"Due to many governmental economic measures, a deficit in the fiscal balance, and a large issue of local currency..."
(From the article). Chronic lack of competent governance seems to be the culprit.
(From the article). Chronic lack of competent governance seems to be the culprit.
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...
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.)
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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.
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)
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."