Argentine authorities appeared to have accelerated the pace at which the peso is devaluating against the U.S. dollar amid the worsening global financial crisis, but there is little risk of the country's exchange rate spinning out of control in the short run.

DEVALUING PESO

On Friday, the peso exchange rate closed at 3.65 to the U.S. dollar, a 5.19 percent drop from 3.47 at the beginning of this year.

The increased devaluation speed reveals the severity of the international financial turmoil, as panicked investors often trade pesos for the dollar as a safe haven in times of crisis.

Aldo Pignanelli, the former central bank president, said that as long as the global financial crisis persists, the dollar would continue to rise against the currencies of some emerging markets including Argentina.

Argentinians have tended to hold dollars since the country's financial crisis in 2001. A survey conducted recently by the La Nacion newspaper showed that 77.33 percent of Argentinians plan to withdraw peso deposits and change them into dollars.

In the past few weeks, there has been a marked increase in the number of people who traded pesos for dollars, contributing to thedollar's rise.

Meanwhile, the declining trade surplus has led to a drop in dollar supply in the foreign exchange market.

Argentina ran a trade surplus of 971 million dollars in January, a 27 percent drop compared with the 1.33 billion dollars in the same month last year, according to government statistics.

STRUGGLING TO CONTROL

To cope with the financial crisis, the Argentine government pursues a policy of a managed float of its currency to avoid a sudden plunge of the peso's exchange rate.

While the policy has played some role in stabilizing the market and boosting investor confidence, it has put Argentina at a disadvantage in its foreign trade, as the peso has actually appreciated against the currencies of other Latin American countries. Argentina's exports dropped 36 percent in January compared with the same month last year.

Argentina's financial and business circles have been vocal on the government's exchange rate policy, calling for a faster devaluation of the peso which they say is overvalued.

A cheaper peso will also benefit the national economy by promoting the tourism industry.

In a bid to boost exports while maintaining the stability of the financial market, the government is struggling to keep the peso's devaluation on a right path.

On Tuesday, the Central Bank injected 200 million dollars into the foreign exchange market as an intervention to prop up the peso.

However, there is a host of factors which have a bearing on the trend of the peso-U.S. dollar exchange rate, including the coming parliamentary elections slated for October. If the ruling coalition lost control of the parliament in the polls, it would arouse public concerns over the political situation at home and the peso would be likely to go further down.

Source:Xinhua