Written for The Telegraph, 29 Jan 2014
Argentina’s economy is not easy to write about. I’ve had to rewrite this article 15 times. Not just because of my shoddy writing, but because of the shoddy state of the economy.
When I started putting pen to paper at the end of December, the exchange rate was 6.5 pesos to the dollar, yet last week it hit 8.5 pesos. Every time I reopen my laptop the rate has changed. On the verge of yet another economic crash you might suppose? Obviously, it’s Argentina.
This is a fact faced by everyone, expat and local, and probably explains the nation’s curious financial habits. The fragility of the value of the peso makes it – as my local friend says – a ‘hot potato’ currency: “No one wants to have it in their hands too long”. The longer you sleep on it, the less it means in the morning. There’s no point making any crude comparisons to the reputation of Latino lotharios, but this temporal nature of monetary value does make life here a lot of fun at the beginning of the month.
The biggest economic lesson I’ve learnt since moving here five years ago is that you should invest in stuff. Stuff will always be stuff, whereas you can’t say the same for money. When payday rolls around, the shopping centres are swarming with people investing in furniture, household goods, food, even cars and property. My friends completed payment for a new big house recently by swapping a smaller apartment and a car with the other owners. There were a few thousand pesos thrown in to sweeten the deal but they were mainly to pay the commissions of the real estate agents. In business transactions it’s also common to accept canje, a payment in goods rather than money. It’s the stuff you own that counts, not the cash.
While this means your friendly neighbour will always come up trumps whenever you need to borrow something, it also means people hoard a lot of junk. You don’t need to step further than the roadside to see cars that resemble hunks of junk being propelled around in a puff of black smoke. Even with an exposed spoiler and two missing doors, an old car is still worth more than its weight in pesos.
The soaring inflation is denied by the government, much to the annoyance of the IMF. Government statistics say it is only 10 per cent, while unofficial estimates are closer to 30 per cent. This means that the largest bill on offer – the AR$100 peso bill – is now only worth £7, or £4.50 on the unofficial rate. This makes buying a beer in cash (AR$40) reasonable, but trying to buy a fridge-freezer in cash for example (AR$6,000 for a mid-range model), becomes far harder, requiring big pockets, a rainbow and a leprechaun.
While inflation on the street is high, the average wage only increases around 10 per cent per year, leaving people a shrinking disposable income. Yet while the peso is depreciating in value by the hour, the government has made a fabulous effort at making it look prettier. The AR$100 peso bill is now covered in flowers, is purple, pink and yellow and has Evita’s face on it. So at least it looks nice as it flies away.
While living in Argentina is getting more and more expensive for Argentines, it is getting cheaper for some – the greenback smugglers. Sell your dollar on the black market and you have doubled your money in no time, from 6.5 to 12.15 last week. If you are on the right side of the dollar, life in Argentina is like a big game of monopoly – every time you pass “go” you are a peso millionaire again.
While Argentina has the largest circulation of dollars in the world outside the States, it hasn’t been legal tender in the country for a while. However, this week came news that the government is easing up on letting people save in dollars – perhaps to excuse their own recent dollar grabbing.
Even the Central Bank has now given up on the façade of wanting the peso, and passed an order late last year that all non-residents cannot pay in pesos for any air travel. Last month when I went to book a flight with the national airline, Aerolineas Argentinas, they flat out refused my payment in Argentine pesos, only accepting payments in dollars or by foreign credit card. I caught the bus instead.
Word is out that Argentina is cheap and so there has been a boom of tourists arriving these last couple of months with a smug look on their face and a backpack full of dollars – although they should watch out for the dollar sniffer dogs that patrol the airports. While newbies should feel content about trading in their green notes for hundreds of purple and pink ones, one Argentina-ism will catch them in their tracks. Pennies. The value of the peso might be going down, but the power of the coin is still on the up.
Four years ago you could have predicted the pending economic crisis as it began to pinch the pennies. A severe scarcity made it a mission impossible to get change for your weekly shopping. The metal coin has long had more inherent value than the amount embossed on it, and at one point the coin shortage meant independent supermarkets were dealing in a currency of IOUs. A few weeks ago I was refused sale of a AR$6.50 can of coke by a corner shop owner who, despite having the right change available for my AR$10 peso note, told me: “I would prefer not to sell it to you than to give you all my change.”
The coin famine means that corner shop stand-offs are common, as is giving sweeties in change. Just another trial and tribulation for the waistlines of those of us living in the land of steak and Malbec (which, by the way, is now irresistibly cheap if you have a few dollars).
The penny crisis is also fed by penny hoarding, which is a national neurosis reflective of the fragile financial situation that is starting to spiral out of control, like so many times before. These last few days the sudden devaluation of the peso has meant another stand-off in the corner stores with shopkeepers refusing to sell many items due to uncertainty of what their price should be. As the economy trembles again, it is safer to hoard your investments in “stuff” than any paper peso.
While living in Argentina can feel lavish and fun at the beginning of the month, by the end of the month it is usually a case of scraping the barrel. It has long been a tradition that the 29th of each month is Dia de Noquis (Gnocchi Day) where everyone eats potato dumplings because that’s all they can afford to buy until payday comes around.
That pretty much sums up the worsening financial situation in Argentina. You start with hot potatoes, but before long you are down to watered-down spuds.
Please see the full article here.
Photo: AFP PHOTO / LEO LA VALLE (Photo credit should read LEO LA VALLE/AFP/Getty Images) Taken from The Telegraph website.