March 31, 2008

 

Argentina's grain exporters unfazed by farm strikes 

 

 

Even as Argentina faced one of its most serious political turbulence this week since the nation's 2001 financial train wreck, it was business as usual in the local currency market, dominated by the nation's largest grain exporters.

 

In recent weeks, striking farmers have shut down highways in protest against a rise in soy export tax, breeding food shortages and class conflict in the streets of Buenos Aires.

 

However, in mid-afternoon trading Friday, the peso was at ARS3.165 against the dollar in interbank trading, a mere centavo softer than when the farm strike began on March 12.

 

Meanwhile, central bank reserves, have continued to rise, much as they have during quieter times over the past five years in which the Central Bank has aggressively bought dollars on a daily basis to keep the peso weak.

 

As of Thursday's close, reserves reached US$50.503 billion, up from the US$50 billion mark - a milestone the government proudly announced - on March 12.

 

Analysts think this is a sign that the grain exporters, for years the main player in the currency market sitting on the other side of the Central Bank's dollar sales, have not been too worried about rising social and political tension surrounding the farm strike in which they are involved. They have continued to buy pesos with dollars they've accumulated from overseas sales.

 

"It's been a normal market, working within its normal price range" this week with cereal exporters buying pesos and the central bank buying dollars, said one trader. What's more, liquidity has remained steady with the overnight call money rate between 7.5 percent and 8 percent this week, the trader said.

 

"I don't think there has been a lot of worry" about the strike, he added.

 

Supermarket shelves began to thin out this week as farmers blocked highways and city dwellers began to hoard meat and milk.

 

Still, the current unrest is a long way from the Argentina's 2001-2002 meltdown, when the government defaulted on some US$100 billion in debt and ran through five presidents in roughly as many days.

 

"There may be political implications from the strike, but it's not as if we are witnessing a financial collapse" that has sent Argentines running to exchange pesos for dollars, said local economist and political analyst Federico Thomsen.

 

"If the protests have won anything, they may lead to some fiscal concessions, but for a government that can afford them," he added.