Weekly Report - 21 November 2013 (WR-13-46)

ARGENTINA | A gradual devaluation. On 18 November the official government-set exchange rate in Argentina reached Ar$6/US$1, a fall in value of more than 20% since the start of the year when it traded at Ar$4.92/US$1. As part of its heterodox economic policies, since 2011 the government led by President Cristina Fernández has imposed increasingly strict currency controls in a bid to keep domestic products competitive in international markets. Inevitably, however, such a strategy has resulted in high levels of inflation. It has also stoked domestic demand for scarce US dollars giving rise to a black (locally known as ‘blue’) US dollar market that operates based on a parallel exchange rate that tends to be much higher than the official rate. This situation has created a vicious cycle in which currency controls beget increased demand for foreign currency, which feeds into inflation, fuelling even more demand for foreign currency.