kind.

Within serious economists, however, there seems to be a consensus around a 10% devaluation along the year, so that woul mean a 4.20 - 4.25 exchange rate by the end of the year. That seems to be the aim of the government, and at least for the moment, has full capacity to make it.

There are however, serious concerns about inflation. And as you know, expectations play a great part in this: when people expects inflation, prices DO rise faster, since businessmen increase prices to beat the effects of inflation in their earnings, workers demand wage increases to beat the effects of inflation in their purchase capacity, etc. And inflation beats us all...

NYC, NY
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4. Re: Weakening Peso

The topic is also being discussed in the North American press:

Argentina Confronts Soaring Inflation

FEBRUARY 20, 2010

BUENOS AIRES—Argentina is enduring its biggest inflation surge to start the year in two decades, posing a challenge for the government's newly named central bank president who is viewed skeptically by financial markets. Private economists calculated last month's inflation at more than 2%, the highest level for a January since 1992, though the officially calculated rate is lower. Especially painful—for the world's largest per capita beef-consuming nation—are increases in beef prices of roughly 25% so far this year. A Buenos Aires consumer group has launched a beef boycott to protest.

…wsj.com/article/SB2000142405274870451130457…

5. Re: Weakening Peso

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California Central...
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6. Re: Weakening Peso

DR_Dawggy - I agree with you 100%! I (more than most) have lived through this before (living in BA during the hyper-inflation years of the late 80s/early 90s) - this is why everything comes together: devaluation of the peso, inflation, curtailing tourism because of taxes and fees, and unemployment. I could write a thesis on what occurred 20 years ago - hopefully, Argentina will not go through that again.

Abilene, Texas
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7. Re: Weakening Peso

Palermo. One can only hope that in this case the past is not prologue.

BA
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8. Re: Weakening Peso

As said, there seems to be consensus about an exchange rate of 4.20 - 4.30 BY THE ENDO OF THE YEAR, read this article which extracts information from the Wall Street Journal (in Spanish):

…clarin.com/mercados/Wall-Street-pronostican…

Buenos Aires...
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9. Re: Weakening Peso

Folks.... I dont care who writes the Paper, or News Article or Editorial... even if its Paul Krugman, or Paul Samuelson (RIP), or your Nobel Economics prize winner of your choice.... the reality is that nobody knows for sure whats going to happen with the fx rate.

The only certainty is that inflation continues to sail along at 20-25% per annum (at a minimum). That is a certainty and this will got go away in the near future....

The problem with trying to guess the exchange rate policy is that this K regime can change 180 degrees in its strategy in a second... so even if there are economic fundamentals that would say that its a good idea that the peso would devalue -say- 10-15% over the next 12 months... then you have to consider that the price of the Greenback is a sensitive issue for domestic politics, and the 4 Peso barrier is an important one... and the K regime is doing what it can to be able to have a chance in the next elections.... so folks, its all up in the air.

The only 'hard' numbers out there on the future exchange rate are the quoted forward rates on the OTC markets... you have NDFs that are quoted offshore Argentina (NY and other markets) and then you have the on shore forwards that are traded in Argentina (RoFex, among others).... still, these are only indicative as the market is relatively small and very volatile... so that is only a partial indication.

Edited: 22 February 2010, 21:14
Punta del Este...
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10. Re: Weakening Peso

Essentially zero investment + excessive government handouts, driven by election politics + attempts, perhaps successful, to divert central bank reserves to government uses + powerful unions making excessive wage demands + a society conditioned to react at the slightest sign of runaway inflation = looming hyper-inflation. The Kirchners cannot stop it, if it takes hold; they would be lucky to escape with their own skins. Will it take hold? I don't know, but among the ominous signs is that even the anti-Kirchner press (which is just about all the press) is down-playing the rise in inflation; they are reporting it, but not beating the drums as they have been for years. That suggests they are worried about fanning the flames of hyper-inflation.