Graphic: Pandemic curbed while economic threats soar
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The health vs. economy debate can often be misleading: early restrictions to curb the spread of the virus can prove to be a net positive for both, as they stop contagion from spiraling out of control and allow for a quicker re-opening, while sustaining the economy as much as possible can also make lockdowns easier to endure. But in Argentina, it’s quite clear that one part of that equation is working well so far, while the other one isn’t.
In terms of COVID-19 death per capita, arguably the most reliable figure available to measure public health success given that testing standards can vary wildly, Argentina’s curve has remained mostly flat, with most days still showing less than 10 demises per day. Indeed, in his press conference last weekend announcing the extension of the lockdown, President Alberto Fernández pointed to how cases are doubling at an increasingly lower pace as a sign that the measures have so far been working, giving hospitals the time to treat all patients without seeing their infrastructure overwhelmed.
But the public health success is at risk of being overshadowed by economic problems. Many have already been discussed, such as growing unemployment, bankruptcy risks for companies and more. But the graph below shows an issue that is less evident at first sight, but which could ultimately prove fatal for Argentina, as it has in the past: the difference between the official and the “free” peso-to-the-dollar rate.
Last week, the gap between both exchange rates reached an Alberto Fernández-era record at nearly 80 percent, as blue-chip swap rates (used by stock and bond brokers to swap currencies with no limits) soared to 120 pesos per dollar, while the official rate remained stuck at 66 pesos. While the blue-chip swap (or “free”) rate has now fallen a few pesos after the government intervened by forcing funds to exit some dollar positions, the mark seen last week came only a few percentage points below the all-time high of May 2013, when Cristina Fernández de Kirchner’s administration was struggling with currency exchange restrictions as well.
If a gap of such size continues in time, firms will increasingly refuse to sell their foreign currency at the official rate, forcing the Central Bank to either sell its dollar reserves on the cheap or restrict imports, a move which usually leads to scarcity and lack of basic products in the market (the most extreme case of this was seen in Venezuela, where most imported products were unavailable at any price until the latest re-unification of the currencies). Indeed, Central Bank chief Miguel Pesce has been forced to sell cheap dollars during the last few weeks to prevent demand from outpacing supply. But that can’t last for much longer, as Central Bank’s net assets are close to an all time low.
Fernández’s economic team will need to find a quick solution to this issue, otherwise the economic crisis could get even uglier that what most already expect.