The Argentina peso has become worthless as the country’s inflation surged above 100%. The USD/ARS has soared to a high of 221, the highest point on record. This means that the pair has jumped by over 22,365% in the past two decades.
Argentina economic crisis continues
One of the biggest economy news is the ongoing crisis in Argentina. Data published by the country’s statistics agency showed that the headline consumer price index jumped to 102% in March. It has soared to the highest level in more than three decades.
The last time the situation was this bad was when the country was emerging from a phase of hyperinflation in the early 1990s.
As a result, the country’s central bank has pushed interest rates sharply higher. This month, the central bank hiked interest rates by 300 basis points. It pushed rates to 81%, which was higher than the previous 78%. The central bank has hiked rates since September last year, pushing the poverty rate to almost 40%. Analysts believe that interest rates will peak at 110%.
Argentina has been in an economic crisis for many years. The country defaulted its debt obligations in 2020 after it failed to pay $500 million to creditors. In all, it has had more than ten defaults in the past few years, which led to a deal with the IMF.
Argentina’s bond yields have jumped as investors expect another crisis in the coming years. In March, it made another bond payment. The country’s debt to GDP has jumped to 85%, which was higher than the estimated 74%.
Earlier this month, the country lost a case, meaning that it will need to pay investors 1.3 billion euros. The country also lost another case in New York, which could see the country ordered to pay between $10 billion and $20 billion.
Clouding the performance of the Argentina peso is the upcoming general election scheduled in October. Historically, currencies in emerging markets tend to underperform ahead of a major election.
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Argentina peso outlook
The outlook of the Argentina peso is dire since the economic situation will worsen in the coming months. The country is facing a major economic crisis that is hard to fix. In reality, the real solution would be to conduct a full restructuring of the economy, which will reduce public wages and then boost exports.
These are tough measures to implement considering that Argentina’s agricultural exports have dropped because of droughts. This week, it was reported that beef exports will drop to 795k tons from the previous 823k. Therefore, I suspect that the USD/ARS will continue surging in the near term.
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