Living in Peru : your everyday companion

El Comercio

Why does the dollar continue to increase in spite of it being the currency around which the financial crisis began and what is the recession currently centered on?
First of all, as many experts will explain, this is because there is no other currency to replace it with (nearly all world commercial transactions are done with dollars) and secondly because uncertainty leads to the search for liquidity. The dollar and the U.S. treasury bonds –which are bought as dollars- are the most liquid and secure on the planet.

In Peru there is a separate reason for this: the dollar has stopped entering our market as strongly as it had in the past. Why? Because our exports have, though slightly, decreased (they are sold in dollars which then enter the country). Money sent from foreign countries has decreased seeing as the U.S. and Spain are in a period of recession and foreign investment has gone down as well.

Toxic Dollar

The downside for millions of Peruvians is that they have debt in dollars but earn wages in soles. They are the ones to lose out. That is why there was such a visible reaction when the dollar went from S/. 3.15 to S/.3.24 in little over a week. The currency did manage quite a robust twist.

But who were the people to move the dollar up in spite of all the before mentioned preludes to its increase? Among them stand the banks mainly as well as local and foreign investors. Gonzalo Camargo of AFP Horizonte says to look at the same people who bet against the dollar in 2008.
 
According to the Central Reserve Bank a finger must also be pointed to the AFP’s who purchased around 500 million approximately.

They are the ones who gain with this because they are the ones who earn their wages in dollars. Among them are the export companies, foreign diplomats, national and international business managers and some people who chose to receive their pension in dollars. It’s not that many.

False Alarm

The last week in January the president of the National Reserve Bank, Julio Velarde met with the president of ADEX, Jose Luis Silva. The union leader later let it slip that the bank planned to let the exchange rate float if it kept rising. Three days later Velarde was at Congress trying to clarify that he would never anything that stupid. The matter was simply catalogued as a slip of the tongue though many vouch that the information sounds much like something Velarde would divulge behind closed doors at meetings.

What is Expected?

 Different analysts expect the dollar to close this year between S/. 3.25 and S/. 3.30. This will be at least until the world economy shows any signs of recovery which could, in the opinion of many lead to a collapse of the dollar. When trust is built up again the fundamentals will be real again. And the U.S. has bad fundamentals: this year and the next its economy will shrink by 1.6% and register a fiscal deficit of 12% with an enormous debt. The dollar is growing with out any fundamental economic reasons behind it.

When will the dollar become stable again? No one knows. Those bold enough to wager a guess such as former minister Pedro Pablo Kuczynski and economist Oscar Ugarteche estimate that any change will probably begin to take place within the second half of 2010. 

To read the original article click here

Add to del.icio.us | |