So far this week, Christina Kirchner has (a) insinuated that the US may be plotting to kill her and (b) run off the head of “her” central bank after less than a year on the job.
She complained that the central bank was not doing enough to control the “blue market” exchange rate, which sits at around 16 pesos to the dollar, or about 90% above the regulated, & rationed official rate of 8.5.
According to Kirchner, the central bank is supposed to keep a lid on the exchange rate AND build up its stock of reserves. When inflation is running at 40% or so, that is a pretty tall order.
The peso was devalued 20% in January, but the blue market rate shows that it still has a long way to go.
People, I am not a big fan of how the Argentine debt case has evolved in the New York courts, but Kirchner is far from an innocent victim in this economic debacle.
Argentina is a beautiful, complicated country and its repeated cycles of inflation and crisis are nothing short of tragic.
Douglas Farah has a fascinating piece in Foreign Policy detailing the latest on Argentina’s financial follies. I’ve heard of many ways that governments have tried to acquire foreign currency, but I didn’t realize that Argentina had turned to encouraging money laundering in their quest for dollars.
Having suffered a 20% fall in foreign exchange reserves in recent months, the Argentine government passed a law last week that essentially “invited money launderers from around the world to put their dollars in Argentine banks with no questions asked.”
Not everyone was in favor of such a drastic move. The auditor general, for instance, urged the Senate not to pass the law and “called the measure a huge invitation for criminal groups to have their money “legitimized through fictitious companies.” Indeed.
Apparently, there have already been money laundering concerns about the country. Farah notes that the “State Department had already expressed concern that “money laundering related to narcotics trafficking, corruption, contraband, and tax evasion occurs throughout the [Argentine] financial system” and that “Senior members of the Fernández de Kirchner government are currently involved in a widely reported roiling money laundering scandal in which the president’s deceased husband and predecessor as president, was allegedly involved.”
There is much more reason for pessimism though–definitely check out the original piece because it has lots of interesting details about the group of young Peronists known as “La Cámpora,” (whose leader is Maximo Kirchner, the president’s son) who are the proud “architects” of great policies such as this.
Argentina has an unfortunate monetary history and an unfortunate way of repeating their monetary mistakes. There are Argentine critics from the late 1800s bemoaning Argentina’s inflationary ways and the complaints sound like they could have been taken straight from the 1980s.
I teach Latin American Economic Development and Argentina is the gift that keeps on giving, still managing to surprise me every once in a while. For instance, I’ve been amazed (as have my students) at the stories about fines and prison time for economists that dare to publish alternative (read: accurate) inflation statistics.
Now, government restrictions on the holding of dollars has turned people’s demand for foreign exchange into a cat and mouse (and dog) game.
A WSJ article (gated, here is an ungated version) documents how Argentines looking to buy dollars must do so on the black market in transaction locations metaphorically called cuevas (or caves). The sellers of foreign exchange are called cavemen.
The government bans people from saving money in dollars and travelers are allowed very little foreign exchange for travel. The author notes that, “Travelers must submit an online request to the national tax authority just days before leaving, and they usually receive approval for much less than they requested.”
Businesses that need to buy foreign imports must get the government’s permission to do so before being granted access to buy foreign currency at the official rate.
But of course, this just results in black markets and corruption. The government has a strong weapon in their arsenal however, namely the dollar-sniffing dog. My question is, do dollars smell different than pesos? Are they especially stinky? Is this all a ruse to cause people to think twice before smuggling dollars? It all sounds pretty suspicious.
They just unveiled the 100 peso bill though with Evita’s portrait so I guess they have their economic priorities straight.