Argentines' Dollar Crisis Deepens

While flying from Buenos Aires to Santiago in 2002, I found myself seated next to an Argentine, bound for New York on business who, because his government had frozen bank accounts, found himself cashless. Imposed to prevent capital flight during a severe economic crisis, the so-called corralito had frozen all bank accounts in the country. In the days of credit cards, this might not sound disastrous, but paying even incidental expenses in any North American city meant, and still means, ready access to cash.

Now, ten years later, history may be repeating itself for foreign-bound Argentines. Recently, as I reported in another blog post, the government required Argentines traveling abroad to get clearance from AFIP, the country’s counterpart to the US Internal Revenue Service, before purchasing dollars to take outside the country (Imagine the outrage if US citizens had, effectively, to request IRS permission to travel outside their borders). Recently, after another flight from Santiago to Buenos Aires, I shared a shuttle with a man from Neuquén who, to avoid the bureaucratic pitfalls of the AFIP, purchased dollars clandestinely at the rate of five pesos each (the official rate is about 4.3 per dollar, so the black market is once again alive, though less overt than it once was).

Capital flight is endemic in Argentina, and yesterday things got worse for Argentine travelers. In a surprise move that had analysts shaking their heads, the Banco Central (Central Bank) decreed that, effective April 3, they will no longer be able to withdraw dollars on their ATM debit cards outside the country’s borders. Interestingly enough, that’s the day after the 30th anniversary of the South Atlantic War with Great Britain over the Falkland Islands, but it’s unimaginable that this date is intended to take advantage of a political distraction (nudge nudge, wink wink).

Until then, Argentines outside the country will still be able to withdraw US$200—400 per day on their ATM cards, but after that date they will only be able to do so if they have dollar-denominated bank account. With roughly US$15 billion in foreign debt payments due soon, the government appears worried that it will not be able to meet those payments without such measures. It also raises concern among the populace that, as in 2002, the government might “pesify” those dollar accounts, a measure that cost many Argentine three-quarters of their savings a decade ago.

Given such erratic policies, it’s no wonder The Economist has excluded Argentina’s official statistics from its worldwide summary, on the grounds that “We are tired of being an unwilling party to what appears to be a deliberate attempt to deceive voters and swindle investors.” The current dollar measures encourage evasion - at which many Argentines are expert - and seem like a panic measure.

Of course, many Argentines already have dollar accounts, a safe haven during uncertain times. The bank where they hold them is called the mattress. Today, to my surprise my wife told me we have a modest inheritance in a US dollar account, and my immediate response was, “Withdraw it as fast as you can.”

The story of the Dutch boy sticking his finger in the dike may be a cliché, but it appears to be the right metaphor for the government’s economic policy. The next big failure might not be just around the corner but, as my friend Nicolás Kugler writes, “the government keeps making a mess of this country, something 54 percent of voters apparently enjoy.” That’s the majority that re-elected President Cristina Fernández de Kirchner last October and, apparently, most of them will spend their vacations within their country's borders - whether they want to or not.