Source Pravda.Ru

Argentina:a financial tight-rope

The Argentinean Central bank has adopted a strategy to protect the exchange rate of the peso, which seems to be working, for the moment.

The perilous state of the Argentinean economy lives on a knife-edge, standing between the inability to meet debt repayment and the desire not to alienate the International Monetary Fund (IMF) further.

The result is a compromise position which appears to be bearing fruits. The Argentinean Central Bank decided to flood the monetary market with fresh dollars from exports, which will later be sold to the public, in return for a sizeable exchange rate fee. This policy resulted in the peso stabilising as the market closed in Buenos Aires on Wednesday, finishing at 2.85 pesos per USD. Should the peso reach the three/USD mark, this is a sign that hyper-inflation will have set in, and it is this threshold which the central bank is trying to stave off.

Yesterday’s rates spelled the second consecutive day of the peso’s recuperation, as the IMF prepares to visit Buenos Aires for talks on the debt repayment schedule, cancelled by the Argentinean administration in January, due to lack of funds.

However, on the parallel market, the USD is being negotiated at 4 pesos to the dollar, a clear sign that the economic stability of Argentina is far from being a reality, but rather a chimera. Decades of corruption and autocracy have ruined the country’s economy, placed at seventh in the world in 1910. As elsewhere in South America, the redistribution of wealth, so necessary to stimulate the economy and create social justice, was not forthcoming in this repressive society.