Argentina: Credit Suisse is currently expecting reserves to dip below $25 billion by year-end, which could necessitate a fourth quarter devaluation of 30 percent

Argentina Could Soon Be Forced To Implement Another Massive And Disruptive Currency Devaluation

by JENS ERIK GOULD

Faced with rapidly dwindling foreign reserves, Argentine officials in January purposely sent their currency tumbling the most it has in one day since the 2002 financial crisis. While the sharp devaluation hurt Argentines’ purchasing power — the peso is now down 20 percent against the dollar since the beginning of the year — it also had the desired effect. The reserves’ pace of decline has slowed, the peso has stabilized and rising interest rates have helped mop up excess liquidity.

But Credit Suisse analysts think the reprieve is likely to be short-lived. President Cristina Kirchner’s government is merely alleviating the symptoms of the country’s economic malaise, rather than addressing the root causes, according to a report by analysts Casey Reckman and Daniel Chodos entitled, “Argentina: An Unsteady State.” Put simply, the government isn’t tightening fiscal policy enough to tame the out-of-control inflation that is the country’s primary problem.

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