Jorge Otaola & Hernan Nssi

BUENOS AIRES, (Reuters) – Argentina’s currency leakage is increasing in speed and triggering doubts about its fragile economy. This comes amid complicated negotiations with the International Monetary Fund for restructuring more than $40 Billion of debt that the country can not pay.

After being badly defeated in the midterm elections, the government has spent dollars on local currency support to combat high inflation. Beware of capital controls and savers, savers also seek to move funds out of the banking system.

Since August’s peak, the gross central bank reserve has fallen to $41 billion. This brings it down to $39billion with Wednesday’s $1.9 billion IMF payment. Analysts believe liquid reserves may be close to zero.

Private bank deposits in dollars decreased by approximately $1 billion over the last two-months, according to market and official data. The trend was also observed in Peru and Chile at a time when there is political uncertainty after recent elections.

Armando Rojas, an analyst with the private consultancy Rojas stated that “the leakage of reserves and deposits will continue”

Argentina has been losing dollars for years. But, the outflow is increasing and there’s no faith in the currency. This means that Argentina is losing its savings and earning less. Inflation is currently at over 50% annually and the local currency has fallen against the greenback.

(Graphic: Reserves dwindle, https://graphics.reuters.com/ARGENTINA-ECONOMY/egpbkoralvq/chart.png)

Argentines look for foreign currency to be taken out of banks. Therefore, the central bank has to intervene on foreign exchange markets regularly to stabilize the peso.

Many Argentines have turned to the informal currency market for dollars, which is twice the price of what they would get in an official market.

Javier Timerman is the executive director of AdCap Consulting. He stated that many Argentines have lost trust in the Peronist center-left government of President Alberto Fernandez. The latter was defeated in last month’s midterm congressional elections.

Timerman explained that there are up to 50 percent increases in safe deposit boxes because of the dollar outflow, in spite of the fact that our financial system is very strong.

“The government needs to send clear signals.”

(Graphic: Cash Outflows, https://graphics.reuters.com/ARGENTINA-ECONOMY/znvnexwkrpl/chart.png)

Based on data from the government, private analysts believe that there is $250 billion of savings in Argentina. This is a result of the low faith in the market.

Argentina is currently in negotiations for an IMF program that will replace the 2018 failed loan agreement. This was Argentina’s biggest ever, but it was not enough to stop the country from falling back into financial crisis. It hopes to reach a settlement before March when almost $4 billion of $19 billion in debt is due.

A source said that Argentina’s central banking is considering raising interest rates to help reduce inflation, as it recovers from the COVID-19 epidemic.

Emiliano Annselmi, an analyst with Portfolio Personal Inversiones said “A central bank rate increase is required.” It is currently very low (compared to inflation), and it has been strengthening dollar.”

Reserves dwindle https://tmsnrt.rs/33FZ7XQ

Reserves dwindle (Interactive graphic) https://tmsnrt.rs/30OwTsS

Cash Outflows https://tmsnrt.rs/3Jb4WNn

Cash Outflows (Interactive graphic) https://tmsnrt.rs/3FmhUWe

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