Argentina's economic challenges persist as the country enters 'Phase 2' of its economic plan. Shares of Argentine companies on Wall Street have fallen, and the unofficial peso has depreciated against the US dollar. The country risk index has crossed the 1,500-point threshold, indicating increased risk. The 'financial' dollars have seen increases of up to 3%, while the 'blue' dollar has been trading above AR$1,400. Economy Minister Luis Caputo and Deputy Economy Minister Gustavo Bausili have discussed a 'second stage' of the government's economic program, which involves transferring the Central Bank's debt to the Treasury. Tax collection has also fallen by 13.9% compared to the previous year, suggesting a fiscal deficit for June [609afedb].
Despite the challenges, Argentina recently recorded a historic foreign trade exchange surplus of US$2.656 billion in May, surpassing the previous record set in May 2009. Exports in May totaled US$7.622 billion, a 21.7% increase compared to the previous year, while imports plummeted by 32.8% to US$4.966 billion. The country is expected to end the year with a surplus of around US$16.4 billion. However, analysts caution the need to monitor the cash base flows of export liquidation, given the recent fall experienced since May. Imports are expected to remain low but recover as the peso appreciates against the US dollar [5c33989c].
In addition to the economic challenges, Argentina has also seen significant increases in the informal exchange rates. The 'blue dollar' has jumped by 9.8% in just two days, reaching AR$1,230 per unit, close to its all-time high in January. The 'blue-chip swap rate' has also increased by 8.3% to AR$1,198. These increases come after months of relative calm in the exchange rates. The crawling peg, which has been maintained at 2% since a 54% devaluation in December, has contributed to the rise in the greenback. The Central Bank recently decreased the benchmark annual interest rate to 40%, while interannual inflation soared to 289% in April. Analysts believe that the rate decrease and the dismantling of investments in pesos that return to dollars are driving the increase in demand for U.S. dollars. Despite calls from businesspeople to devalue the official exchange rate, Economy Minister Luis Caputo has rejected that possibility and insists on maintaining the 2% monthly crawling peg [cfa2a691].
Argentina's central bank will start selling US dollars in the country's parallel foreign exchange markets to combat inflation and freeze the country's money supply. Economy Minister Luis Caputo revealed the new strategy, stating it would 'contribute to deepening the disinflation process.' Starting Monday, when Argentina's central bank issues pesos to buy US dollars on the formal exchange market, it will sell an equivalent amount of dollars on the parallel 'CCL' exchange market. The strategy aims to stabilize the money supply, reduce inflation, and narrow the gap between Argentina's official and parallel exchange rates. President Javier Milei's government outlined the plan, which has been celebrated by Milei and Caputo as a way to accelerate the deflation process in the economy. Since Milei took office, inflation in Argentina has dramatically slowed, decelerating from 25.5% in December to 4.2% in May [f74e1f2f].
Argentina's real estate market is also facing challenges amid the country's economic uncertainty. Real estate agents advise potential home buyers to bring cash due to the struggling mortgage market. High inflation and distrust of banks deter borrowers from seeking mortgages, limiting access to credit. As a result, only the wealthy can afford to buy homes, while the rest have to rent. Efforts have been made to tap into middle-class dreams of home ownership with new mortgage launches, but most buyers choose not to take on the financial risk. Limited access to credit has forced people to get creative, such as using credit cards or cash savings to purchase property. Argentina's history of sovereign debt defaults and high inflation contribute to the lack of trust in banks. The government sees the return of mortgage products as a signal of support for pro-market reforms. Banks are cautiously optimistic about the revival of the mortgage market [2e75bfea].
Argentina's mortgage market is tiny, less than 1% of the country's GDP. Buyers and real estate agents say that reviving the market won't be easy due to inflation and economic uncertainty, which make borrowers and lenders fear the risk of long-term credit. Limited access to credit has forced people to get creative, using credit cards or cash savings to purchase property. Argentina has registered nine sovereign debt defaults, the most recent in 2020. In May, only 141 houses were sold with mortgages in the capital Buenos Aires. The return of mortgage products is seen as a signal of support for President Javier Milei's pro-market reforms [b3687724].
Argentina's mortgage market has a long road to revival. It is currently tiny, accounting for less than 1% of the country's GDP. Buyers and real estate agents believe that reviving the market won't be easy due to inflation and economic uncertainty, which make borrowers and lenders fear the risk of long-term credit. In May, only 141 houses were sold with mortgages in the capital Buenos Aires. Argentina has a history of sovereign debt defaults, with the most recent one occurring in 2020. Limited access to credit has forced people to find alternative ways to purchase property, such as using credit cards or cash savings. The return of mortgage products is seen as a signal of support for pro-market reforms by the government [caf4593e].