The chart that finally has Argentina talking to the “vulture funds”

June 19, 2014
June 19, 2014
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Argentina says that next week it will finally negotiate with creditors who refused a forced restructuring more than a decade ago. The proximate cause is this week’s US Supreme Court decision that would make it impossible for the country to avoid paying these “hold-outs” when it pays other creditors who did agree to take a haircut on the debt they hold. If the country doesn’t pay up by June 30, it will go into default.

To see what that means for Argentinians, look to the chart above: It compares the official exchange rate for dollars with the black-market rate. As you can see, the black-market rate for dollars—the pink line—is shooting back up toward record highs, after the recent decision made a default more likely.

In the last two years, the official exchange rate has nearly doubled, and the unofficial exchange rate—made necessary by the country’s strict limits on dollars and attempts to hoard them and bolster its falling currency reserves—has tripled. But Argentines want dollars badly because they are a safe investment in a country where price inflation has been 3.7% a month in recent times.

It’s not exactly a tenable position. It’s becoming clear something must be done to take the pressure off Argentina’s currency and stop capital from leaving the country.

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