Does anyone else feel there might be a peso collapse this year?

[Joddson]

Hey all,

I don't usually get in on the political and economic speculation, but I keep up with the herald articles and it feels like they've been painting a picture.
Especially with all the news about how the central bank keeps spending more on artificially keeping exchange rates down, and now the IMF pushing for the controls to be lifted.

Not really sure how a massive peso devalue would affect the country, but I wanted check what the crowd consensus was feeling.
Feels like there might be a breaking point and the rates will shoot far past what we saw pre-election.

Maybe it'll help the country? I've seen a few articles about how the over-valuation is making things un-affordable to regular folks and ruining international competition.

 

[Ries]

since everything is priced in pesos, if the peso becomes less valuable against the dollar (the traditional meaning of a collapse) then most things will be MORE expensive for Argentines, particularly anything imported.
Unless this is somehow accompanied by huge pay increases, I cannot see how this would be anything but disasterous for the average Argentine.
Sure, it could be better for expats who earn in dollars, but over valuation actually makes things cheaper in pesos, assuming you are one of the top 10% who can afford anything besides food and rent.

 

[FrankPintor]

I believe some economists are speculating about either a collapse, or a major devaluation in the run up to removing the CEPO. That would make the country more competitive internationally, but would have a negative impact on anyone earning in Pesos, since prices would probably go up.

On the other hand, with the situation we have, Argentina cannot produce products competitively, and if imports recover, they will decimate industry and agriculture here, people with money to spend are spending it outside Argentina, and nobody in their right mind would invest in Argentina right now.

 

[mikic007]

As I see it, price increase already happened on expectations of peso fall, that did not happen. But prices pretty much stayed elevated, so I guess there isn't much space for increase, at least at basic products. I'm not huge fan of milei, but I really hope he has some masterplan to get this through. Unlike majority here, I don't care how much my euros are getting here, if people are living better. But in my opinion it would be the best for everyone, if usd would be at 1500 pesos, while prices remained the same... Wishful thinking..

 

[LuckyLuke]

Expats largely sit on the other end of Argentine economics. What's good for USD purchasing power and is not necessarily good for Argentines.

You are correct though, as many have been saying here, that the current 1-2% official peg is unsustainable and while it may help the average joe on the street better budget his monthly costs, it's strangling foreign commerce and stunting economic growth.

 

[LuckyLuke]

since everything is priced in pesos, if the peso becomes less valuable against the dollar (the traditional meaning of a collapse) then most things will be MORE expensive for Argentines, particularly anything imported.
Unless this is somehow accompanied by huge pay increases, I cannot see how this would be anything but disasterous for the average Argentine.
Sure, it could be better for expats who earn in dollars, but over valuation actually makes things cheaper in pesos, assuming you are one of the top 10% who can afford anything besides food and rent.

Argentine mentality on inflation is already disastrous for Argentina. The imbedded notion of constantly front-running perceived inflation has in my opinion been far more damaging than any fiscal deficit or foreign reserve balance shortfall. Countless businesses blamed an increasing blue dollar for raising their prices despite much lower inflation in their domestic costs of production. Now businesses are raising their prices even more because domestic costs of productions have far exceeded what the blue dollar once supposedly represented to the them. Even with "tamed" inflation of 3-4%, costs are incessantly increasing because of perceived purchasing power erosion.

It's a never ending game of musical chairs of profit margin preservation that only ends in lower consumption. Robert Kiyosaki of Rich Dad Poor Dad famously wrote about his gripe with rising gas prices at the pump. So to hedge his inflationary cost, he had the "brilliant" idea of investing in oil stocks to ride the commodity wave. Of course the book completely negates how speculative investment in oil was already causing prices to rise. His "not in my wallet" mentality only aggravated the cost pressures on everyone else by further fueling the speculation.

This is the exact phenomenon that I fear is repeating everywhere as businesses, utilities and municipal fees clamor for an ever decreasing disposable income pie amongst a shrinking pool of employed Argentines.

 

[Joddson]

Argentine mentality on inflation is already disastrous for Argentina. The imbedded notion of constantly front-running perceived inflation has in my opinion been far more damaging than any fiscal deficit or foreign reserve balance shortfall. Countless businesses blamed an increasing blue dollar for raising their prices despite much lower inflation in their domestic costs of production. Now businesses are raising their prices even more because domestic costs of productions have far exceeded what the blue dollar once supposedly represented to the them. Even with "tamed" inflation of 3-4%, costs are incessantly increasing because of perceived purchasing power erosion.

It's a never ending game of musical chairs of profit margin preservation that only ends in lower consumption. Robert Kiyosaki of Rich Dad Poor Dad famously wrote about his gripe with rising gas prices at the pump. So to hedge his inflationary cost, he had the "brilliant" idea of investing in oil stocks to ride the commodity wave. Of course the book completely negates how speculative investment in oil was already causing prices to rise. His "not in my wallet" mentality only aggravated the cost pressures on everyone else by further fueling the speculation.

This is the exact phenomenon that I fear is repeating everywhere as businesses, utilities and municipal fees clamor for an ever decreasing disposable income pie amongst a shrinking pool of employed Argentines.

Definitely agree on the falling consumption. Seeing a lot less eating out among friends and family. Even seen my in-laws, once extremely nationalistic asado touting cuisine become less and less meat based, now leaning on homemade pizzas.
Plus hand rolling cigarettes over store bought.

 

[Joddson]

since everything is priced in pesos, if the peso becomes less valuable against the dollar (the traditional meaning of a collapse) then most things will be MORE expensive for Argentines, particularly anything imported.
Unless this is somehow accompanied by huge pay increases, I cannot see how this would be anything but disasterous for the average Argentine.
Sure, it could be better for expats who earn in dollars, but over valuation actually makes things cheaper in pesos, assuming you are one of the top 10% who can afford anything besides food and rent.

That makes more sense, explains why the news has been sounding so tense with the IMF pressure and the sort.

 

[antipodean]

Hey all,

I don't usually get in on the political and economic speculation, but I keep up with the herald articles and it feels like they've been painting a picture.
Especially with all the news about how the central bank keeps spending more on artificially keeping exchange rates down, and now the IMF pushing for the controls to be lifted.

Not really sure how a massive peso devalue would affect the country, but I wanted check what the crowd consensus was feeling.
Feels like there might be a breaking point and the rates will shoot far past what we saw pre-election.

Maybe it'll help the country? I've seen a few articles about how the over-valuation is making things un-affordable to regular folks and ruining international competition.

IMO, currency lag between the peso and USD and indeed the relevance of the peso is a temporary issue. It's current "strength" is artificial as always as a result of policy and necessities of the day. If / when the government allows people and businesses (e.g. exporters) to freely buy and sell their products and services in USD (or other foreign currency) and receive USD (or other foreign currency) in their bank accounts, the peso will simply be left to go to hell, as the only thing people will be interested in is getting their hands on USD (or other foreign currency) to pay prices denominated in USD (or other foreign currency) - which means eventually workers, starting at those most skilled and in demand from businesses, also start demanding salaries denominated in USD (or other foreign currency) until the real economy is effectively dollarized.

Of course, like any major change, it is unlikely to happen "overnight", nor will everyone suffer the consequences or reap the rewards in choreographed unison. There will be different winners and losers at each point along the way.

Right now there are still so many indirectly related laws and regulations to be changed to actually make this possible and keep the state's lights on, such as an overhaul of the taxation and internal revenue system which is heavily dependent on cashing in from artificial currency differences instead of direct taxation - as such these kind of policy developments are more important to watch since they are the enablers of what this government ultimately wants to do and are the reason why there is a difference between what the government wants to do (or can do) and what the IMF wants right now.

 

[Ries]

The thing is, nothing milei has done has had any effect on the practical reality of Argentina prices for imported goods being basically double the dollar cost outside of Argentina.
There is no reason to expect this to change. So anything imported will track the exchange rate, not “ inflation”.
And consumption is based on the price in pesos.
Real estate is priced in dollars, its value pretty much ignores pesos altogether, except if peso expensas get so high that people feel pressure to sell and lower their asking prices.
The economy is very complicated and doesnt follow austrian rules.