The Next Currency Crisis-Any predictions?

[gouchobob]

I'll risk the egg on my face, and go out on a pretty thick limb and say that this just won't happen, but its nice to think that a perfect storm will help Argentina rise permanently above the consequences of the absolute idiocy of its governing class (all political parties).

Argentina will go into crisis after commodity prices drop. The government has not changed its M.O., and is expecting to get different results from previous economic cycles. Its pretty much always the same in Argentina.... the infamous 10-year cycle.

1. Crisis, peso falls, poverty increases.

2. Drop in peso's value on international market brings down costs for businesses around the country. Leads to more jobs, more exports, more tax income. Standard of living rises.

3. Exporters bring in more dollars, which would strengthen value of peso (as has been seen in Brasil) However, Argentina responds by printing pesos to buy these dollars (Central Bank purchases on the open market are over U$800 million this year) Peso/dollar value remains stable, inflation increases in both Peso and Dollar terms.

4. Government places heavy taxes on most lucrative industries to pay for its constantly rising expenditures, but is still forced to issue bonds to cover the deficit. Serves to cover immediate needs but dissuades much long term investment. Argentine businesses aren't able to compete internationally as a result of rising costs.

5. Drop in commodity prices lead to a decrease in government revenues, drop in the demand for pesos (exporters must buy pesos with the dollars they get) Value of peso starts to fall, government faces temptation to print more pesos to cover the rising deficit.

6. Snowball effect that has been seen over and over as private citizens rush to get rid of their pesos. Value of peso continues to drop.

7. Crisis, return to #1.

I wish it wasn't this way as I love Argentina. I've spent countless hours questioning why a country as rich as this can't seem to get it right. So it brings me no satisfaction to see it in crisis.

Pretty good summary of the recurring cycle here. The only question now is timing. I believe problems in China will will be the trigger, mainly sharply lower commodity prices. The day when this will happen is getting closer but hard to predict with accuracy, sometime in the next couple of years is my guess.

 

[TrevorCito]

I was at a friends house a couple of weeks ago and saw a take away menu for empanadas from 2005... $1.50 each. Now they're smaller and we paid 4.50 each. Empanada deflation but price inflation.

Back to the original posters observation on salaries. One of my friends works for an it company. They pay him 8000 pesos per month indexed at 20 per year. 3000 is declared, the rest is in Negro. In July and December he gets a month bonus on top of his regular salary so his annual salary is 14 months * 8000.

Indexed salaries are common here, so is declaring just a portion for afip.

 

[citygirl]

Just as point of reference - the aguinaldo is 2 weeks in July and 2 weeks in Dec so a month in full. I've never heard of anyone getting 2 full months - if your friend is, that's one heck of a special deal.

I'm not sure what you mean by "indexed at 20" - are you saying a 20% raise guaranteed a year? Again, I haven't seen guaranteed raises for non-union anywhere. Even the unions re-negotiate every year. And we (at least) certainly don't tie the salary increases to the inflation. Although we should since according to the gov't, it's only 10% a year Which is a lot less that the raises we gave.

FWIW - that salary would put him at the pretty high end of salaries here. As far as it being common to have a portion en blanco and the majority en negro - it might be common but it's illegal and unethical.

 

[Napoleon]

Well, if the past is prologue.....

It's not. Argentina isn't built on credit. The peso isn't pegged to the dollar. Apples & Oranges.

You can complain about inflation. But inflation doesn't mean that people are going to default on their homes... that have already been paid for in full. Or on the lease for their apartments... that are locked in at peso prices.

The past was very different than the present. What "crisis" are preople anticipating? More whining? There's already plenty of that. I listen to English students who work in banks whine about prices and then talk about the Armani suit they just bought and/or the restaurant they just went to that runs AR$200/person in the next breath.

It's not like most of the population has two mortgages in dollars and yet they get paid in pesos. That's just not the case. And if food prices continue to climb, then maybe that will help stem the obesity and heart disease in this country.

Comparing past circumstances that had very different variables to today doesn't make any sense.

Shit will hit the fan if China's population declines and they stop being the factory to the world. There are absolutely ZERO projections of that being the case before say 2075 A.D. Or maybe it's before 2175 A.D. I can't remember.

 

[TrevorCito]

I'm not sure what you mean by "indexed at 20" - are you saying a 20% raise guaranteed a year? Again, I haven't seen guaranteed raises for non-union anywhere. Even the unions re-negotiate every year. And we (at least) certainly don't tie the salary increases to the inflation. Although we should since according to the gov't, it's only 10% a year Which is a lot less that the raises we gave.

FWIW - that salary would put him at the pretty high end of salaries here. As far as it being common to have a portion en blanco and the majority en negro - it might be common but it's illegal and unethical.

Yes, his salary increases by 20 each year. I know others with similar types of contracts where salaries are indexed to increase with inflation.

This is typical inflationary behavior. Once people start to expect inflation, they will spend now rather than later and demand higher wages indexed to inflation. That's because they know things will only cost more later. This consumer spending heats up the economy even more, leading to further inflation.

Re your comment on ethics.... agreed, but its common practice here and may explain why the official income is so low. Also, how can you make a point on ethics when you knowingly pay your staff less each year for the same work while charging your customers more. Some might describe that as opportunistic and unethical.

 

[citygirl]

Re your comment on ethics.... agreed, but its common practice here and may explain why the official income is so low. Also, how can you make a point on ethics when you knowingly pay your staff less each year for the same work while charging your customers more. Some might describe that as opportunistic and unethical.

Eh? No idea what you're talking about here. I said we give our staff raises that are far more than the "official" inflation rate. So I have no idea what you're talking about with "knowingly pay your staff less each year"

And actually, my pricing structure hasn't changed recently. Another reason we're not putting more business in Argentina - it's just too volatile to predict and in the end, the risks are too great.

And given my company is 100% en blanco, I assure you we are the furthest thing from unethical. But thanks

 

[TrevorCito]

Eh? No idea what you're talking about here. I said we give our staff raises that are far more than the "official" inflation rate. So I have no idea what you're talking about with "knowingly pay your staff less each year"

And actually, my pricing structure hasn't changed recently. Another reason we're not putting more business in Argentina - it's just too volatile to predict and in the end, the risks are too great.

And given my company is 100% en blanco, I assure you we are the furthest thing from unethical. But thanks

Sorry citigirl, I misread. Must be the jetlag... no offence intended.

 

[citygirl]

No worries - hope you get over the jetlag soon!

And I apologize if I get crazy about the unethical stuff. As someone who signs the checks, I know and can understand in part why so many businesses put their staff partly in negro. It's cost-prohibitive to do things en blanco. But the more companies that under-report & under-pay, the smaller the tax dollar pot is for the gov't and costs keep going up. It's a vicious circle and it's driving us crazy. I spend more time signing checks to the gov't than I do managing the business.

We are fast approaching the point that between inflation and the salary adjustments, the extraordinary taxes, the risks to the employer with redundancy, the costs of benefits, etc - it will no longer be logical to have the business here. Which sucks because this is home for me and I love my employees and they're doing an amazing job. I want the company to grow here but it's just not feasible

 

[perry]

I predict in two years that Buenos Aires will be one of the most expensive cities in the world like it has been twice in the last 100 years . There is a snowflakes chance in hell that Argentina will have a major crisis soon as the current world situation is extremely favourable to Argentina.

Since 2005 we have been hearing news on this site about an impeding economic crash in Argentina by the likes of Gouchobob and Co . His predictions have been so off the mark that to bet the complete opposite is a sure win .

I have not made any economic predictions in the last years that have been proven wrong . Please check my over 1000 posts and you will see a clear pattern in my writings.

Since 2008 I have written about the impending economic crash in th USA and now it is in freefall . Very soon the US dollar will implode and those who keep dollars will be like many Argentinians in 2001 on the street .

Currency collapses have happened numerous times through the 20th century and many civilised societies including Germany , Greece, Brazil, Argentina , Malaysia etc etc have suffered their effects.

Be aware and prepared for the inevitable.

 

[John.St]

An average white collar Argentine position pays $2,500 pesos per month minus rent and other fixed expenses. The math doesn't add up!

Oh yes, it does.

Three generations in a 4 room house, that's how it is done and that is also the reason telos (hotels and motels renting by the hour) are so popular.