The article states
What happens is the state takes on debt, it sells bonds on the market, and Argentine capitalists take out dollars and relocate their money abroad.
How does selling Argentinian bonds result in "Argentinian capitalists" taking out dollars? Aren't they buying Argentinian bonds in pesos?
It's a good question. Most people don't know the answer, but aren't curious enough to ask.
International financial transfers ultimately take place between central banks. Imagine you are a wealthy Argentine businessman with $45.000.000 pesos in a bank account. You want to invest $1.000.000US in American real estate. Simplifying matters, there are two ways you can do this. First, withdraw your $45M pesos, take them to a cueva, convert them to dollars and carry them in a suitcase to the US. Obviously, this is not a practical solution.
The other way is via a wire transfer through SWIFT (you can google this). Simplifying matters, you set up an account at Citibank in the US. Then you instruct your Argentine bank to wire the $45M pesos to your Citibank account in the US. But Citibank US doesn't accept Argentine pesos - they only deal in dollars. So how do your $45M Argentine pesos get deposited in dollars into your American bank account? Central banks.
Upon receiving your wire instruction, the BCRA in Argentina takes your pesos and converts them to dollars. The BCRA sends those dollars to the Federal Reserve in the US. The Fed takes those dollars and sends them to Citibank in the US. Those dollars appear in your Citibank account.
Where did those dollars in the BCRA come from? They came from foreign exchange reserves.
For international transfers to take place, the outbound country has to have sufficient foreign exchange reserves. This is why, when Cristina was president, she severely limited foreign exchange transfers. Her corrupt, socialist policies practically emptied the BCRA of foreign exchange reserves. In other words, the BCRA had precious few dollars. So if Argentine's attempted the transaction we described above, the BCRA had no dollars to send on to the inbound central bank. Capital controls and lack of foreign exchange reserves don't just affect wealthy businesspeople. They also affect everyday commerce and standards of living. Importers can't get products and businesses can't get parts and inventory to continue operations. Everything purchased with pesos that is bought from foreign sources must come from either currency in a suitcase or a capital transfer, like we described above.
(This analysis ignores the new phenomenon of cryptocurrency, which is an entirely different underworld trade).
What governments currently have capital controls on foreign transactions? They are all corrupt socialist governments: Venezuela, China, Russia, Turkey (and a few more)... there aren't many. But they aren't countries you would want to live in.
Bajacero is referring to the fact that Macri did two things. First, he borrowed in dollars which boosted Argentine foreign exchange reserves. Second, he relaxed Cristina's capital controls. Those two changes allowed capital to leave Argentina.
jacobinmag.com
