Argentina is going down

Blame Argentina! Some people think it was the 15% drop in the peso that triggered the sell-offs we saw last week. On the last two days of the week, the Dow Jones lost nearly 500 points. And on Saturday, after-hours trading signalled worse to come.

It looked like the Dow would drop more than 300 points when the doors opened on Monday. That didn’t happen. Instead, the Dow sold off only modestly – down 40 points.

So, we sit tight, wondering if the beginning of the end is coming now or later. And when it happens, we won’t blame Argentina.

Argentina seems much too quirky and particular to be responsible for this. For example, it’s the only place we know where you get better banking services out on the sidewalk than in the bank.

Every time we go, we take a big wad of green pieces of paper with Ben Franklin’s picture on them. Then, driving directly to the town square in Salta, we simply stop the truck and beckon over one of the many black-market money-changers standing in front of the bank.

Last year at this time, one Ben Franklin would bring you nine pieces of paper with Julio Argentino Roca’s picture in purple.

Roca was no match for Franklin. Reports from Salta tell us that the rate has gone over 13. Meanwhile, the official rate changes too. It was only five a year ago. As of last Friday, it is eight. But wait, there are more official rates. There’s one for savers – 9.2. And one for travellers – 10.8.

Why so complicated?

It’s a long story. But the simplified version is that the city of Buenos Aires is big and sophisticated. And like New York or San Francisco, it has socialist tendencies. Here’s how it works: the urban intelligentsia provides the ideas. The urban proletariat provides the votes. And farm exports provide the money.

But the rural productive sector can never quite provide enough money to satisfy Buenos Aires’ longings. Farmers and other producers labour under such binding restraints – eg, import/export restrictions – that even in a roaring bull market, such as we had three years ago, Argentina lost agricultural market shares.

Now, without much money coming in, the government prints money to pay its bills and lies about inflation. The money supply has been increasing at about 40% per year. And yet, the keepers of Argentina’s official numbers maintain that consumer prices have been rising less than 10% per year.

Then, when everyone had caught on that prices were obviously rising much more than 10%, the feds tried to control prices themselves as well as the statistics that measure them. Last year about this time, they enacted a ‘voluntary’ price-control measure at the supermarkets.

This was the work of Argentina’s economy and finance minister, Axel Kicillof. Mr Kicillof is probably a decent guy. He taught economics at the university. The papers say he “re-interpreted Keynes from a Marxist perspective”. With this intellectual toolkit, he says he has the leaks under control.

Most likely our man on the scene, Miguel, has a clearer picture. He reports: “I dropped my Kindle reader and broke it. I wanted to order another one from Amazon. But the government just announced a 50% import tax. That’s in addition to the 35% penalty I would pay on credit card purchases from overseas. You also have to go to [an office of the tax collector] and wait for hours to do the paperwork. It’s not worth that much.”

So, Amazon lost a sale. And the Argentinian economy lost a connection to sanity.

“This is just the beginning,” Miguel continues. “We’re headed into another real crisis. The people are restless and the government is desperate. We’ve got major union negotiations coming up. It wouldn’t be at all surprising to see riots, looting and some kind of bankruptcy or default.”

  • FairBobby

    The British helped to build Argentina into a wealthy, prosperous country. We developed railways, agriculture, frozen meat industry, finance, shipping, etc. and our engineers changed Buenos Aires from a stinking cesspit of rotting animals, bones and other refuse by building a modern sewerage system and thus restoring the capital into a habitable city. Their politicians have conveniently forgotten our contribution and are now hell-bent on destroying not only themselves but us well if they can.

  • Paul

    Unfortunately this has been coming for a while.

    Argentina is a basket case run on popular and rotten politics. A whiff of corruption seems to taint the country and its a fair question as to whether they have any decent and credible politicians.

    INDEC lies about its inflation stats, the Argentine Government lies about the Falklands, La Campora are left to ruin the national carrier and so another default is on the cards.

    When will this end for the decent hard working Argentine blighted by such incompetence.

    We’ll cry for you Argentina…again.

  • Leslie James

    We also gave them back thier democracy by doing away with Galtieri and his odious mob, in the face of US opposition who thought we could’nt do it.

    Every time the Argies start sabre rattling over the Falklands perhaps they would do well to remember that and not forget ”the disappeared” that went along with the Galtieri period.