THE ARGENTINE peso crumbled yesterday, plunging at the steepest rate in over a decade.
Against the dollar, the peso collapsed by 12.5 per cent, dropping to around $0.126. The currency has not plunged so far in a single day since Argentina defaulted on its debt in early 2002.
The dramatic drop comes after the government announced a fresh crackdown on illegal exchanges, prompting further devaluation against other currencies.
Johns Hopkins professor Steve Hanke, former adviser to Argentine economy minister Domingo Cavallo and a former president of Toronto Trust Argentina,told City A.M. the government’s actions are unlikely to have their desired effect.
“These are futile attempts. They will actually inflame the situation. When Argentinians get nervous about the government and policy, they want to get out of the peso.”
He added: “The implied inflation rate in Argentina is about 75 per cent, based on my estimate.”
The official rate is much lower, at around 10 per cent.
Laying out Argentina’s parlous fiscal situation, BNP Paribas analysts said the country’s spending issues were structural.
“No moderation in price pressure will take place in 2014. We are forecasting an additional acceleration in the inflation rate, due to strong peso issuance by the central bank to continue financing the treasury.”
The Argentine peso is often traded on the black market, due to controls imposed by the government.
Many citizens of the country save in dollars to avoid the volatility of their own currency.