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Argentina in "severe foreign currency crisis": experts

BUENOS AIRES, Feb. 3 (Xinhua) -- Argentina is suffering from a "severe foreign currency crisis" that calls for "a change in strategy" on the part of the government after reserves dwindled about 2 billion U.S. dollars in January, local experts said Monday.

The Argentine Institute for Development (IDESA), a private economic and social policy think-tank, released a report that compares the current situation with the foreign reserve levels in 2001, when the South American country faced a huge economic crisis.

"The reserves of the CB, in nominal terms, are double those of 2001, but adjusted for inflation in the price of imports, they barely surpass the levels that existed when (Argentina's) currency crashed" in December 2001, the think-tank said in the report.

The "aggravating factor is that the import ratio (or percentage of imports in relation to gross domestic product) practically doubles that of 2001. That indicates that the country's foreign currency crisis is severe, and makes the need for a change in strategy evident," said the IDESA.

In January, Agentina's central bank raised interest rates to the highest in more than a decade in a bid to curb a slide in interantional reserves. The country also devalued the peso 15 percent and eased currency controls in efforts to shore up its foreign currency reserves, which have plunged more than 30 percent in 2013 to a seven-year low of 28.7 billion dollars due to a scarcity of export dollars and foreign investment.

"In January, a 23 percent devaluation was applied, while total devaluation in 2013 was 33 percent," and still "reserves dropped by some 2 billion dollars in a single month," it said.

Compared to a total fall in reserves of 12 billion dollars in the year of 2013, January's drop "shows that the pace at which the Central Bank's reserves are falling has doubled," said the IDESA.

"When the currency exchange market is strongly intervened in, as happens in Argentina, CB reserves become a very important variable, because the reserves make it possible to sustain imports, which are essential to maintaining the level of productivity," said the think-tank.

According to the IDESA, from 2001 to 2014, "reserves went from 15.232 to 28.250 billion dollars," while "the price of Argentina's imports increased 52 percent," meaning that "if the reserves are adjusted for inflation in (the price of) imports, in real terms reserves amount to 18.6 billion dollars, at 2001 prices."

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