Buenos Aires - Argentina’s efforts to stabilise the peso are being undercut by the 100 000 soccer fans Brazil is expecting to travel across the border to see the national team led by Lionel Messi try to win a third World Cup title.
Each fan will dole out about $2 000 (R21 300), bringing total spending to $200 million, according to Luis Secco, the director of Perspectiv@s Economicas in Buenos Aires.
Argentines skirting currency controls by buying dollars in the black market will put pressure on the exchange rate, which has tumbled 8.7 percent in the past month, while spending by travellers using credit cards or buying pesos on the official market would dent reserves already hovering near an eight-year low at $28.6 billion.
President Cristina Fernandez de Kirchner’s three years of capital controls have proven ineffective at safeguarding reserves used to pay creditors or halting a slide in the currency, prompting her to devalue the official rate for the peso in January by the most since 2002.
If the 42 percent gap between the official and black market peso rate widened on increased dollar demand, soya bean farmers, whose crops are the main source of export revenue, would begin to hoard their harvest in expectation of a second devaluation this year, Secco said.
“The longer Argentina lasts in the tournament, the greater the demand for dollars,” Secco said. If Argentina gets to the final stages, “you’re going to get people making expensive last-minute trips and needing cash to pay for tickets so that could put additional pressure on the market”.
Goldman Sachs said last month that Argentina had a 14 percent chance of winning the tournament, second only to the host country. Goldman predicts Argentina will lose to Brazil by a score of 3-1 in the final game on July 13, basing its forecast on mathematical models of historical data.
Argentina, which devalued the peso 19 percent in January to stem the loss of reserves, controls sales of dollars at the official rate and slaps a 35 percent tax on credit card purchases abroad to dissuade spending in foreign currency.
Still, Argentines spent $916m abroad in the first three months of the year, 10 percent more than a year earlier.
The dollars in the central bank’s vaults are critical for Argentina because it has been locked out of international capital markets since a record $95bn default in 2001. The government owes $907m in interest at the end of this month and another $650m to the Paris Club next month.
The extra yield investors demand to hold Argentine debt over US treasuries widened 2 basis points to 7.69 percentage points by 9.52am in Buenos Aires yesterday, according to JPMorgan Chase. That is the highest in emerging markets after Venezuela.
About 100 000 Argentines were expected to attend the first three group stage matches with as many as 40 000 for the final group stage match against Nigeria in Porto Alegre in southern Brazil because of its proximity to the Argentine border, said Joel Sampaio, a spokesman at the Brazilian embassy.
While demand for dollars during the World Cup “doesn’t help”, it would be insignificant compared to the other challenges Fernandez faced such as high inflation and an economy that contracted in the quarter to March for the first time since September 2012, said Alberto Ramos, the chief Latin America economist at Goldman.
Reserves would stabilise at about $28bn by year-end after dropping almost $15bn in the past 17 months, aided by about $30bn of grain exports, central bank president Juan Carlos Fabrega said last month.
Omar Chavez, a black market currency trader, said yesterday that demand for Brazilian reais had increased about 70 percent in the past week. – Bloomberg