Following another round of extreme devaluation, Argentina’s 2023 general election this October poses an additional threat to the already devalued currency. As the saying goes “elections have consequences” but in the case of Argentina, this is clearly an understatement. Economic instability can open the door for extremist politicians and policies, as evidenced by far-right candidate Javier Milei’s shocking primary election win in August. In agreement with the IMF (International Monetary Fund), the Argentinian government lowered its official exchange rate by nearly 18% and pegged it at 350 per dollar. Unless the political situation can be resolved quickly and reasonably, Argentina’s financial circumstances remain tenuous1.
In 12 months, the peso is forecast to weaken 65% to trade at 1,004 per dollar. In freely traded parallel markets, it is already quoted closer to that level, at around 720 , for a nearly 100% spread over the official rate.
Current President Alberto Fernandez and Economy Minister Sergio Massa – who the Peronists chose as their candidate to replace Fernandez – blame this year’s drought, opposition tactics, and corporate greed for Argentina’s economic woes.
By contrast, the main political contenders Javier Milei and Patricia Bullrich, whose parties relegated the Peronists to a third place in the primary, point to excessive spending and money printing as the roots of Argentina’s financial ordeal.
“The government will have to devalue again because it’s running out of gas – whether it’s after the presidential vote or the second round, that will depend on the results,” Gabriel Caamaño, managing partner at Consultora Ledesma, said.
So far in 2023, the Argentine peso is down 50%. The Brazilian real , and the Mexican peso , Latin America’s top currencies, have gained 6.4% and nearly 12% respectively.
In one year, the real is expected to trade at 5.03 per dollar, just 1.2% weaker than its value on Tuesday. The Mexican peso is also seen with a relatively small loss of 2.3% in 12 months, changing hands at 17.84 per dollar.
Credit: Reporting and polling by Gabriel Burin in Buenos Aires; Additional polling by Devayani Sathyan, Pranoy Krishna and Sujith Pai in Bengaluru; Editing by Alison Williams
Source: 1. Reuters https://www.reuters.com/markets/argentina-peso-risk-another-devaluation-after-election-2023-09-07/