First came the default, then a proposed debt swap aimed at circumventing a U.S. court ruling that could normalize Argentina’s relations with foreign investors. Now traders foresee a devaluation for the second time this year.

Argentina’s peso sank 1.5 percent this week to 8.4025 per dollar, the biggest drop since the government devalued the currency 15 percent in the week ended Jan. 24. In the black market, where Argentines go to avoid government limits on purchases of U.S. currency, the peso weakened to a record 13.95 per dollar yesterday.

Argentines are demanding more hard currency after the government proposed exchanging overseas debt into notes governed by local law. The plan means it’s less likely President Cristina Fernandez de Kirchner will negotiate a deal with holdout creditors that would lift the court order that has prevented the country from servicing its obligations, according to Bank of America Corp. Prolonging the default would then restrict Argentine borrowers’ access to international markets, putting pressure on policy makers to allow the peso to weaken as dollars become scarce.

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