Argentina’s Foreign Exchange Reserve Reach Nine-Month Low
Argentina’s central bank revealed on Tuesday that the country’s forex reserves have so far dropped to their lowest levels since the end of 2018. The country has been going through an economic crisis that has pushed down the value of the Argentine Peso, thus the heavy reliance on forex reserves.
There has particularly been more reliance on the US dollar in Argentina as the country continues to feel the effects of its ongoing economic crisis. The Argentine peso’s poor performance has so far contributed to the dollar’s adoption. This has consequently resulted in the rapid decline of its forex reserves.
Argentina has been relying heavily on the U.S dollar to support the troubled peso. The dollar is also critical in helping the country to service its dollar bonds. The economic recession and the declining forex reserves have escalated fears that the countries might default on the dollar bonds. So far Argentina has already spent its dollar reserves worth $16 billion.
The USD/ARS exchange rate was range-bound for the better part of the day on Tuesday. However, there was a notable price movement on Tuesday afternoon as the currency pair price experienced a spike in volatility. The currency pair saw the price drop to Tuesday’s low at 56.0405 before rallying to the day’s high at 56.7560. The price then normalized in another range bound movement between 56.5110 and 56.4690.
This price movement prevailed on Wednesday morning before another volatile spike happened on Wednesday afternoon. The USD/ARS exchange rate peaked at 56.7500 on Wednesday afternoon before hitting the day’s low at 56.4330. The pair traded at 56.4980 at the time of this press.
Argentina’s political situation and its impact on the economy
The political situation might worsen Argentina's economic situation. The country is scheduled to hold a presidential election in October, and the current president Mauricio Macri seeks re-election.
However, the chances of him being re-elected are dwindling because the citizens are not pleased with his failure to get the economy back on its feet. This political uncertainty will likely influence investments, and a new administration will take time before implementing policies that will fuel economic recovery.
Opposition candidate Alberto Fernandez is well-positioned to take over from Macri. Fernandez garnered a strong victory in the election primaries which were held in August.
However, the results of the primaries pushed down the value of the peso even further. This is due to concerns that Fernandez’s running mate, Cristina Fernandez de Kirchner might reintroduce interventionist policies that she used before.
De Kirchner served two terms as the country’s president between 2009 and 2015 during which she introduced the interventionist policies. Nonetheless, Argentina is working closely with the International Monetary Fund (IMF) to try and remedy the economic situation.
The two struck a deal last year through which the IMF would extend a $57 billion credit line to Argentina. The deal was supposed to help Argentina to avoid defaulting on its dollar bond. The IMF is currently contemplating whether to release the scheduled tranche of the funds.