Why does Argentina always have such a volatile currency?
1. Low value of exports leads to a trade imbalance and long term decline in foreign currency reserves.
2. The government prints money to spend not on productive investments to solve 1. but on vanity projects or more-or-less bribes for their constituents to stay elected, leading to inflation.
3. Many historical periods of high ARS inflation leads to a lack of confidence in the local currency debt market.
4. 1+3 mean that Argentina needs to borrow in foreign currency, mostly USD.
5. Over time the debt accumulates and even more borrowing is necessary to pay interest.
6. Recently, rising US interest rates lead to a stronger USD, exacerbating the problem.
7. As debt rises so does the default risk and investors won't lend except at higher interest rates to compensate.
8. Eventually the country risks a default. Nobody wants that because the country wouldn't be able to import anything due to a lack of foreign currency (see Sri Lanka) and the creditors don't want that because they won't get paid back. So the IMF offers a bailout on the condition that the country will implement reforms to reduce spending so that it won't need to be bailed out again - austerity.
9. Austerity is unpopular and the government is replaced with one who promises to raise spending again and stick it to the IMF.
10. GOTO 1
This probably describes most countries in the world.
Note that 11 is really an issue of both government policy and the culture. Tax evasion is both a response to inflation and a result of a culture that doesn’t see an issue with putting private benefit over public good.
It's very important to understand that this is a very important weakness of the monetary system in every country, and only countries with little political power are forced to austerity by larger powers (Greece, Argentina and the IMF, etc). Argentina is just a chronic abuser of foreign debt and money printing.
There is practically no industrial class in Argentina any more. Their main business is to export soy and meat.
People usually complain about the government being corrupt and stealing to the people. But most people are the same, at their own level. They will try to steal as much as they can at their level or what is close to their hands. From bit paying taxes to actually pocketing others money, etc.
I know it is not everyone, but it is the majority of the people that are like this, politician or not.
I still have a friend there, always complaining public services don't work (healthcare, police, etc) but then in the same conversation he says with a straight face that he prefers not to pay with credit cards or bank accounts because then he'd have to pay taxes and declare the money.
There are people like this all over the world, but the proportion in Argentina is huge, a big majority I'd say. It's part of the culture.
https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
You're correct about what the policy says, but enforcement doesn't seem to back it up in many cases.
Personally I don't see an issue with critiquing the dominant culture in any nation. GP made plenty of caveats about "not everyone" and the like.
I find such caveats to be nauseating, but they tend to be quite effective at preemptively disarming the type of insinuations of national or racial chauvinism that are exemplified by your comment.
I think because YC is based in the US and most of the users here are based in the US then harsh criticism of the US (and its people) is acceptable.
Would you feel better or worse if I elucidated my criticisms of Argentina en Español on an Argentinian website?
My intuition is that would be seen as aggressive or chauvanistic.
I was born and raised in Uruguay, a smaller neighboring country that shares a lot of traits with Argentina. I'd bet a lot of people from either country will not only agree with OP's characterization, but embrace it. This kind of behavior even has a name that carries positive connotations: "viveza criolla", loosely translated as "local wit". Behaving this way is considered the smart thing to do. Not behaving this way makes you an idiot.
I hated this mentality growing up. I never felt like I fit. I've now lived in Europe for the last 12 years and it feels a lot more like home.
Note I mostly disagree on politics with 99% of all other Argies posting here (let's say the kind of Argies who post on HN are self-selecting for the kind of politics I disagree with), but this bit is true: we are, at least in Buenos Aires, a selfish, cheating people. Nobody ever in Argentina thinks the rules and laws apply to us, we want to take every advantage we want, pull whatever lever from friends in useful positions, but we always, ALWAYS, complain when somebody else bends or breaks the rules.
"The politicians are all corrupt!" -- but never me.
"That guy drives terribly and jumped a red light!" -- but never me.
"He's cheating me on the price of this!" -- but I never do this myself.
"My employer is exploiting me!" -- but I, of course, always legally employ cleaning ladies for my own house.
This defines our national identity and it needs to be said.
Either way. I hail from a particular (different) country and I will make fairly confidently proclamations about cultural every-day ingrained corruption there. I have explicitly, consciously and purposely changed my culture as I vehemently disagreed with common negative traits of my previous and original culture.
People just got by with stealing and hustling.
Inevitably I will simply have to withdraw from the market there...
This sounds like an issue with capitalism and the rest of your comment aligns with that too. You also pointed out the dissonance between the complaints people have about the govt and the similar actions they take - I think a lot of that has the same cause. We have bad incentives at multiple levels because it's the water we're all swimming in
Argentina has a poor economy because it is a half-capitalist half-socialist country.
They have a very different monetary system, though, and some of them are successful because the Euro lets them export their economic problems to their poorer neighbours.
It is also way more capitalist than the US by having a large part of the population paying less than 5% income taxes.
The country is hard enough to explain without the constraints of a browser textbox.
Bad monetary policy makes bad acting individuals: https://mises.org/library/ethics-money-production
It is a "positive reinforcement" loop with negative consequences for everyone and there is no easy way out of it.
I agree that you cannot be the only one "doing it right". Of course...that wouldn't fix anything and you'd be screwed. But do you see the problem? Everyone has the exact same argument you have for doing it, this the cultural thing I was talking about.
As another example, my friend's father passed away a few years ago. As everyone over there he had all of his saved money hidden at home. His own brother stole all the money just hours before his dad passed away.
As I said on my initial comment, this happens everywhere on every country, but the proportions and the impunity on which this shit happens over there is just unbelievable. This is an example of what I mean with "everyone would do it at their level". It's just that politicians have more opportunities to do it.
We rented a nice apartment from an expat from Michigan who married a Argentinian. In an email he practically begged us to bring $100 bills, which he would exchange for pesos at a much better rate then was available from local banks, which he thankfully did. When I asked him what was the deal, he told me the currency is so volatile there, the only protection was the USD, especially the $100 bill.
Most of the locals were friendly, the food was great. Public transportation was dirty and hot. We were constantly being approached by people wanting to give us "tours" around city for a fee. (We read about this before going!) The infrastructure everywhere was pretty bad, you had to be very careful where you stepped on any sidewalk. Not sure if we would go back, but we did enjoy most of our time there.
When people describe Buenos Aires as "the Paris of the south", this is what they mean:
That we have a great deal of Parisian looking architecture, especially in our "historic" sections of the city, such as microcentro.
That we have a greater deal of European influence than our Latin American neighbors. (There's also a racist implication that we are "whitest". Argentinians care a lot about skin colors, and for us, calling someone a "negro" is a common insult. There's a confusing exception here -- "negrito", "negri" or "negro" is an endearing term you can call a friend, but it's always insulting if you refer to poor people, "esos negros", "qué negros", etc).
Historically, the upper classes of Buenos Aires looked up to Paris. This has been replaced for admiration of the US, a long time ago, and is no longer relevant.
As for scheming locals and dubious tours: I find these to be the norm in many European cities as well. I was marked for tricking/mugging in Paris, Barcelona and Rome, so... another European influence I guess?
Dirt and poorly maintained infrastructure: sadly, you're right. We porteños -- the people from Buenos Aires -- are a very dirty people and we like throwing garbage on the streets, breaking public stuff, urinating in whatever place, etc.
All of us are selfish, not only people in Argentina
Great! Now that your money is in the bank, pray for <deity> you don't fall into a bank run[1] and lose 65% of your savings[2]. The Central Bank still has reserves, but it doesn't look nice.
This applies to freelancing, but I can imagine most other areas work like this, with bureaucracy and pressure to SMBs working way right of the Laffer curve[3].
My point is, this is a negative feedback loop that (maybe?) started with the toxic vainglory of "outsmarting the system" but was fueled along the years with a general mistrust of banks/institutions, for good reasons. There are no incentives to do things correctly, and if some would appear it's likely set up for failure, because who says the next administration doesn't remove it and the show goes on?
Honestly, I don't know how (or if) it can be fixed at this point.
EDIT: Plus, it's really hard to see any of that tax revenue being put to good use. We're sitting at around 40-50% poverty.
[0] https://maxifirtman.medium.com/gu%C3%ADa-definitiva-para-cob... - second graph [1] https://en.wikipedia.org/wiki/Corralito [2] https://en.wikipedia.org/wiki/Corral%C3%B3n [3] https://en.wikipedia.org/wiki/Laffer_curve
https://www.doingbusiness.org/content/dam/doingBusiness/coun...
This comes up a lot in other cases too, e.g. "My spouse is from $country and I've learned that they $foo, $bar, and $baz as much as they can." Or: "I'm from $country so I get to say bad things about them."
In general, the "eschew flamebait" rule (see https://news.ycombinator.com/newsguidelines.html) has to take precedence because preserving the forum is more important than any specific discussion, and we're constantly trying to prevent this place from drowning in flames. It's really easy to understand how a comment like yours would land with someone else from $country (in this case Argentina), someone living there, someone having family from there, etc.
I don't have a great suggestion for how to rewrite a comment like this, except to say: reduce the generalization, be less judgmental, and instead emphasize your particular experience.
Argentina also has a chronic problem with inflation (in my opinion, due to printing more money than required by the economy, most times to solve the fiscal deficit you obtain when the national state spends too much), so everyone knows that you have to save money in a hard currency, USD being the most common one. So it has a real big demand for savings and capitalization, e.g. real estate is priced in dollars.
As why argentinians keep voting parties that keep the dollar artificially cheap, I believe it's a mix between a survivorship behaviour (if USD goes up, prices of goods and services will more or less go up) and wanting to consume more than what one can afford (holidays in Brazil, trips to Europe or USA every other year, cheap electricity and natural gas so you can leave your air conditioner on all day, etc).
Disclaimer: I am not an economist, and as everyone else, I have a biased point of view.
[0] This newspaper article has a (badly cropped) chart of the difference between black-market and official dollar exchange rate through the years. https://www.infobae.com/economia/2020/08/22/la-historia-de-l...
(From the article). Chronic lack of competent governance seems to be the culprit.
Complicating things, of course, is the fact the US saw our military junta as a bulwark against communism, and so provided some support to them [2] (and, it is argued, our military dictators thought they saw indications the US would support us in our war against the UK, which is just as deranged as it sounds. Then again, our dictatorship was as incompetent as it was bloodthirsty).
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[1] https://en.wikipedia.org/wiki/National_Reorganization_Proces...
> "However, relations soured after the U.S. supported the United Kingdom in the Falkland Wars."
[2] https://en.wikipedia.org/wiki/National_Reorganization_Proces...
> "The United States provided military assistance to the junta and, at the start of the Dirty War, Secretary of State Henry Kissinger gave them a "green light" to engage in political repression of real or perceived opponents."
> "The US Congress approved a request by the Ford Administration, to grant $50,000,000 in security assistance to the junta. In 1977 and 1978 the United States sold more than $120,000,000 in spare military parts to Argentina, and in 1977 the US Department of Defense granted $700,000 to train 217 Argentine military officers."
Using US examples because those are the ones I'm most familiar with, just look at how long there's been a "housing crisis" due to insufficient housing in some US cities. There's been plenty of time to fix it, but policy changes just nibble at the edges. Why? Because some people don't want to fix it, or don't care, or there are some downsides to fixing it properly.
Similarly, the US has a high rate of traffic fatalities among developed nations. The fixes for this are well understood, but they involve tradeoffs or design changes that many people do not want. (The US is getting better at safe road/street design, but very slowly)
Also: the black market of dollars is relatively small and also easily manipulated, but generates panic in people's minds.
The current ruling party (the one that likes to blame the agricultural sector) just signed up for some new unpayable loans from the IMF last month.
I've no particular respect for the current government, and I did mention "it's not just the government", meaning I believe part of the blame is theirs.
Do you deny the agricultural sector is one of the most powerful in Argentina, and one that speculates on the dollar and has a vested interest in it going higher?
Do you deny the illegal dollar market is relatively small but has a high impact in people's minds?
Do you deny the real estate sector trades in dollars?
> As this comment illustrates, partisan propaganda
Your comment is autological!
The illegal dollar market is not small, and its prices change similarly to the legal dolar market (mep, ccl).
> It's not that the dollar goes higher: the peso goes down.
Well, yes. If you are from Argentina, you know what I meant. If the agricultural sector only "thinks in dollars", then why do they regularly push for a peso devaluation, talk about "competitivity" of the peso vs the dollar, and must be forced to liquidate their dollars in a reasonable time? They obviously care about the relative value of the peso vs the dollar.
So the answer is the same as if a mugger asks why you must be forced to give me all the money in your wallet, receiving nothing in return. The implied necessity is an invention of the speaker.
I don't believe you have reliable information about the size of the illegal dollar market.
Certainly it is true that the agricultural sector is one of the most powerful in Argentina and that the real estate sector trades in dollars, but most of the rest of your comment is not even wrong, reflecting fundamental misunderstandings of a flat-earth level.
The assertion that the agricultural sector in Argentina is "speculating on the dollar" is incoherent. Speculating on the dollar is an activity dominated by big international investment banks and hedge funds, which make enormous leveraged bets on whether the dollar, the yen, the euro, or other real currencies will go up or down by 0.05%. The agricultural sector in Argentina is not able to do this because of legal prohibitions, and at any rate does not have nearly enough money to engage in the activity profitably.
When people in Argentina talk about the dollar "going higher" what they mean is that the fake Monopoly money we call the Argentine peso is losing value relative to the dollar, whose own changes in value are usually a rounding error by comparison, though not this year. Argentine pesos are an irresponsible speculative investment that are guaranteed to lose value; no prudent investor would hold them.
Anybody who owes debts denominated in Argentine pesos—most notably, the government—has a vested interest in inflation, the devaluation of the peso ("the dollar going higher"). Conversely, anyone who is owed debts denominated in Argentine pesos has a vested interest in the peso appreciating, or, since that's not going to happen, in the peso losing value more slowly. However, overall, the rampant inflation of the peso is one of the factors that makes the Argentine economy unstable and unproductive, which is the bigger factor in play here.
I suspect your reasoning is something along the lines of "the agricultural sector is a big exporter, so they get paid in dollars, so if those dollars are worth AR$600 instead of AR$300 then they make more money." But that is nonsense; if a dollar is "worth" AR$600 instead of AR$300, that's because the peso has lost half its value, so that AR$600 only buys you roughly the same amount of fertilizer, Monsanto seeds, farmhand labor, silage bags, etc., that you could have bought with the AR$300 without the additional inflation. Moreover when inflation is fast enough it becomes difficult to carry out any transactions at all.
It's relevant to point out to other readers that the official dollar, the fake value the exporters of agricultural as well as other goods get paid, is AR$129.25 × AR$137.25 today. That means that for every dollar of soybeans you export legally, you get paid AR$129.25, which is "worth" US$0.41. That is, the central bank confiscates 59% of your revenues (not your profits!) in order to subsidize imports and rich people going abroad for vacations. Unfortunately, soybeans are too bulky to smuggle out of the country.
Government confiscation of 59% of export revenues in order to subsidize Chinese imports goes a long way to explaining how we have ended up in such a terrible economic situation. Argentine makers trying to compete with Chinese imports have the central bank subsidizing 57% of the price of their foreign competition; Argentine consumers only pay 43% (137.25/316). So a hypothetical Argentine product of the same quality must be 57% cheaper than the Chinese product in order to compete. Government mandates of "Industria Argentina" result in companies importing fully manufactured products in kit form from China or Korea and paying unskilled workers a minimal amount to assemble the kits.
Export-led industrialization was the key policy that replaced poverty with prosperity in Taiwan, Japan, PRC, Korea, Indonesia, Singapore, and Malaysia. The Argentine currency policy has been precisely the opposite since *spit* Menem, with brief exceptions under Kirchner and *spit* Macri. Even back to Perón we focused on import substitution rather than exports, although actively sabotaging exporters with monetary policy seems to have started with Menem.
I don't have any idea how big the illegal dollar market is, and neither do you, but it evidently possesses significant liquidity. It has a high impact in people's minds because it's a reliable source of information about what the peso is actually worth; the government has not been a reliable source of that information since Kirchner coerced INDEC into falsifying the inflation numbers, a policy that has continued under Fernández de Kirchner, Macri, and Fernández and which was followed with the "cepo" policy of fake exchange rates that have gutted the Argentine economy over the past 11 years.
Hopefully that answers all of the questions you asked adequately; please feel free to ask for clarification if you feel that any of my answers were incomplete.
For starters, if the dollar goes up, the inflation doesn't necessarily follow. Otherwise that means that the salaries (among other things) follow the dollar, and that's not true at all.
Second, this whole week there were talks about a special exchange rate for the sector to tempt them to export more, because the government needs more dollars for energy imports. So by just waiting they get a better deal, that's clearly speculation.
You can argue if this is right or wrong, if it's good or bad for the economy or the people, but speculation it is.
Holding pesos is speculative. It's not just speculation — it's speculation done badly and irresponsibly, like buying a lottery ticket, because the peso's prospects for increasing in value are quite poor indeed. Holding dollars is, by comparison, not speculative at all.
We are facing a piece of absurd doublespeak in which "speculation" is being used to mean "refusing to foolishly invest in an unstable commodity", namely, the peso.
Speculation in dollars is not impossible. You need servers in London, New York, or Tokyo that respond to second-by-second price changes, and you need access to forex markets with very, very tight spreads — otherwise the spread will give all of your potential speculative profits to market makers, because forex price movements in real currencies are fractions of a tenth of a percent most days.
This is not what the agriculture sector in Argentina is doing.
(Let's leave aside for the moment that this is also a transaction in which the central bank confiscates 59% of the value of the currency being traded in order to subsidize vacations abroad for the rich, and to subsidize imports so that they are impossible for Argentine domestic industry to compete with.)
— ⁂ —
Salaries and other prices do follow the dollar relatively closely, though there is both volatility and a secular decline in Argentina's productivity over time. The current salario mínimo is $45540 per month, which was US$210 earlier this month, though now it's US$150. (Presumably that will change in the next month or two.) When I moved to Argentina in 02006 it was $800, equal to about US$260. See https://es.wikipedia.org/wiki/Anexo:Salario_m%C3%ADnimo_en_A....
The minimum wage did not track the dollar perfectly; US$210 differs from US$260 by 24% (or 19% calculated the other way round — a 1.3% decline per year), but $800 would now be worth US$2.61, or US$3.70 earlier this month, and US$210 differs from US$3.70 by 5600%. 24% is a significant tracking error but it's insignificant compared to 5600%.
This calculation understates the decline of the salario mínimo in real terms, because the dollar has experienced a total of 47% inflation since 02006, according to the US BLS CPI. US$1 in 02006 is US$1.47 today; 1.47 · US$260 · AR$216/US$ gives AR$82600 as the equivalent salario mínimo at the blue dollar rate earlier this month, and using today's mid-market blue dollar rate of AR$306/US$ it would be AR$117000. Over 16 years that's a 5.7% decline per year in the buying power of the salario mínimo, though obviously that's a very noisy estimate.
I would welcome other salary data. For example, how has the median Argentine salary changed over this time? How about the mean salary, which is essentially the per capita GDP?
And about salaries, that was my point, they are 24% lower than in 2006. Considering the dollar's 47% inflation since that year, those USD 260 would be ~USD 380 now, so 68% lower.
And it's not limited to the current government, their previous one was woefully incompetent at fixing deficit spending. But it can't also be denied that the party in power is the one that refuses under any circumstance to address the underlying cause.
Everything else you mentioned: Loans, bank runs, rampant inflation impacting land value, and business trying to protect their investments from the governments' byzantine rules and outright thievery through price controls that expects them to produce at a loss, is just a byproduct of government policy that is rotten to the core and a population that keeps electing the same incompetent buffoons that do not dare or desire to make the necessary changes.
I really don't think it is just the government, nor is it the lack of cutting down deficit spending, nor the tax system. I try to take a more historically grounded view. I don't think there are easy answers though.
I believe the view that "there's the government, and there's this bunch of innocent businessmen at the mercy of big bad government" is not very compelling, for various reasons. One is that democratic governments in Argentina are pretty weak, all things considered; they aren't all-powerful, they usually have an opposition running interference at every step, US-style. Another is that when some businessmen had their chance to run their own government (you mentioned one recent occasion, the dictatorship was another) they still screwed up.
Yes. The actual men in green uniforms were just the visible face of the dictatorship. There were actual businessmen behind their economic policies. Not for nothing the dictatorship is called the civic-military dictatorship, as you well know if you are from Argentina.
> And Macri's business become big thanks to its links to government
I'm well aware of Macri's corruption and its links to the government. It's ironic, really -- those who benefited the most from government ties are so quick to decry "government corruption". Such is the history of corruption, too: one foot in the government, one foot outside of it. Both parts are important. I think, historically, the government is the weaker part in Argentina, at the beck and call of those actually calling the shots.
If you want to choose to believe that this is an "us vs greedy capitalists/the opposition/whatever" problem, that Argentina's problem is highly complex, multi-layered, too hard to deal with, and that the devil is in the details like the government tells people to believe on the TV, don't be surprised or angry by the results.
I've also never implied the solution is to let "some businessmen" run the country, and in fact implied that clearly not to be the case with my statement on Macri's government. Argentina is in such a dire state of emergency that it matters none if it's a right-wing, left-wing or whatever kind of government that's running the show because given basic competent human beings willing to fix the country that kind of "detail" only matters once you have surplus money to expend and you have to decide what to do with it. There's only one way out of this and it's to fix the budget by cutting spending to reasonable levels in one go, do away with inflationary practices, and make it possible for productive people to produce without having to worry about arcane tax rules. And again, tax-wise it's not so much the tax rate that matters (although in the short term it does, because Argentina has fucked over investors time and again and needs to do a lot to seduce money back in) as it is the amount and complexity of the tax system that leads people to evade them.
There are many political situations where information is scarce and there's room for honest discussion. In this one, there is none. I just hope that the only person stating basic truths over there looking and acting like a clown doesn't ruin your chances of not becoming another Venezuela.
I obviously disagree with this. Whatever else our differences are, I don't think anyone thinks "the answers are surprisingly easy".
> There are many political situations where information is scarce and there's room for honest discussion. In this one, there is none.
I... well, I'm glad you have this level of certainty that you think there's no room for honest discussion.
> I just hope that the only person stating basic truths over there looking and acting like a clown doesn't ruin your chances of not becoming another Venezuela.
I'm afraid I know who you are talking about. "Basic truths" :facepalm:
The most important thing is that major operations are not done in this market, obviously.
Also, bizarrely enough the location of all "cuevas" (which is what we call the physical places where the illegal market operates) are well known by the authorities and could be shut down if they so wished. So there is definitely that in favor of the "the government is corrupt" argument.
As for the size: again, major operations -- the kinds that actually "move the needle" -- are done in the legal market. I seriously doubt crypto has any impact in Argentina.
Another way to look at it is that crypto is strengthening the dollar’s foothold in Argentina and weakening the state’s ability to manage their own currency, to extremely detrimental effects.
However, a number of presidents and finance ministers have had to resign in disgrace when their policies (or those of their predecessors) provoked immediate crises. Printing money is a common way to postpone an immediate crisis.
The government there is very competent at stealing their people's wealth through inflation.
I bet there are people like this in every country. They just couldn't find a way to do it unchecked. Yet...
The above means that the government has to run permanent fiscal deficits and get indebted. At some point they are unable to pay the debt and the first temptation is to debase the currency. Rinse and repeat in an infinite loop of mistrust, tax avoidance and default.
It's a very hard problem to solve, unfortunately, as it's at this point deeply integrated into argentinian culture.