Posts Tagged ‘devaluation’

Argentina: Chronicle of a default foretold

Friday, January 24th, 2014

Subroto Roy sent this article, Argentine Default Chaos Relived as Blackouts Follow Looting, which describes the deja-vu conditions as the country is about to default, again, this time on its $50 billion foreign currency obligations,

Investors are bracing for the possibility of another default. The country’s average dollar bond yield of 12.4 percent is the highest among major developing nations after Venezuela. Trading in swap contracts that insure bonds shows investors see a 79 percent probability of a halt in payments over the next five years, a reflection in part of concern that Singer’s demand of full repayment on the securities he kept from the 2001 default will disrupt debt servicing.

“Over the next five years”, maybe, maybe earlier, as the Specter of Default Stalks Argentina. Argentina’s dollar reserves have now slipped below $30 billion.

Yesterday’s 8% devaluation (the largest one-day decline since the 2002 country’s default on its debt)

and falling reserves raise the specter of a deep economic crisis with inflation already believed to be running above 25% before the devaluation, the product of years of rapid increases in government spending financed in part by money printing. A weaker currency can aggravate inflation by reducing consumers’ purchasing power and pushing up the cost of imported goods.

The devaluation is also a major political blow to Mrs. Kirchner and her new economic team led by Mr. Kicillof. Shortly after her ruling coalition suffered a steep drop in support in October’s midterm congressional elections, Mrs. Kirchner replaced her finance minister, central bank chief, price control enforcer and economy minister. Less than a year ago, the president told the public it shouldn’t expect a devaluation under her watch.

Cristina Fernandez’s chief of cabinet Jorge Capitanich rushed to put lipstick on a pig, easing restrictions on the purchase of U.S. dollars Friday, by saying “The government considers that the price of the dollar has reached a level of convergence that is acceptable with the objectives of our economic policies.”

And the economy is pining for the fjords,

As a result of government price-fixing, Argentinians bought less bread and more cookies in 2013. The price of flour went up by 65%.

A parting question: Where’s Cristina?

Chavez devalues the currency: 15 Minutes on Latin America

Monday, January 11th, 2010


In today’s podcast at 11AM Eastern,
Chávez Devalues Currency Amid Oil Fall
Following the announcement, he stated that the military will monitor prices, and threatened to expropriate business that raise prices after the devaluation, in spite of the fact that the devaluation means that

45,9% de los productos adquiridos fuera del país a 2,60 bolívares por dólar ­correspondientes a alimentos, medicinas, algunas remesas y maquinarias­ estarán sujetos a una inflación que no estará por debajo de 20,9%. El restante 54,1% de las compras en el exterior, que se realizan a través de Cadivi, presentarán alzas de precios superiores a 100%.

45.9% of the products coming from outside the country at 2.60 bolívares per dollar corresponding to medicines, foods, some remittances and machinery will be subject to at least 20.9% inflation. The remaining 54.1% of import purchases, which are done through Cadivi, will have price raises of 100%.

The announcement from last Friday evening, which was not made during Chavez’s cadenas, created chaos in Caracas.

Miguel Octavio is Looking beyond the devaluation in Venezuela (Or trying…) and foresees another devaluation next year:

Let me explain. Let us assume that oil holds up and PDVSA sells the Central Bank for example US$ 30 billion. PDVSA will get some Bs. 120 billion to spend. This means that monetary liquidity will grow by a similar amount more or less. That represents an increase of 50% in M2, i.e. even if this money does not multiply, like it will, but let’s keep the argument simple. This means that by December monetary liquidity will reach Bs. 360 billion. Assume that the Central Bank will save US$ 8 billion of the US$ 30 billion, international reserves will reach US$ 36 billion.

This means that for each 10 Bs. in circulation in Venezuela there will be one US$ in the Central Bank. In contrast, today, before Chavez removes the US$ 8 billion, the equivalent number is 6.55 Bs. per $ and in a month it will become Bs. 8.24 per $. Well, as you can see this represents too many Bolivars searching for too few dollars, much like today. There will be 50% (it is actually more, but who cares?) more Bs. in December than yesterday. This will drive inflation and devaluation, as simple as that.Nobody seems to have told Hugo, in contrast with Argentina, where a Court has voided a decree to use international reserves to pay debt and stopped the firing of the President of the Central Bank by Mrs. Kirchner over the issue. Gee, if Chavez had done that with reserves, Venezuela would have no international debt by now, but Argentineans realize it would debase the currency and create inflation, precisely what nobody seems to have explained to Hugo.

Adding to the problem is that now there are two official rates, something Venezuela did back in the 1980s.

WSJ: Venezuela Devaluation Helps Chavez; For Others, It’s Unclear
Bloomberg: Venezuela Bonds Rise to 3-Month High After Chavez’s Devaluation
Reuters: Colombia fears pain from Venezuela devaluation
* Colombia-Venezuela trade already hurt by diplomatic spat
* Venezuela’s Friday devaluation makes imports expensive
* Bi-lateral commerce problems weigh on Colombia’s economy

Spain’s oil company Repsol announced that Spanish businesses (among them Mapfre, BBVA, and Telefónica) will lose US$1.4 billion from the devaluation. Spain’s foreign minister hastened to deny any effect of the devaluation “on Spanish interests.” The devaluation erased more than $1 billion in profits Telefonica has locked up in the country.

For more on the devaluation, go to Miguel’s blog, The Devil’s Excrement, and read on.

The Carnival of Latin America will be up later today.