Argentina's problematic Peso; is there a solution to the nation's economic woes?

President Fernandez faced a monumental task when his office term began in 2019. Providing economic stability to Argentina following the aftermath of the 2018 crisis has proven near impossible. Paired with the pandemic, Argentina has seen consumer and investor confidence plummet, leading to an even weaker Peso. It seems as though devaluating the currency is a certainty, although the President is refuting this, indicating that his government may attempt to persist with tight capital controls in the hope of a resurgence in confidence.

What does devaluing the Peso mean for the South American Emerging Market? Argentina has seen low growth rates and a deteriorating in its balance of payments, necessitating the restriction of imports. To stimulate an improvement to the trade balance sheet and the domestic growth rate, a devaluation of the Peso is a valid option and one that has been taken six times by the nation in the past two decades. The exchange rate would be intentionally adjusted downward which would increase the competitiveness of Argentine exports.

The impact of Covid-19 on Argentina's export economy has been significant. The produce-rich nation has experienced major setbacks in their ability to export goods, with lengthy domestic lockdown measures paired with a global transport slowdown. The devaluation of the Peso may lead to an initial resurgence in Soya and other agricultural exports, which may improve growth.

However, the potential and seemingly unavoidable devaluation may also hinder other areas of Fernandez's economy. Since 2018, inflation has been out of control; with prices rising fast and inflation estimated at 22.3% this year! An increase in demand-pull growth from greater exportation will likely lead to increased inflation and therefore risks being counterproductive.

A lengthy lockdown partly stemmed the Argentinian inflation problem as consumer spending plummeted. With the 5th highest number of coronavirus cases worldwide, Argentina's domestic economic activity will not be the answer to the country's economic issues, they will need to export.

It is imperative that Fernandez creates a clear economic pathway to re-establish stability in domestic markets. The current depreciation in the Peso is unsustainable and so immediate action is needed. Investors and consumers need to be confident that a recovery plan is in effect otherwise the economic woes of the South American nation will only worsen and possibly spiral out of control. Maybe a currency devaluation is the only option and will prove to be an opportune time for the savvy investor?