Friday, May 16, 2008

Is Argentina going to implode again?

Even without the help of the IMF? Jack Chang, in his blog "Inside South America" says maybe so:

Local media report that people are buying up dollars for fear that the peso could slide again and that the government will respond by freezing bank accounts, like it did in the bad old days. Government officials have denied any such measures are in the works, but people don't seem to be listening. The country's central bank recently had to inject $1 billion in dollars into the banking system to counter the bank rush.

Other evidence: In the capital of Buenos Aires, a poll by the Public Opinion Center of the University of Belgrano found that 69 percent of respondents believed another crash was "very probable," with 41 percent believing it could be triggered by inflation.

Which leads to the factors. First there's the protracted battle between President Cristina Fernández de Kirchner and the country's farming sector, the main economic engine here, over higher export taxes imposed on soybeans and sunflowers in March. Farmers have blocked roads and withheld production to protest the higher taxes, and as the conflict drags on, the risk to the economy grows.

Then, there's inflation, which the government says hovers around 8 percent annually but which economists estimate is as much as three times that number. And a more recent factor, the Argentine peso is weakening against the dollar, a decline that bucks the worldwide trend. This morning, the peso was trading at 3.18 to the dollar.

Bloomberg has further coverage of the Argentine farmers' protests and notes that President Fernandez's popularity is falling to de la Rua levels (i.e. getting run out of office levels).

Wow, it seems that the only things worse than the results of orthodox policies in Latin America are the results of heterodox policies in Latin America.


Shawn said...

what if there were a prediction market on 'peso slide and government bank freezes'...would the government try to manipulate that? I guess they could just just wait until after the time period and then freeze rates.

Skip Sauer said...

Shouldn't they be buying euros and not dollars?

Carla said...

What happened in Argentina is no different from what happens in other countries. Thir currency (Argentine peso) was losing value since Argentineans were making all of their transactions in dollars. The President decided to put a stop and now they can´t buy dollars just for savings. I recently was there, even got a Buenos Aires temporary rent and the rental company said I could pay in US dollars or in ARS, they did not push me to pay in dollars!