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Argentina’s peso has plummeted against the dollar as voters and markets await a possible victory in the Oct. 22 election by radical right-wing economist Javier Milei, who wants to dollarize the economy.
Since August, Argentina’s official exchange rate has been fixed at 365 pesos per U.S. dollar. But on Monday, black market exchange houses where Argentines exchange their savings into dollars charged 945 pesos per dollar, a 7.4% increase from Friday.
The gap between official and unofficial rates has widened to 165%, the largest ever.
The peso has lost 71% of its value against the dollar in the parallel market over the past 12 months as Argentina faces its worst economic crisis in two decades. Annual inflation hit 124% in August.
Analysts said Mire’s strong poll performance, which he has made abolishing the peso to combat inflation a central part of his presidential campaign, has added to pressure on the currency. Milai’s liberal Freedom Party leads the polls, followed by the ruling centre-left Peronist League and the centre-right opposition Cambio League.
In a radio interview on Monday, Mire advised Argentines not to keep their savings in peso-denominated investment vehicles.
“Never a peso, never a peso,” he said. “The peso is the currency issued by Argentinian politicians, so it’s not worth the excrement because the garbage can’t even be used as fertilizer.”
About 13.6 trillion pesos are currently held in time deposits, said Amilcar Corante, an economist at the National University of La Plata.
“These pesos are currently controlled by the system, but if people hear Mire say ‘after the election we will dollarize, so get rid of them,’ that will create more demand for dollars,” he added. “What’s good for his election is very harmful to market expectations.”
The Argentine government has put billions of dollars in foreign exchange reserves into the legal parallel foreign exchange market this year to support the peso, spending about $1 billion in September.
But Fernando Marull, founder of Buenos Aires economic consultancy FMyA, said that with the central bank now out of fire – reserves excluding liabilities are about $5 billion – and losing money, the government Forced to relax intervention.
“The pressure was too much and what they were doing wasn’t working anymore, so they stopped,” Maluer said.
He added that pressure on the exchange rate was unlikely to ease before the election. If the polls are confirmed, what happens next will depend in part on Milley’s attitude toward the pesos.
“If he (moderates) his rhetoric, we might be able to stabilize the peso. If he keeps telling people to get rid of them, it will lose all anchorage.”
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