By Bill Faries
June 22 (Bloomberg) -- Argentines are shifting money into dollars ahead of this weekend’s election on concern the government may let the peso slide after the vote to bolster economic growth.
Private bank deposits in dollars rose by about 5 billion pesos ($1.3 billion) between March and May, double the amount of the previous three months, according to data compiled by Argentina’s central bank.
President Cristina Fernandez de Kirchner, who in March called on Congress to move up the election by four months, has been tempering the pace of the peso’s decline to ensure that support for her ruling coalition doesn’t deteriorate ahead of the June 28 congressional elections, said Federico Thomsen, who heads E.F. Thomsen, a political and economic research company in Buenos Aires. Polls show her coalition is likely to lose its majority in at least one of the legislative houses.
“There’s a lot of speculation that there could be a move in the currency after the election,” Rafael de la Fuente, senior Latin America economist at BNP Paribas in New York, said in an interview. “There’s a lot of capital flight by the private sector and very high inflation, so there’s a need to depreciate to maintain competitiveness.”
A weaker peso makes imported goods, such as computers and medical equipment, more expensive for Argentines.
Managed Currency
Central Bank President Martin Redrado said in a June 13 speech that the bank uses a “managed floating exchange rate” to help guide monetary policy. A bank spokesman declined to comment on the exchange rate to Bloomberg.
Fernandez’s husband and former President Nestor Kirchner, who is seeking a lower-house seat, said last week there’s “no chance of a devaluation” after the mid-term vote. The peso is down 8.5 percent against the dollar this year, the worst performer among Latin America’s major currencies, and may fall another 10 percent by year-end, the median forecast of analysts surveyed by Bloomberg shows.
“The government doesn’t want to create any waves before the election,” Thomsen said. “Kirchner doesn’t have a lot of support he can afford to throw away.”
Inflation
Argentina’s annual inflation rate fell to the lowest in five years in May to 5.5 percent, the National Statistics Institute said. Economists such as former Economy Minister Roberto Lavagna say inflation in Argentina has been under- reported since Kirchner shuffled personnel at the institute in January 2007.
The country’s foreign reserves dropped 8 percent from a record high of $50.5 billion in March 2008 as the central bank sold dollars in the foreign-exchange market to ease the peso’s losses. Private capital outflows rose to $5.7 billion in the first quarter, compared with $2.3 billion in the same period of 2008, according to the central bank. The peso fell 0.2 percent to 3.7735 per dollar on June 19.
“In situations of crisis or uncertainty, Argentines turn to dollars,” said Carlos Lizer, a currency trader at Buenos Aires-based brokerage Puente Hermanos. “There’s going to be more demand for dollars.”
Half the 257-seat lower house and a third of the 72-member Senate are up for grabs in the election. The new lawmakers will take their seats in December.
Since May 2003, when Kirchner took office, unemployment has dropped to 8.4 percent from 18 percent, and the economy has grown at least 6.8 percent a year. Fernandez succeeded her husband in December 2007.
Fernandez vowed at a May 15 press conference to keep the economy growing this year. Gross domestic product expanded 0.1 percent in the first quarter from the fourth quarter of last year, the national statistics institute said June 18.
Alberto Ramos, senior Latin American economist at Goldman Sachs Group Inc. in New York, said in a June 19 report that the official figures “paint a much rosier picture” of reality. The economy may shrink 1 percent this year, he said.
Markets Last Week
Last week, the yield on Argentina’s benchmark 8.28 percent dollar bonds due in 2033 rose 177 basis points, or 1.77 percentage points, to 17.65 percent, according to Bloomberg data. The bond’s price fell 6 cents to 45 cents on the dollar.
The Buenos Aires benchmark Merval stock index fell 5.8 percent to 1,559.46 points. Telecom Argentina SA (TECO2 AF), the country’s second-largest telephone company, rose 11 percent after reports that parent company Telecom Italia is looking for a buyer of its stake in the Argentine unit. Steel pipe maker Tenaris SA (TS AF) fell 9.3 percent.
The following is a list of events in Argentina this week:
Event Date
Economic activity June 23
Industrial production June 24
Congressional election June 28
To contact the reporter on this story: Bill Faries in Buenos Aires at wfaries@bloomberg.net
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