The economist Guido Lorenzo, director of the LCG consultancy, explains why not even the citizens themselves trust their national currency. What is the devaluation due to?
The Argentine economy is difficult to understand, for nationals and foreigners. Many people from different countries are struck by how the middle class of the South American nation begins its mornings by reviewing the price of the dollar and other financial data, almost in a religious way, given the need to preserve their savings , as long as there are some pesos left over. at the end of the month. Is that understanding the exchange system became an obligation for ordinary citizens, in the midst of a dynamic context.
The reason why Argentines have a strong ambition for dollars is local inflation. In simple terms, if someone saves in pesos, but consumer prices grow steadily, that accumulated amount will serve to purchase fewer goods and services than before. For this reason, resorting to the US currency is a very common practice to protect money: its price also tends to rise, sometimes abruptly, ensuring that inflation does not affect these savers. Others simply resell the foreign currency in the informal market, seeking a profit margin.
“The Argentine who can save does so in dollars,” confirms Guido Lorenzo, executive director of the Labor, Capital & Growth (LCG) consultancy. ” It is not a cultural question , it is that the nominality [value assigned to goods, titles or other assets] is so high that one cannot project returns in pesos. Therefore, one of the functions of the currency, the reserve of value , is lost and the dollar rivals that space, “he explains.
Entrance of the Argentine Central Bank, in the City of Buenos Aires.
Likewise, this has severe consequences on the accounts of the Central Bank: “Even with a surplus in the trade balance of more than 10 billion dollars, the country loses reserves, ” the economist warns. Faced with this scenario of high demand for dollars, the government of Mauricio Macri implemented restrictions on the purchase of international currency, a policy known as 'exchange stocks' , still in force under the administration of the Peronist Alberto Fernández.
With this mechanism, you can only buy up to $ 200 per month per person, at a purchase price that is 75% higher than the official price, due to taxes. The pioneer in applying the limitations was Cristina Fernández de Kirchner in 2011, although at the time she was highly questioned by Macri and the opposition in general.
“The authorities insist on trying to reduce demand via exchange controls, which all they do is make the public have a greater appetite for foreign currency and more distrust of the peso, ” criticizes Lorenzo. For the expert, this is a key point in the conflict: “It is not a problem of Argentine commerce, nor of the interest that it has to pay at present after the restructuring of its debt, it is a problem that residents and non-residents flee. Of weight”.
How is the price determined?
The specialist tells this media that in Argentina “many types of exchange coexist”, but they can be summarized in three.
* Official square : “The Central Bank sets the pace of the sale price, because every day it is the net supplier of foreign currency,” he indicates.
* 'Blue dollar' : “It is the banknote that is sold on the street through the black market, which is quite white. There is a free game of supply and demand for silver from retailers and money that is not in the banking system.”
* Counted with settlement : “It consists of buying a bond in pesos in Argentina and selling it in dollars outside the country,” he says. This mechanism, also parallel, is widely used by companies, and these days it registers “upward pressure”, making its value rise.
So, what does the appreciation of the Argentine currency depend on? What is the government's criteria for depreciating the peso? : “Until now, it followed a 'crawling peg' scheme, that is, tying the devaluation to inflation,” answers the understanding. “If inflation runs at a rate of 2% or 3% per month, the Central Bank starts to sell currency at a higher value daily, which reflects a rise in the dollar similar to that percentage during the month,” he adds.
The Argentine president, Alberto Fernández, gives a speech from the presidential residence of Olivos
This is explained because if inflation grows, and the dollar price does not, “Argentina loses exchange rate competitiveness”, that is, “it becomes more expensive given that domestic prices rise more than the exchange rate.” So, if prices go up, but there is no devaluation, the country would be less attractive abroad: “If someone comes with a dollar and can buy fewer goods and services in the country, or a client, they will see that Argentina became expensive in dollars, and therefore will prefer to buy in Brazil or another country “, highlights the interviewee. When this happens, it is called 'foreign exchange delay'.
For this reason, the depreciation of the Argentine peso is based on a political decision: “It is a common tactic used by central bankers,” says the consultant. The aforementioned, without mentioning other abrupt economic movements, sometimes linked to speculation: when Fernández won the 2019 primary elections, there was a 30% depreciation in just 24 hours, and several economists questioned the Macri government for not having prevented it with a simple intervention of the Central Bank.
The bad experience of equating the peso with the dollar
Doing a little historical review, the economist points out that Argentina, “except in the 90s, lived with moderate or high inflation.” Thus, it refers to the period known as Convertibility , which began in March 1991 to put an end to the hyperinflations of previous years. This process, begun under the Peronist government of Carlos Menem, at the hands of his liberal Economy Minister Domingo Cavallo, lasted for almost 11 years, and consisted of equating the weak Argentine economy with the United States: one peso was equal to one dollar .
Thus, while many Argentines could travel abroad on a recurring basis, purchase imported items at affordable prices, and see rock concerts by artists unthinkable at economic values, the national industry was deteriorating , and investing in Argentine labor was expensive for the rest of the world. world. And, although access to dollars was not the limits of today, many citizens fell into poverty .
The Convertibility period culminated in the fierce crisis of 2001, when President Fernando de la Rúa left the Government, leaving in a helicopter. In January 2002, that policy was repealed and the peso began to devalue.
19 years after that outbreak, hardly anyone doubts about the bad consequences of equating the peso with the dollar, although an excessive depreciation can also have serious social consequences, resulting in higher inflation. For this reason, Lorenzo argues that, beyond the devaluation of the national currency, “the discussion is on whether the value they defend is adequate or not.”
Leandro Lutzky, Rt.