The days of the weak Argentina Peso are finished, that's official now

I was going to use a picture of BCRA head Martin Redrado, but as his wife
Ivana is much prettier, here's her snapshot instead.

To borrow a line from 'Allo Allo', "Leesern very carefullee, I shall say zis only once."

In this post back in August, I told you what was happening at the Argentine Central Bank. Here's an excerpt:

"However, this time ArgyBizDude might have to lump it. Word is that Martin Redrado, anglophile and big cheese at the Argentine Central Bank (BCRA) is pushing los Kirchner to finally...FINALLY allow the peso to revalue. In off-the-record-third-party gossip (that's from a normally pretty accurate source), Redrado is reported to have said to his inner circle that the weak Peso has had its day and that monetary policy must be changed to attack inflation."

Yesterday, things suddenly moved forward on this issue. Wife of the leader of Argentina, Klishtina Fernandesh de Kirchner, said this:

"A very high exchange rate (i.e. a weak Peso) is inconsistent with anti-inflation policy."

That, dear reader, is a big shift in official rhetoric. It means that Los Kirchner have

1) Listened to Martin Redrado
2) Listened to reason
3) Finally learned a bit about basic economics. It took 'em five years, but better late than never I suppose....

But the real jawdropper hit my screen this morning, because the President of Fiat Argentina, Cristiano Rattazzi, said the following referring to the above remarks:

"The President made a tremedously sensible and logical speech. Often things are done that are inconsistent with the medium-term and are simply good for today."

If you know about the Argentine business scene, that one is a knock-down statement. Along with the cereal producers, the auto industry has been the loudest voice all this time for keeping the weak Peso. This simply because their exports (mainly to Brazil) have been greatly benefitted from this policy. This therefore means that:

1) The auto industry now sees inflation as its biggest problem, too
2) Los Kirchner have had a quiet word in the ear of the auto people and have told them to get ready for the change and to support it (I'm not joking on this one...that's how Argentina works)
3) The big move to a stronger Peso is just around the corner.

A stronger peso will also give the Kirchners sweet revenge against the troublesome agro boyz, it must be remembered. That'll be even more reason for the country to let the Peso appreciate! Otto therefore goes on record and says, "Buy the Argentine Peso, with an initial target of P$2.80 to the dollar and a 10% profit coming to you very soon."

You heard it here first, dudes.

Argentina: Damned if you do.........

Martin Redrado.

(Listen to him, Kirchner. He's actually making sense.)

The fall-out from the decision by the Leader of all Argentina (and his wife) to pay off the country's $6.7Bn Paris Club debt via this Presidential Decree has been totally predictable:

The Paris Club Group of Creditors, via its head honcho Xavier Musca, said "We consider that Argentina is making a good decision, if everything is confirmed and implemented". He also said that paying the debt off will help "repair the economic credibility of the country."

The IMF said "We welcome the normalization between Argentina and its creditors yada yada........."

The wolves in sheep's clothing known as ATFA (check out their shadowy background in this previous post) came out with a predictably dickhead interview that included, "...it's still to be seen whether the President really wants to correct the economy of the country or if she is only trying to avoid the next default". These crooks' binary worldview couldn't possibly imagine a third scenario where Argentina becomes an accepted member and doesn't have to crawl to their armtwisting tactics (no surprises that it's the scenario I prefer).

Local opposition politicos have done the normal stupid things like trying to get the courts to block the payoff, saying that Central Bank funds aren't allowed to repay this kind of debt. Don't worry, Xavier; not a snowball in hell's chance of this one bearing fruit.

Local exponents of the dismal science wrung their hands about using Central Bank reserves to pay off the debt. The fact that Argentina now saves over U$350m in debt servicing and that no country its size ever needs 50 large one tucked away in the bank vaults doesn't seem to occur to them. They then crawled back into their ivory towers.

But as mentioned on Tuesday, this bit of tidy financial housekeeping can only be a good sign. No matter what spin opponents would like to put on the matter, STFU is still the order of the day.

Typical IDEA member

However, the local business community still has its own gripes, and being the spoiled brats that they are will be looking to have their cake and eat it over the question of country inflation (around 8% officially, but really around the 20% to 25%). At the IDEA ( Institute of Argentina Empresarial Development) summit happening now, 93% of the preening suits on display ranked inflation as their top concern. "Do summink 'bout it, Klishtinaaaa!!" they all shout.

The argy Peso vs US dollar: $3.04 right now

Well, the obvious thing to do is to tell the Central Bank to stop intervening in the local forex market and let the Argentine Peso freely float and strengthen to its natural level (which I think is around 2.80 to the dollar, but others say is even higher).

Argy Peso vs Braz Real: nuff said

But of course, Señor Bizdude will then come back with the "NOOO!!! You're killing my export biz you fools", the same chant as we've heard for at least three years whenever something as radical as Economics 101 is proposed to them. I mean, look at that chart again and then point to the way Brazil's exports have been murdered by forex rates...NOT.

However, this time ArgyBizDude might have to lump it. Word is that Martin Redrado, anglophile and big cheese at the Argentine Central Bank (BCRA) is pushing los Kirchner to finally...FINALLY allow the peso to revalue. In off-the-record-third-party gossip (that's from a normally pretty accurate source), Redrado is reported to have said to his inner circle that the weak Peso has had its day and that monetary policy must be changed to attack inflation.

I for one hope that Klishtina listens to Redrado. There's no point in 9% GDP growth if inflation robs the country of the benefits. If Argentina can successfully swap its 8%/9% GDP growth and inflationary pressure for a 5% longer-term growth rate and lower inflation (not the BS number served up by INDEC, but the real number) the country will be in much better structural shape. It can then truly give the finger to ATFA vultures and all the other detractors who only see gloom and doom on the near-term horizon.