Sunday, January 31, 2016

Will the Argentina Peso be a Failed Currency Yet Again?

(Perhaps it with some irony that Eva Peron graces the new 100 Peso banknote.  Perhaps it is an ominous foreboding of renewed populist anger if the neoliberal center-right government fails to deliver.)

Argentina has had about five failed currency regimes in the past, all of them ending in inflation and replacement with a new currency (you can finds names and dates of these currencies in the Wikipedia 'Argentina Peso' article).  It seems to be a country that keeps repeating the same mistake, lured by the quick fix of money printing.  Back in 2012 I said that their then central bank president, Mercedes Marco del Pont, was saying crazy things that only an Ivy League professor or a moonbat socialist could possibly believe.  Predictably, the Argentine Peso cratered from near USD parity all the way down to now 13.88 pesos to the Dollar.  Its truly an abuse of power and a disservice to all workers and savers in that country, not to mention the foreign bondholders (who have no one to blame but themselves for not selling the minute del Pont starting talking).  With the capital controls that prevented people from buying dollars at the official exchange rate, gold and silver were - as in most crisis situations - probably the only good asset to save money in.
2012 del Pont post is here:
2013 Follow-up post:

del Pont's replacement resigned after less than a year on the job and Argentina has defaulted on its foreign debt obligations:

To stop the flight of money, they even made it illegal for Argentinians to have more than one Paypal account (people would send Pesos using Paypals currency exchange, automatically converting them when sent into a second Dollar-denominated account, going around the traditional banking system):

After almost a century of failed Peronist/populist/socialist policy, the voters finally cried uncle and have elected a center-right government by a slim 51/49 margin with 80% turnout:

The new president, Mauricio Macri, is a graduate of the Columbia Business School in New York and son of an Italian businessman.  He is a former 1980s Citibank employee and almost certainly not a hard-money advocate but rather I assume subscribes to some form of neoliberalism (I am not an expert on Argentinian politics).  As someone with a business degree and business background, rather than a background in "academic economics" (ie, like Krugman and del Pont), he is hopefully less devoted to the more foolish and theoretical aspects of Keynesianism. 

What Argentina needs now is controlled spending, appropriate level of interest rates, increased reserves (with possibly the addition of some gold), and the gradual re-building confidence that it will not default again (perhaps even re-visiting the issue of the prior default and making some restitution, like the US did with its defunct Revolutionary War debt issued in Continentals).  The new bank president, Federico Sturzenegger, ended the capital controls that prevented Argentinians from buying dollars.  His past performance turning around a failing state-owned Banco Ciudad and making it very profitable gives hope that he is a competent financial manager.  It is hard, however, to stop a currency from plunging into the abyss once it has already slide so far, like trying to reverse a long heavy train which has already built up momentum.  While it has little effect on me in the US, I will be watching the Peso with interest (no pun intended). 

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