Sunday, May 26, 2024

OPINION AND ANALYSIS | 26-09-2020 08:58

The incredible shrinking peso

The desperate attempts that are being made to keep the dollar out of arm’s reach are bound to prove counterproductive; it is the government’s way of inadvertently warning people that, yet again, the economy is going under.

If the opinion polls are to be believed, Argentines have long been far more hostile towards the United States than their Latin American neighbours or relatives in Italy, Spain and other parts of Europe, but their dislike of the on occasion overbearing “colossus of the north” has not prevented them from making the US dollar their favourite currency. Not only neoliberals who allegedly dream of capitalism red in tooth and claw but also fierce leftists who want to destroy the whole damn system and nationalists who detest private enterprise because they think too many foreigners are involved despise the peso because they know that sooner or later it will lose all its value. The million-peso banknotes featuring a suitably doleful image of General José de San Martin which were issued several decades ago are too flimsy for most purposes but can be used as bookmarks.

Like many other presidents before him, Alberto Fernández would dearly like the country to have a proper currency of its own. He says he wants people to learn to save in pesos because dollars are needed for production. Such remarks are revealing. They make it clear that in his mind, and those of his advisors, dollars are far more trustworthy than pesos and therefore should be reserved for serious matters, which is why the government is determined to stop ordinary folk from getting their grubby fingers on them.

A few days ago, the Central Bank governor, Miguel Angel Pesce, after going on about how drug traffickers and illegal arms dealers got their dollars in back-street bucket shops, made it even harder for the law-abiding to save real money. Instead, those who are in a position to put something aside will have to rely on gold or jewellery, as has long been the custom among people living in countries undergoing invasions, civil wars or revolutions. Another alternative which has traditionally been favoured here has involved buying land or houses, but the way things are shaping up this alternative looks increasingly risky, what with taxes going up all the time and activists of one kind or another, many of whom are supported by the politically dominant Kirchnerite faction, assuming that if buildings or plots of land are unoccupied, or if whoever owns them seem too weak to resist, they should be taken over by people who need a roof over their heads.

None of this would happen if the country’s rulers had managed to make the peso a currency as hard as most others. Elsewhere, the only people who pay much attention to what is happening on the local exchange market are professional financial operators, tourists planning trips to exotic destinations or British pensioners living in Euroland who find the pound’s gyrations distressing. Here, however, most men and women keep a close eye on the number of pesos needed to buy a dollar not because they are rich enough to afford one but because it tells them how the economy is doing. This is why the desperate attempts that are being made to keep the dollar out of arm’s reach are bound to prove counterproductive; it is the government’s way of inadvertently warning people that, yet again, the economy is going under.

Though Argentina is sometimes said to be the only country which in the course of the 20th century went from relative riches to rags, she was accompanied on her downward journey by Cuba which, before Fidel Castro seized power, was fairly well-off by Latin American standards. However, while the Cubans were victims of their rulers’ devotion to a creed that, as the Chinese realised after Mao’s demise, is inimical to economic growth, since the 1950s Argentina has been governed by largely pragmatic politicians without that many ideological hang-ups. About the only thing they have all had in common is an unwillingness, or inability, to do whatever it takes to defend the value of the peso.

The Radical president Raúl Alfonsín more or less admitted this when, before departing amid a hyperinflationary firestorm, he explained that there were things he “did not know about, did not want to do or was unable to do.” This may be interpreted as meaning that on reaching power, he, like so many others before and after him, had grossly underestimated the economic difficulties his government would have to confront, that eventually he did understand that to right matters he would have to take harsh measures of the kind he had spent years condemning because they would impoverish many decent people, but was aware that, even if he finally did decide to give it a try the Peronist opposition would eat him alive.

For over 70 years, all Argentine governments, including those headed by Juan Domingo Perón himself and the military dictatorships, have found themselves in a situation like the one obliquely alluded to by Alfonsín. After discovering, to their bewilderment, that turning the country into a money-spinning dynamo would not be as easy as they had fondly imagined, they must choose between applying predictably painful root-and-branch reforms and doing their best to let things slide in the hope that fate will be kind to them. Mauricio Macri thought investments would flow in because foreigners saw him as a sensible up-to-date fellow. It is hard to know what is going on in Alberto’s mind because, like Humpty Dumpty, when he speaks the meaning of the words he utters depends on the circumstances, but he seems to be clinging to the belief that not being Macri should be more than enough.

Unluckily for Alberto, time and money – real money, that is – are fast running out. The choice now is between making everybody, apart from an assortment of politicians and their cronies, equally poor by stamping down hard on those who can produce wealth, and going for growth by doing whatever is necessary to encourage the businessmen, farmers and others who are the only Argentines capable of generating it. Kirchnerites and their leftist allies favour the first option, the hundreds of thousands of people who regularly take to the streets and wave the blue-and-white flag want the second which, needless to say, would require the government to give the country a genuine currency whether by full-blown dollarisation, which some think is inevitable, or by brutally slashing public expenditure and applying the long list of structural reforms that would be needed for a new and much stronger version of the peso to survive.


James Neilson

James Neilson

Former editor of the Buenos Aires Herald (1979-1986).


More in (in spanish)