AuthorTopic: Don't Cry for Me, Argentina  (Read 915 times)

Offline RE

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Don't Cry for Me, Argentina
« on: February 10, 2014, 03:25:48 AM »
FerFal is BACK.

Don't cry for me, Argentina.

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RE

Here's What It Looks Like When Your Country's Economy Collapses

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Submitted by Adam Taggart of Peak Prosperity,

Argentina is a country re-entering crisis territory it knows too well. The country has defaulted on its sovereign debt three times in the past 32 years and looks poised to do so again soon.

Its currency, the peso, devalued by more than 20% in January alone. Inflation is currently running at 25%. Argentina's budget deficit is exploding, and, based on credit default swap rates, the market is placing an 85% chance of a sovereign default within the next five years.

Want to know what it's like living through a currency collapse? Argentina is providing us with a real-time window.

So, we've invited Fernando "FerFAL" Aguirre back onto the program to provide commentary on the events on the ground there. What is life like right now for the average Argentinian?

Aguirre began blogging during the hyperinflationary destruction of Argentina’s economy in 2001 and has since dedicated his professional career to educating the public about his experiences and observations of its lingering aftermath. He is the author of Surviving the Economic Collapse and sees many parallels between the path that led to Argentina's decline and the similar one most countries in the West, including the U.S., are currently on. Our 2011 interview with him "A Case Study in How An Economy Collapses" remains one of Peak Prosperity's most well-regarded.

Chris Martenson:  Okay. Bring us up to date. What is happening in Argentina right now with respect to its currency, the peso?

 

Fernando Aguirre:  Well, actually pretty recently, January 22, the peso lost 15% of its value. It has devalued quite a bit. It ended up losing 20% of its value that week, and it has been pretty crazy since then. Inflation has been rampant in some sectors, going up to 100% in food, grocery stores 20%, 30% in some cases. So it has been pretty complicated. Lots of stores don't want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.

 

Chris Martenson:  So 100%, 20% inflation; are those yearly numbers?

 

Fernando Aguirre:  Those are our numbers in a matter of days. In just one day, for example, cement in Balcarce, one of the towns in Southern Argentina, went up 100% overnight, doubling in price. Grocery stores in Córdoba, even in Buenos Aires, people are talking about increase of prices of 20, 30% just these days. I actually have family in Argentina that are telling me that they go to a hardware store and they aren't even able to buy stuff from there because stores want to hold on and see how prices unfold in the following days.

 

Chris Martenson:  Right. So this is one of those great mysteries of inflation. It is obviously 'flying money', so everyone is trying to get rid of their money. You would think that would actually increase commerce. But if you are on the other end of that transaction, if you happen to be the business owner, you have every incentive to withhold items for as long as possible. So one of the great ironies, I guess, is that even though money is flying around like crazy, goods start to disappear from the shelves. Is that what you are seeing?

 

Fernando Aguirre:  Absolutely. Shelves halfway empty. The government is always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don't increase prices, companies just are not willing to sell. It is a pretty tricky situation to be in.

 

Chris Martenson:  Are there any sort of price controls going on right now? Has anything been mandated?

 

Fernando Aguirre:  As you know, price controls don't really work. I mean, they tried this before in Argentina. Actually, last year one of the big news stories was that the government was freezing prices on food and certain appliances. It didn't work. Just a few days later those supposedly "frozen" prices were going up. As soon as they officially released them, they would just double in price.

 

Chris Martenson:  Let me ask you this, then: How many people in Argentina actually still have money in Argentine banks in dollars? One of the features in 2001 was that people had money in dollars, in the banks. There was a banking holiday; a couple of weeks later, banks open up; Surprise, you have the same number in your account, only it's pesos, not dollars. It was an effective theft, if I could use that term. Is anybody keeping money in the banks at this point, or how is that working?

 

Fernando Aguirre:  Well, first of all, I would like to clarify for people listening: Those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean banks – they are the same banks. If they are willing to steal from people in one place, don't be surprised if they are willing to do it in other places as well.

Click the play button below to listen to Chris' interview with Fernando Aguirre (36m:42s):


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Offline RE

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💸 Argentina Peso Collapses Further
« Reply #1 on: June 15, 2018, 12:52:12 AM »
Looks like FerFal can start a new volume on his blog.  ::)

RE

https://wolfstreet.com/2018/06/14/seems-impossible-but-argentinas-peso-was-able-to-collapse-further-despite-50-bn-imf-bailout/

Seems Impossible, but Argentina’s Peso Was Able to Collapse even Further Despite $50 Billion IMF Bailout
by Wolf Richter • Jun 14, 2018 • 8 Comments   
Why is anyone still lending this government any money?


Today the Argentina peso plunged another 5.5% against the US dollar. It now takes ARS 27.7 to buy $1. Over the past 16 years, the peso has gone through waves of collapses. This collapse began on April 20. The central bank of Argentina (BCRA) countered it by selling $1 billion per day of scarce foreign exchange reserves and buying pesos. The peso fell more quickly. The BCRA responded with three rate hikes, to finally 40%! On May 8, the government asked the IMF for a bailout. On May 16, after a chaotic plunge of the peso, the BCRA was able to refinance about $26 billion in maturing peso-denominated short-term debt (Lebacs) at an annual interest of 40%, and the peso bounced.

It was a dead-cat bounce, however, and the peso plunged another 13% against the dollar through today. Since April 20, the peso has plunged 27.5%. The annotated chart shows the daily moves of the collapse, and the various failed gyrations to halt it (the chart depicts the value of 1 ARS in USD):

The collapse of the peso comes despite an endless series of measures to halt it. Just this week so far: On Tuesday, the BCRA decided to keep its key interest rate at 40%; and on Wednesday, the Ministry of Finance announced it would hold daily auctions to sell $7.5 billion in foreign exchange reserves and buy pesos, to prop up the peso. But it was apparently the only one buying pesos.
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With inflation at 25.5% and heading to 27% by year-end, according to government estimates, with a rising budget deficit, a surging current account deficit, soaring borrowing costs, and burned investors, what else is there to do?

Yesterday, IMF Managing Director Christine Lagarde responded to the government’s Letter of Intent and Memorandum of Economic Policies. This is the plan Argentina and the IMF worked out and that the government would have to implement in return for a $50 billion credit line, called a stand-by arrangement.

Among the goodies:

    A hiring freeze by the federal civil service for two years
    Phasing out gas and transportation subsidies
    Foregoing non-crucial public works
    Delaying planned tax cuts to bring the fiscal deficit down to 1.3% of GDP in 2019
    Room for some new anti-poverty measures
    Vows to maintain a minimum of social assistance to protect “society’s most vulnerable.”

And a special tidbit: The government committed to granting the BCRA some financial autonomy and will submit a new BCRA charter to Congress by March next year.

Part of Argentina’s problem is that the BCRA isn’t a central bank in the modern sense. It was nationalized in 1946 and has become a de-facto department of the Ministry of Finance. Successive administrations used its peso-printing press (more recently the digital version) to fund government spending and political goals. It’s very convenient. You can buy a lot of votes that way.

If the BCRA had been an independent central bank, and had acted with a modicum of tough love, the peso wouldn’t have lost 96.5% of its value against the dollar in 16 years and inflation wouldn’t have ranged between 20% and 40% over the years.

But it will be tough to turn off the spigot of increasingly worthless pesos that vote-buying politicians have come to depend on.

The letter — which admitted that economic growth in 2018 would be near 0.4%, and not 3.0% as previously projected — said the policies should be “adequate to achieve the macroeconomic and financial objectives of the program,” but promised that “we will take any additional measures that may be appropriate for this purpose.”

The government requested 30% of the $50 billion bailout loan as soon as the deal is approved. The IMF’s executive board will vote on it on June 20 and the way things are going, will likely approve it. Then Argentina will have succeeded in shanghaiing another set of international investors into lending it money. This is one thing Argentina excels at. But no one should ever lend money to Argentina unless the yield is so huge that it makes a near-certain default worthwhile.

Emerging market countries like Argentina that borrow in dollars to gorge on cheap money have another problem. And gone are the kid gloves. Read… This Fed Grows Relentlessly More Hawkish
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Offline RE

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💱 Don't Cry for Me, Argentina: Part Deux
« Reply #2 on: August 31, 2018, 12:16:53 AM »
I hope FerFal has kept up with his Preps.

It's time to Cry for Argentina.  And the rest of SA also. Collapse has arrived for them.

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RE

https://wolfstreet.com/2018/08/30/argentina-peso-collapses-20-in-2-days-as-government-asks-for-faster-imf-bailout/

What the Heck Just Happened in Argentina?
by Wolf Richter • Aug 30, 2018 • 52 Comments   
The price of cheap dollar-debt.


Just when you think Argentina’s financial crisis can’t get worse, it gets a whole lot worse. In order to halt the peso from collapsing further, the IMF, after some serious begging from the government, had agreed to a $50-billion bailout package in June, to be disbursed in increments. In addition, the central bank raised its policy rate in big jumps, reaching 45% on August 13. And in an emergency meeting today, it goosed the rate to a blistering 60%!!

And this is what followed: Yesterday the peso plunged 7%; and today as of midday in Buenos Aires, it has plunged over 17%. That brings the total plunge for the two days to 24%. It now takes 41.3 pesos to buy a dollar. Seen the other way around, a peso is now worth 2.4 cents (down from $1 in early 2002):

WTF happened? As soon as those IMF dollars started flowing a couple of months ago, the government – the central bank is under the Ministry of Finance and thus integral part of the government – started selling those dollars and buying pesos. But it was the only entity buying pesos, and those dollars were handed to the pesos sellers and thus wasted instead of being invested in the economy.
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Now the government is running again low on dollars to sell, and yesterday, it came out that it has asked the IMF for quicker disbursement of bailout dollars so that it could hand them more quickly to the pesos sellers. It was supposed to be a confidence-building measure:

“We have agreed with the International Monetary Fund to advance all the necessary funds to guarantee compliance with the financial program next year,” President Mauricio Macri said on TV yesterday. “This decision aims to eliminate any uncertainty.”

“Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019,” he said.

This is what a currency-and-debt crisis looks like: Argentina has $120 billion in dollar-denominated debt, a chunk of which comes due next year and needs to be paid off, and in order to pay off this debt, Argentina needs to be able to borrow more dollars. This was no problem last year, when it was even able to issue 100-year dollar bonds, but sheer insanity has left the building, and investors have opened their eyes.

This goes back to my old dictum: No one should ever lend dollars to Argentina, not even the IMF. This always ends the same way: in a default.

Financial crises are routine in Argentina. The destruction of its currency is a cost of doing politics, and not an accident.

IMF Managing Director Christine Lagarde replied yesterday that the IMF would “reexamine the phasing of the financial program” as the “more adverse international market conditions” had not been “fully anticipated.”

“Authorities will be working to revise the government’s economic plan with a focus on better insulating Argentina from the recent shifts in global financial markets, including through stronger monetary and fiscal policies,” she said.

Well, good luck. Instead of calming jittery currency traders, those announcements made the “adverse international market conditions” much more adverse – see the peso plunge yesterday and today.

But don’t blame currency traders, and the Argentinians that have zero confidence in their misbegotten currency and its historically reckless management. They have reasons to shed those pesos as fast as they get them, including run-away consumer price inflation which in July reached 31.2% for the 12-month period.

And Argentina has a large trade deficit (via Trading Economics):


The thing is, a collapsing peso makes imports more expensive in peso terms, which pushes up inflation, which in turn helps crush the peso…. You get the idea.

This is how Argentina has always done it. In early 2002, the peso was pegged to the dollar one-to-one, so a peso could be exchanged for $1. Then the peg was lifted, dollar bank accounts were converted to pesos over the weekend, the peso was devalued, and the government defaulted on its dollar debts.

Since those days of mayhem, the peso continued to plunge. By the time the Macri government took over at the end of 2015, a peso was worth about 10 cents. But it was a pegged currency. Right up front, he lifted the peg and let the peso float, which instantly plunged to prevailing black-market rates – below 8 cents.

Now his government gets to drive the peso down further as Argentina steers toward its next default. This is not new for Argentina. It’s how it does business and politics, and lending Argentina even more dollars to make even more promises it cannot pay for and to import even more stuff and to waste even more dollars on propping up the peso and to bail out existing dollar bondholders is just going to keep the party going a little longer.

Turkey has not followed Argentina’s path of jacking up interest rates and asking for an IMF bailout. But the lira is plunging, and now the economy faces a “substantial increase in the risk of a downside scenario.” Read…  Turkey’s Debt & Currency Crisis Morphs into Financial Crisis as Banks Face Funding Squeeze   
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