By John M Green Wednesday 1 October 2014
Photo: Locals fear Cristina Fernández de Kirchner's tax agency will find their greenbacks and gold bars. (AFP: Mehdi Taamallah) In Australia, we like to grumble about escalating property prices, but Argentines would relish that luxury. For them, property prices are falling and inflation is rocketing, writes John M Green.
Argentina is a country of great riches, but its brightest future may be behind it. At least it seems that way, after a US judge yesterday found the country in contempt of court as it faced a September 30 deadline to make a $US200 million payment to bondholders.
Go back a century and Australia and Argentina - with vast expanses abundant in beef, grains and natural resources - were youthful southern hemisphere twins cavorting among the global Top 10 economies.
Today, there are still similarities. Both countries have highly literate populations, and are members of the G20 and non-permanent members of the United Nations Security Council. We play against each other in the Rugby Championship and we can savour each other's fine wines. Strangely, we even share the same three-pronged power plugs, a traveller's delight.
Yet our economies have sharply diverged. While Australia is still ranked globally at 6, our South American twin has cut herself loose, slumping to 47. (World Bank data has Argentina's 2013 GDP per capita at US$14,760 and Australia's at US$67,468.)
Flying into Buenos Aires' Ezeiza International Airport last week gave no clue as to the country's economic turmoil. But as my cab drew close to my hotel in the swanky Recoleta area, the world-weary driver pointed to a hole-in-the-wall store inside an elegant shopping arcade. "Don't exchange your money at a bank," he said. "Don't use your credit card. Change your dollars for pesos in there ... if you have to."
This shop is a cueva [cave], part of what Argentines call the "blue market", an illegal currency black market, yet one that seems to be tolerated given the host of websites, Facebook and Twitter accounts that openly, and depressingly for locals, quote the latest "Dólar Blue" rate. Not just the daily rate, the hourly one.
Currency is an everyday talking point and it's no wonder with the official peso/US$ rate at around 8.5 versus the "blue" rate at an eye-watering, pocket-withering 15.65 pesos to the dollar.
In Australia, we like to grumble about escalating property prices, but Argentines would relish that luxury. For them, property prices are falling, and even so real estate remains out of most people's reach. With inflation rocketing unofficially at 38 per cent, and virtually no mortgage market, property buyers usually have to scrabble together 100 per cent of the price, with vendors preferring US dollars.
The spread between the official and the blue rate has been volatile. The unofficial blue rate is often called a "parallel" rate but given it's implying that the peso has weakened by over 80 per cent, parallel is hardly an apt term, not any more.
The chart below shows how volatile the currency has been since these "parallel" rates began to diverge in 2011, and how the spread is so yawningly wide that many speculate on another currency devaluation.
The last devaluation was in January, and in July, Argentina had its second technical sovereign default in 12 years.
If that isn't enough, there's the crushing dilemma facing wage-earners each month when their bosses plonk their pay into their bank savings accounts. These accounts pay zero interest, so what do the employees do? What would you do? Like many of them, you'd probably suck your pay out of your 38-per-cent inflation-drained account as fast as you can scrawl your name.
But where and how do you secure it? You'd probably buy hard assets. Porsche 911 Carrera S's were in super hot demand until the government clamped down on that. You'd possibly illegally swap some into US dollars, perhaps at your local cueva. With some you might buy gold.
But where does the average Argentinian hide his or her greenbacks or gold bars? In a car trunk? Under a mattress? In a safety deposit box? Safety deposit boxes sound smart, but Argentines view them a little sceptically. One local tells me he's scared the government will force banks to open up these boxes so inspectors from president Cristina Fernández de Kirchner's AFIP (the tax agency) can reconcile their contents with the owners' tax returns. Or worse, that the government might compulsorily "pesify" their contents, converting the secreted US dollars back into pesos at the official rate.
Maybe you'd think about salting your horde away in safe havens outside the country? For example, Uruguay's capital Montevideo is only a three-hour ferry ride from Buenos Aires. But sneaking your cash out that way is risky. It's not muggers that people worry about, but dogs. Head to the Buquebus car ferry terminal on the Rio de la Plata and you're likely to find AFIP officials wandering around your vehicle and bags with their K9 corps of sniffer dogs.
Yet the likes of Schapelle Corby would have nothing to worry about since these dogs are not trained to detect drugs. What they're sniffing for is the ink printed on US dollar bills.
If you're a financial sophisticate, you might also enter the "blue-chip swap" market where you can buy US dollar-denominated sovereign bonds with pesos, then transfer the bonds to Europe or the US, sell them for dollars, and stash them in an offshore account.
As Madonna sings in Don't Cry For Me Argentina, "And as for fortune, and as for fame I never invited them in ... They are illusions."
On my prior visits, Argentines have tended to be vibrant and buoyant, but not this time.
John M Green is a leading Australian company director, a publisher, business commentator, and a novelist. His latest novel is The Trusted. View his full profile here.
It's time to cry for Argentina - The Drum (Australian Broadcasting Corporation)
