Despite devaluation touted as a reserve booster, Argentine reserves down $1.7 billion in February.
Lower than expected deposits from an agro-export sector flush with President Macri's sharp devaluation and tax cut decrees, as well as ongoing pressure by speculators seeking to accelerate the pace of devaluation, resulted in a decline of $1.686 billion in Argentina's Central Bank reserves in February.
Excluding a $5 billion, high-interest credit line extended to the right-wing Macri administration in January by a consortium of U.S. banks, the Central Bank's international reserves thus ended the month at $23.385 billion - the lowest figure since May 2006.
The Central Bank was forced to shed $171 million in reserves on February 29 alone, as it struggled to contain a run on the peso. The Macri administration had expected Friday's announcement of an agreement in principle with vulture funds for a $4.65 billion payout to shore up confidence.
Instead, the Central Bank was forced to intervene in the exchange market with $200 million on Monday - but failed to contain the escalating exchange rate. The dollar rose another 23 cents to a record 15.86 pesos yesterday, up 62.5% since President Macri took office on December 10 (when it was 9.76).
Reserves also came under pressure from sputtering deposits from Argentina's cereal and oilseed exporters, which in 2015 earned around a third of the country's foreign exchange. Daily export revenues declined steadily from $110 million during the first week of February, to $70 million by the week ending February 26 - a 13% decline from the same time a year ago.
A vicious circle thus emerged in February between devaluation expectations on one hand, and the slowdown in agro-export income on the other. Dollar Rofex futures for December 2016 jumped from 17 to 19 pesos in the last four weeks alone, and this trend in turn prompted the country's agricultural export sector to increase stockpiles of cereals and soy for speculative purposes.
Campaign promises and sticker shock
The practice of grain stockpiling was made into a hot-button issue by the Macri campaign last year, and Macri repeatedly promised that a sharp devaluation would encourage exports and boost reserves with no effect on Argentines' purchasing power. The rising dollar, however, has led to a sharp increase in the country's already high inflation rate. Food prices have been particularly impacted, with the retail price of many basic staples rising by over 30% and beef rising by over 100% since November.
The sharp increase in the price of beef was dramatized recently by an incident in which former Vice President Julio Cobos, who endorsed Macri, took to Twitter on February 21 to express outrage at finding that eye of round had jumped to 180 pesos a kilo ($5.30 a pound) and skirt steak, to 220 pesos ($6.50 a pound). These cuts typically sold for 70 and 85 pesos, respectively, in November.
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