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Argentina, Chile, Venezuela on watch for currency risk

Experts express concern about the stability of the countries' currencies in the coming year, given their unique political and economic circumstances.

Argentina, Chile, and Venezuela are attracting the attention of investors and economists for recent signs of increased currency risk. 


Argentina continues to suffer repercussions from its 2002 economic collapse, and in recent years President Cristina Fernández de Kirchner has nationalized companies across several industries. In 2012 the government renationalized YPF, the national oil company then owned by Spain's Repsol. In 2008 Kirchner announced the government would take control of $30 billion of private pension funds in hopes of protecting retired Argentines from the worldwide financial collapse. These nationalizations have been a cause for concern for investors and multinational companies looking to capitalize on opportunities across the region.


"Kirchner keeps the peso weak in order to maximize employment," said John Price, managing director for Americas Market Intelligence.


Beyond intervention in the private sector, Peter Wadkins, a senior currency analyst for Thomson Reuters, said Argentina's lingering disputes with debtors from the country's record 2001 sovereign debt default will, in part, dictate the performance of the peso in the coming year.


In November 2012, a New York federal court ruled that Argentina would have to pay back $1.3 billion to billionaire hedge fund manager Paul Singer's NML Capital. "That was the big driver in the weakness in the Argentine peso in the months leading up until Christmas," Wadkins said.


Argentina has since appealed the decision and courts are demanding to know how the country plans to pay back the money to what President Kirchner calls "vulture funds."


"The first place I'd be looking at is what's going in Argentina: has it been resolved, and is it going to be sufficient to allow Argentina to access capital markets?" Wadkins added. "Without that they've got an ongoing U.S. dollar shortage."


On Chile analysts were not as uniform in their opinions. Exporters recently called for government intervention after the Chilean peso closed at a three-month high, near 470 pesos, against the U.S. dollar in early January.


"The head of the central bank was concerned about irrational exuberance about the Chilean economy," said Wadkins of Thomson Reuters. "I would be a little concerned about these new statements from Chile - that means that something's going on and that's new."


The Chilean peso rose by 8.48 percent in 2012 and is up about 1.63 percent so far this year.


Despite concerns over inflation and the possibility of the country's economy overheating, the Chilean central bank reported in a March survey that investors expected interest rates to hold at 5.0 percent until September 2013, when they're expected to rise to 5.25 percent.


"Those countries that export commodities, such as Chile, depending on the demand will remain to have strong currencies," said Jaime Ortega, who heads Miami-based Apollo Bank's global banking practice.


Meanwhile Venezuela, following President Hugo Chávez's death and the current presidential election, continues to garner the world's attention. Some say Venezuela's bolívar remains overvalued, despite a one-third devaluation shortly before Chávez died.


Yet Price of Americas Market Intelligence argues that the value of the bolívar should fall even lower, which would lead to more dilution of multinational corporations' profits.


When the central bank in February notched the bolívar-to-dollar ratio up to 6.3 from 4.3, Venezuelans scrambled to buy everything from flat-screen televisions to airplane tickets to refrigerators under the impending pressure of reduced buying power.


"The Venezuelan bolívar is still overvalued and vulnerable to more devaluation," he argued. "The official rate is now about 6.25 per dollar versus 4.5 before the recent devaluation, however, the unofficial rate, where many imports are transacted ranges from 18 to 21."

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