Argentina's currency, the peso, has hit a record low of 460 per dollar in the black market, intensifying market concerns as the country's economy continues to struggle beyond its vital grain exports, which have been hit by drought. The unofficial exchange rate is over 107% higher than the official rate. The peso has been heavily supported by central bank interventions, amounting to over $1bn in March alone, putting pressure on the government to devalue the currency. However, with presidential elections looming in October and inflation already above 100% annualized, a devaluation would be an unpopular move for the current administration. Despite edging up in January and holding steady in February, economic activity slowed at the end of 2022, and GDP is set to contract by 2.3% this year, the worst performance among the G20 countries.
This economic slowdown, combined with the devaluation rumors and political pressure rising on economy minister Sergio Massa and central bank chief Miguel Pesce, is causing concern among investors. The International Monetary Fund has lowered its bar for reserves, and Argentina has failed its IMF program primary fiscal target for end-March. Economists predict that inflation will remain high, and real activity data will remain weak throughout 2023. Analysts suggest that a peso devaluation is needed to restore external competitiveness and help Argentina run the current account surpluses it needs to rebuild its foreign exchange reserves. Still, it could lead to further inflation in the near-term, making it a politically unpopular move before the presidential elections.
