"It Might Be Time To Get Out Of Argentina"

[garryl]

I do not understand why Macri is trying so hard to keep the peso afloat ? Why not let it go to the market value (32 or whatever) directly ? It's the law of economics. Devalue 50%, everything is better. If you do not want inflation, stop printing peso, you cant have both.

 

[Pensador]

This is going to be an interesting short term unfolding to watch. Not to much to worry about on some of our ends but the for locals making 25K pesos a month it is going to be painful if it is not corrected. I have no idea how they live on that much money with these prices and inflation. I just went to the market the other day noticed everything had just popped up in price WHAM! But this too shall pass or so I hope skeptically.

 

[julian63]

You need to let things settle down a little before making an estimation like that, right now interest rate is high because of uncertainty, when things settle down interest rate will be more near to what the inflation should be.

I am confused. In this context, what does it meant to say that you have to let "things settle down" or that the the interest rate will be "more near to what the inflation rate should be?"
What I know about cause and effect in the field of economics/fiscal policy would echo in a thimble. Unfortunately, I think the same is true of a lot Arg leaders especially those charged with managing the economy. However, it is my belief that absent the current attempts by the Arg govt to hold the price of the USD down, it would probably be close to 30.
In the long run, the govt interference with market forces will ultimately come to a bad end. I have been coming to Arg for over 42 years. The purchasing power of the USD is near its lowest it has been since I have been coming here (absent the Menem 1;1 nonsense - and we know how badly that ended). During the years I have been living here (off and on for months at a time) it is my observation that those betting the Arg fiscal ship of state will be corrected by govt policy have lost.
It seems to me that a lower valued peso will stimulate exports (much like a low valued yuan has bouyed china's economy). Why aren't Arg products being imported into other countries? It seems to me that wine, soy (and other ag products), leather products/shoes, meat, and a bunch of labor intensive articles could be exported if the costs of doing so were not hampered by an over-evaluated peso.

Lest anyone think I am unhappy because the govt is attempting to control the dollar/peso exchange rate,.... hey, I went to see "Violinista en la Techa" last night. Orchestra seats at the Astral cost 900 pesos ($41). The show was a Broadway level quality at about 1/2-1/3 the cost of Broadway show tickets and the post theater meal at Centre Vasco Frances ran less than $100 USD for 5 people. I'm not sure what this all means, but I guess that puts me on a par with the locals.

 

[garryl]

Chinese government is trying hard in every way to keep the fake exchange rate to dollar, at 6.3 to 1. They are afraid to lose the 3 trillion foreign reserve. Once it starts to devalue, people see the trend and they want to convert their RMB to dollars and also people want to take their dollar out so the currency appreciation game is over in China. Many institutions have been playing that games for years. Big US institutions own commercial real estate in China, small investors buy apartment, they all sell them in RMB and convert it back to dollars and take money and run. So the Chinese government tries to hang on the last 3 trillion as long as possible. What is Marci trying to do here ? What is he afraid of ? Devaluing peso is good for Argentina, help the export and attract the foreign invest. It should not have much negative impact on Argentines lives as long as he does not over print peso.

 

[garryl]

For the last two years, many experts in this forum have been telling me that it was the market that made the peso strong. No, it's not. It's Marci.

 

[lamarque]

I am confused. In this context, what does it meant to say that you have to let "things settle down" or that the the interest rate will be "more near to what the inflation rate should be?"

I think that what i mean is quite clear, but i will try to make it even clearer, If the interest rate jump to let say 40% for a week or a month or two, you cannot say inflation is going to be 40% specially if the one actually taking this measure is the central bank and is not what a bank will pay you if you lend them money.
Now if this is not just something temporal that will be corrected as soon as the market settle down, then you could start thinking that this interest rate could reflect inflation, but even then is not quite true neither, a high inflation rate sucks the money that normally flows to consumption making harder for business to rise prices in the short term, when there is someone sucking money from the economy there is less money to consume so people will prioritize goods with lower price (of course this is even more true in country's that have more competition between company's than Argentina).

Resuming in the long term there is a correlation between interest rate and inflation but this doesn't hold true for the short term, so to tell 4 days after the government announce a interest rate of 40% that the inflation rate for the entire year is going to be 40% is just gambling without much of a clue.

Sorry i wanted to make it short but when i started writing i just forgot my self. In any case i agree with most of what you say in a way, but you are oversimplifying things, to let the dollar rise after 15 years of K continuous devaluations, will have little impact on the cost structure. In a couple of months or a year top all the cost will be up by almost the same amount you allowed the dollar to rise, normally in a country that put less attention on the dollar to set it owns prices and that is more used to a stable currency this can have an effective impact on competitiveness, rising exports of the local production, but unfortunately Argentinean are by this point so use to devaluation, that doing that is not going to help much.

 

[lamarque]

For the last two years, many experts in this forum have been telling me that it was the market that made the peso strong. No, it's not. It's Marci.

You are wrong and right at the same time, Macri was not putting dollars at all in the last 2 years in the market to hold the value so, no, was not macri directly that make the peso strong, but indirectly it was macri because company's and national and provincial states had finally the door open (after many years of the corralito for the dollars that kristina installed) to go to the external markets in search for money.
All this money that got into the country was used in the country so it needed to convert to pesos and that is what pushed down the dollar, to that you add the Blanqueo de fondos that made billions of dollars in the hand of Argentinians return to the country and to that you add the billons of dollars that came to buy shares in local company's causing rise of the stock prices in Argentina to reach almost 300%, addind all this factors you have a lot of money flowing in, and that my friend is what caused the peso to not devaluate in the last two years, and not macri selling reserves, actually reserves where growing up until this situation finally exploded.
Now finally with the rise of interest rate of the american reserve, the really bad Soja Campaing that was affected by the lack of rain combined by the market law that tax foreigner investors to 5% of their interest earnings in lebacs, made a perfect pot to form this week storm.
The investors that where in Argentinean assets and lebacs and bonds decided to finally take their earnings and abandon the ship all at the same time, in a way pushed by the rise in interest of the american central bank and the new tax, that caused this week turmoil with the dollar.

And now this days the government is selling finally as you where claiming in the past to keep the peso value.

 

[jantango]

 

[sergio]

Are we counting services that were being subsidized by the State Government in the past? Those subsidies everybody was getting.... Even the public transportation fares have been subsidized by the Government. The free ride is over.

It should indeed be a free ride. Public transport should be either entirely run by the state or outsourced to a compay and 100% subsidized so that everyone rides free.

 

[Pensador]

It should indeed be a free ride. Public transport should be either entirely run by the state or outsourced to a compay and 100% subsidized so that everyone rides free.

There should be no such thing as a free ride for everyone because that ends up on my back. That is half the problem with the thinking down here. I have no issue with public health care and other human rights which I firmly believe in even when it comes of the back of me breaking my ass for 4 decades. Because once it is just a free ride there is no understanding of the price. Even insects have a better structure. And I of all people should not have a free ride. But if you are sick, without food, crippled etc of course it should be my position to take up what slack I can on the behalf of those in such conditions. Yes we that produce can support some things but we cannot support a free ride for everyone.