Can Argentina (Make) Change? Are Thinner Wallets Better?

This week, many Argentines will find their wallets a big lighter – and that may be a good thing. It’s because a new 500-peso banknote (pictured above), with a value of roughly US$33 has just gone into circulation, and it solves a whole bunch of problems – at least temporarily.

That’s largely thanks to mismanagement by Argentina’s previous government, which refused to issue any banknote larger than 100 pesos (less than US$7) even as the peso plunged in value against the US dollar and other foreign currencies. It was part of their effort to deny an inflation that reached upwards of 40 per cent per annum (though it never got to the level of the 1970s and 1980s when, if Argentine governments spoke hopefully of 50 percent inflation, they meant per month).

From my own perspective, traveling extensively every year in Argentina and Chile – crossing the border with some frequency – it’s meant a wallet uncomfortably thick with Argentine currency. It was also bad for banks, though - ATM machines, obviously, do not have an infinite storage capacity and, if demand was high, they could empty quickly.

Not only that, the armored cars that refilled those ATMs had limited capacity as well, and restocking the machines required more frequent visits. This was especially troublesome in popular tourist destinations like El Chaltén, which received infrequent service from banks in the provincial capital of Río Gallegos (ironically enough, the political home base of former president Cristina Fernández de Kirchner and her husband/predecessor, the late Néstor Kirchner).

However necessary the larger bills may be, they’re no miracle cure for Argentina’s economic malaise – larger bills might, in fact, fuel the fear of inflation that’s always latent in Argentina. I still remember, more than 30 years ago, the fact of million-peso banknotes that became barely worth the paper they were printed on; more pragmatically, I wonder whether, in the none-too-distant future, today’s shiny new banknotes might fill my wallet as uncomfortably as their lower-value predecessors.

For the time being, though, I welcome the new bills as a contribution to easing economic problems that still need longer-term solutions, but there could be glitches. It’s quite possible that, as one sardonic Argentine journalist tweeted, “I come from the future. The taxi driver has no change for a 500-peso note.”

Inside the Buenos Aires Bureaucracy

Last month, I posted a photograph on my Facebook page of homeless people sleeping in the alcove behind the Ministerio de Economía (Economy Ministry) in downtown Buenos Aires. I regret having to admit that I misidentified the building in question, as this alcove on the block of Moreno Street between Defensa and Balcarce is really part of the Administration Federal de Ingresos Públicos (AFIP, pictured below), Argentina’s counterpart to the Internal Revenue Service (IRS).

In fact, I was not completely wrong, as AFIP operates under the economy ministry, whose headquarters is one block east, across Balcarce. And I still won’t retract my criticism of the government’s economic hypocrisy - it has not made nearly the progress it claims in reducing poverty, and large numbers of individuals and families still survive outside any social safety net.

I’ve passed the Economía building countless times. It’s been the site of many historic events, most notably when military opponents of President Juan Domingo Perón (himself a general) bombarded the Plaza de Mayo in mid-1955; shrapnel marks remain on the building’s granite exterior (pictured above). I never considered, though, that I might some day take a tour of this bureaucratic monolith until last Tuesday, when my nephew Juan – who works there – invited his father Carlos, my wife María Laura (Carlos’s sister) and me to have lunch on the building’s 12th floor terrace.

The cafeteria food, apparently, is nothing to write home about, so we went to the nearby vegan café Vita, to get some takeaway. I wasn’t particularly hungry, so I only ordered a fresh-squeezed orange juice before we returned and, after passing through security, took the elevator to the 11th floor and walked the stairs to the 12th. En route, I photographed the poster below of one of Economy Minister Axel Kicillof’s proudest achievements: the “Precios Cuidados” program that relies on government intervention to subdue inflation on certain supermarket products . This "Price Watch" program has resulted in shortages of the products in question, though blaming the shortages on high demand sounds disingenuous.

On the inside, the building is unimpressive, but views from the terrace are interesting if not necessarily impressive – Buenos Aires has an unprepossessing skyline, though there are many individual buildings of architectural interest, especially the domes and mansards of early 20th-century buildings on and around the Plaza de Mayo.

From this vantage point, one particularly unimpressive structure is the Casa Rosada executive mansion (pictured below), which looks far less distinguished than it does from the Plaza itself.

It's A Mess(i): Argentina's Currency Conundrum Continues

Every so often, Argentine politicians must feel that they, like their newly crowned Queen Máxima of The Netherlands, are facing the fury of North Sea storms. At increasingly frequent intervals, they use their metaphorical fingers to plug the dikes of ill-conceived policies such as the “currency clamp” that keeps ordinary Argentines from purchasing dollars (or other foreign money) as a hedge against inflation (officially at 10 percent, but in reality nearly three times that).

That’s why so-called “blue dollar” (to use the current phrase for the black market currency) has, as of today, more than doubled the official rate of 5.21, with no short-term ceiling in sight. This is what local wits are calling the “Messi dollar” because Argentine soccer star Lionel Messi, widely regarded as the world’s best player, wears No. 10 on his jersey for Spain’s Barcelona franchise.

Part of the reason for currency controls is to maintain the reserves to allow the country – which is widely regarded as a deadbeat – to pay its international debts. Those reserves, though, have been declining and, in response, the government has announced a tax amnesty to allow Argentines with money in overseas accounts to repatriate their funds in exchange for bonds that will pay them just a four percent return by 2016 – an eternity in Argentine politics - when the current government may no longer be in office. To quote former economy minister Martín Lousteau, “As far as you put patch over patch all you are doing is creating a Frankenstein economy,” and even those Argentines not engaged in money laundering will likely prefer to keep their dollars under the mattress.

At the same time, as inflation rages, the Argentine Congress is considering yet another short-term fix, for the fact that the largest banknote, with a value of 100 pesos, is now worth barely US$9.50 on the open market. Yesterday the government authorized a debate over creating new bills of 200 and 500 pesos which, at the very least, could minimize the inconvenience of overstuffed wallets. Plenty of Argentines, though, remember the hyper-inflation of the 1980s, when million-peso notes flew off the treasury’s printing presses.

Moon Handbooks Chile Plays Saratoga

In a little more than a month – Monday, June 17, at 7 p.m., to be precise – I will offer a digital slide presentation on travel in Chile at Santa Clara Country’s Saratoga Library (13650 Saratoga Avenue, Saratoga CA 95070, tel. 408-867-6126, ext. 3817). Coverage will also include the Chilean Pacific Islands of Rapa Nui (Easter Island) and Juan Fernández (Robinson Crusoe), as well as southernmost Argentina (Tierra del Fuego and the vicinity of El Calafate) that appear in the book. I will also be available to answer questions about Argentina and Buenos Aires. The presentation is free of charge, but books will be available for purchase.

Argentine Peso Plunges Again

Not so long ago, I wrote a post about the exchange rate breach between Argentina’s official peso and the US dollar which, when I left Buenos Aires in mid-December, was selling for about 6.30 pesos on the “parallel market.” The official rate was then, and still is, slightly below five pesos but, on Friday, the skyrocketing dollar rose briefly above eight pesos before dropping slightly below.

The government of president Cristina Fernández de Kirchner professes to be unconcerned, suggesting that the dollar’s rising value is a seasonal phenomenon, as Argentines unable to purchase dollars legally are seeking them to travel elsewhere in South America or overseas. That’s not totally false, as January and February are the prime vacation months, but the rapid rise has to be cause for concern, especially when other regional currencies, such as the Chilean peso, are appreciating against the dollar.

It’s still a marginal market but, on Friday, the Buenos Aires Herald editorialized that the parallel exchange rate was “one of the many self-inflicted wounds from the currency curbs of the past 15 months which have been gradually strangling economic activity…” This week, even the loyalist daily Página/12 criticized the government for arbitrary exchange policies of “clumsy implementation, lacking transparency” that refuses to explain why it “grants or denies funds to citizens who want to exercise their right to leave the country…”

On Friday, though, the city daily Clarín suggested that government-friendly bankers could undercut the parallel market by selling dollars on the cheap, in an attempt to maintain the official rate. Meanwhile, the International Monetary Fund has censured Argentina for falsifying economic statistics, including inflation figures, allowing the country to repay its loans on more advantageous terms. A recent Los Angeles Times column, by statistician Joseph Kadane, explains the issues thoroughly.

What does this mean for visitors, though? Well, at the official exchange rate, with 25 percent inflation rather than the 10 percent the government admits to, Argentina is getting more expensive. At eight pesos to the dollar, it’s considerably cheaper but, as I’ve suggested before, this can be risky for visitors who don’t know their way around. One intermediate alternative, whose legality falls into a grey zone, is Xoom, which pays less than the black market rate but considerably more than the official rate – as of yesterday, it was about 7.40 pesos to the dollar.

I have not used Xoom myself, but I’ve had good feedback on their services from friends in Buenos Aires. It involves a bank transfer that takes place outside Argentina’s borders; Xoom then transfers the peso equivalent for a cash payout in Buenos Aires – there’s a convenient outlet in the Retiro neighborhood - or another Argentine city (there are only a handful in the provinces, however – for instance, the only Patagonian option is the city of Trelew, in Chubut province). This is obviously less convenient than the corner ATM, but the difference is great enough that it’s certainly worth consideration.