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Argentine Prices Soar Following Peso Devaluation Which Only Benefits 20% Of Population

Tyler Durden's picture





 

The big story last week was the rapid devaluation of the official Argentine Peso (abbreviated, perfectly enough, ARS) exchange rate, which tumbled by 17% overnight from USDARS 6.8 to over 8.0, when the government decided to liberalize the exchange regime and "ease" capital controls, allowing citizens to purchase dollars in hopes of stabilizing the currency and halting the ongoing outflow of reserves. Other downstream effects aside - and there will be many -  the most immediate outcome for the economy will be a surge in inflation, which is already overheating at 25% in 2013 based on analyst estimates even if the "official number" is half of this, and set to get even higher.

Here is how Reuters summarized the soaring price expectations in the country under its first day with "relaxed" controls:

Argentina's sudden relaxation of currency controls, long touted by the government as essential to the country's financial health, has left investors wondering what's next for Latin America's crisis-prone No. 3 economy. Shopkeepers around the country hurriedly placed new price tags over the weekend on imported items from Cuban cigars to Asia-made televisions, reflecting a more than 20 percent drop in the official peso rate over recent days.

 

The consumer price surge came after the government said on Friday it would lift a two-year-old ban on Argentines buying foreign currency, allowing savers access to coveted U.S. dollars while the peso was left to plummet. Friday's relaxation of controls came as central bank reserves fell beneath $30 billion, a level suggesting its interventions in support of the anemic peso had become unsustainable.

 

But allowing average wage-earners to access U.S. dollars was sure to pressure reserves as well, because the central bank is the main source of foreign exchange. The announcement on Friday ended a two-year ban on saving in the greenback.

So far inflation has been in check, mostly thanks to a price freeze imposed this month on staple foods which has kept a lid on basic supermarket items. Reuters says that "no one knows how long those prices can hold while labor unions prepare wage demands based on one of the world's highest inflation rates." For now, they are holding. They won't for long, and if Argentina reports 30 percent inflation this year, as private analysts expect, it would mark the fastest rate since the 2002 crisis, when inflation reached 41 percent.

However, one thing is certain: dollar demand by the general population is sure to flood the central banks, and force reserve depletion, which have been declining at a pace of over $100MM per day and were last at $29.1 billion, at the central bank to really pick up pace. To wit:

Conditioned by previous crises to save in dollars, Argentines are obsessed with the greenback. The currency control regime ending on Monday forced people to go to the black market for dollars needed to protect them from the weak peso and fast-rising consumer prices.

Luckily for the central bank, as Bloomberg calculates, at most 20% of the population will actually be able to take advantage of the "relaxed" capital controls, because only Argentines who earn at least 7,200 pesos ($901) per month will be allowed to buy dollars, Cabinet Chief Jorge Capitanich told reporters today. And since only 20% of Argentines earned 7,000 pesos or more as of 3Q 2013, according to the National Statistics and Census Institute, it means that 80% of the population will get all the "benefits" of inflation with zero benefits from dollar purchase price protection.

And it's not like even the rich will be able to truly benefit: he limit for FX purchases will be $2,000/month and will be taxed at 20% unless deposited with bank for at least a year.

So in other words, Argentina's capital control "fix" was largely a sham, designed to hide the real motive behind last week's announcement - push inflation far higher, perhaps under some persistent external influence, which in turn would lead to even more social instability. This could be a problem.

Consumer prices are a big worry on the street, but the issue has not sparked mass protests lately. Tensions could rise over the weeks ahead as labor demands pay increases in line with private economists' 2014 inflation estimates. Fernandez has mentioned neither consumer prices nor the peso's plight in recent speeches, leaving her cabinet to announce policy changes. The next presidential election is next year, with Fernandez unable to seek a third term.

 

Possible candidates from the main parties offer policies that lean in a more pro-investment direction that Fernandez's, as the outgoing leader tucks into her last two years in power.

 

"If the government fails to prevent inflation from accelerating it will probably hurt the chances of presidential aspirants who are aligned with the administration," said Ignacio Labaqui, an analyst with Medley Global Advisors.

 

"A deeper economic crisis could provide a window of opportunity for candidates who are more business friendly."

Such as technocrats from...  Goldman Sachs?

 


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Mon, 01/27/2014 - 10:29 | Link to Comment fiftybagger
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Got Bitcoins?

The Bitcoin Channel

Shhhh, don't tell the Chinese.  Oops, too late:

Cryptocurrency Exchanges / Markets List
Mon, 01/27/2014 - 10:35 | Link to Comment Occident Mortal
Occident Mortal's picture

And here begins the once in a decade Argentinian currency implosion.

Mon, 01/27/2014 - 11:02 | Link to Comment Clint Liquor
Clint Liquor's picture

Very sad they turn to the USD. The USD is truly a house of cards built on a foundation of sand.

Mon, 01/27/2014 - 11:17 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

All fiat currency is back by "Faith and Trust", faith and trust in rule of law, free market, responsible government, or faith and trust in heavy metal element. If USA is rule of law, $USD is strong and reliable, if USSA is rule by arbitrary whim of man in interest of crony bankster class,... well, good luck is with that.

Mon, 01/27/2014 - 13:32 | Link to Comment Leaf of Tree
Leaf of Tree's picture

Your English-wanna-have-Russian-accent is wearing thin.

 

You are not a Russian celovik.

Mon, 01/27/2014 - 11:09 | Link to Comment eurogold
eurogold's picture

Spot on ! This cycle will continue to repeat in Argentina because the Elite always lies first and rapes the country once elected. How often has this happened there ?

Mon, 01/27/2014 - 11:12 | Link to Comment Ignatius
Ignatius's picture

How obvious does it have to get?

Mon, 01/27/2014 - 11:19 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

More obvious than is distracted and perpetually uncurious people. Perhaps pang of hunger is only way of make obvious.

Mon, 01/27/2014 - 11:15 | Link to Comment eurogold
eurogold's picture

My argentine relatives are packing their bags to make an extended visit to their condo in Miami.

Mon, 01/27/2014 - 11:46 | Link to Comment eurogold
eurogold's picture

I love visiting my family in B.A.. After 2 weeks, I am happy to get the hell outa there ! Pure chaos ! Here's the problem of Argentina.....everyone scams everyone else. The society has repeatedly learned this from the elites / politicians. It's "a way of life" there.

Mon, 01/27/2014 - 12:41 | Link to Comment Hongcha
Hongcha's picture

Getting that way in Amerika except here everyone scams the White Middle Class who are still the bulwark of the sinking ship and keepers of its moribund kulture.  Fellow crackers, be advised and convert while there is still time!

Mon, 01/27/2014 - 13:32 | Link to Comment Leaf of Tree
Leaf of Tree's picture

No me lo creo

Mon, 01/27/2014 - 11:37 | Link to Comment Duke of Earl
Duke of Earl's picture

With the last default fresh on everyones minds, I can't imagine the population there keeps a lot of cash on hand unless they have to.  I'd be interested in a boots-on-the-ground perspective of impact there.

Mon, 01/27/2014 - 15:42 | Link to Comment LvMises
LvMises's picture

I have some ground-zero perspective here: http://www.zerohedge.com/news/2014-01-24/argentinas-64k-peso-question-what-hits-bottom-chart-first#comment-4365026

Today pretty much another virtual exchange holiday. Official rate at $8 and since the guvment can't seem to get their new illusionary "only the rich can buy subsidized dollars" system to work correctly they have given banks and exchange houses 72 hours to comply. Parallel rate is up though no-one will sell. Apparently the spread is huge. $10 if you sell dollars, $12.50 if you want to buy dollars. I'm on my way right now to an "arbolito" to verify now.

Mon, 01/27/2014 - 11:08 | Link to Comment Duke of Earl
Duke of Earl's picture

No matter what the conspiracy theories are about BTC, this is the time it will shine.  It cannot be devalued or inflated on a CB whim.  The bank is always open and you can always take out withdrawals.

Mon, 01/27/2014 - 10:26 | Link to Comment Broccoli
Broccoli's picture

But Kirchner is for the downtrodden and poor. This must be some globalist capitalist propaganda. Surely the ghost of her husband and Kirchner would target the program for the bottom 20%, not the top.

Mon, 01/27/2014 - 10:58 | Link to Comment eurogold
eurogold's picture

The Kirshners are for the poor, while ass raping the middle-class and stealing the country blind.

Mon, 01/27/2014 - 11:00 | Link to Comment j0nx
j0nx's picture

Sounds like someone else we know...

Mon, 01/27/2014 - 11:35 | Link to Comment eurogold
eurogold's picture

When the dust settles from the implosion this time, it will (again) be the military who will take control.

 

Mon, 01/27/2014 - 10:28 | Link to Comment fijisailor
fijisailor's picture

Argentina is like the titanic.  The young and popular guy dies.  The bitch lives forever and the ship has sunk.

Mon, 01/27/2014 - 11:01 | Link to Comment eurogold
eurogold's picture

Christina will bail out before the next election, if she lives that long. Once again Argentina got hosed !

Mon, 01/27/2014 - 10:37 | Link to Comment MilwaukeeMark
MilwaukeeMark's picture

Three Card Monty writ large.

Mon, 01/27/2014 - 10:49 | Link to Comment Dr. Engali
Dr. Engali's picture

It's something how every asshole in power pretends to be a champion of the poor, and yet all their policies always, always benefit the elites. If I were of a suspicious nature I would think that there is something sinister going on behind-the-scenes.

Mon, 01/27/2014 - 10:58 | Link to Comment Bearwagon
Bearwagon's picture

Rest assured it is!

Mon, 01/27/2014 - 10:42 | Link to Comment Jimmy Carter wa...
Jimmy Carter was right's picture

Man you've got to feel for the Argentines, they could have been as rich as Australia or many other countries.

http://www.vqronline.org/articles/2007/fall/garcia-white-train/

Mon, 01/27/2014 - 10:53 | Link to Comment orez65
orez65's picture

"Man you've got to feel for the Argentines ..."

No, I don't. A country's Government is a reflection of the majority of its citizens. They get what they deserve.

Just like in the US, our present Government is the reflection of our shit head Liberals.

Mon, 01/27/2014 - 11:41 | Link to Comment mijev
mijev's picture

The most ignorant people in america think that the problems in some way lie with being liberal or republican or socialist whatever. When W nationalized the banks in 2007 he took a leaf directly from karl marx. i assume you hate him because he's a commie. Take a look in the fucking mirror.

Tue, 01/28/2014 - 21:35 | Link to Comment Jimmy Carter wa...
Jimmy Carter was right's picture

Yep, inability to empathize is a symptom of what disorder? Starts with a P .
He'd make a great CEO, politician, or minister.

Mon, 01/27/2014 - 13:24 | Link to Comment Metal Minded
Metal Minded's picture

A country's Government is a reflection of the majority of its citizens...... and the clandestine destabilization caused by the CIA/NSA. It's been going on in Latin America(and the rest of the world) since the end of WWII.

Mon, 01/27/2014 - 14:45 | Link to Comment Leaf of Tree
Leaf of Tree's picture

 

Tienes que entender "el por que" las cosas estan asi como estan.

 

--------------------------------------------------------

 

You need to understand the crux of the matter.

My guess is that catholic Españolism make all latin american countries be fucked up somehow.

Españolism is a disease in the the bigger family of diseases known as Latinism.

All Latin countries, be they from Europe (France, Italy, Spain, Romania, Portugal) or the whole of South and Central America suffer from Latinism.

In each country Latinism manifests itself in its local version:

* frenchism, italianism, romaniaism, españolism (this is a big disease due to many country that belonged to Spain), brazilianism, etc..

 

Latins are:

--- proud of the shitiest things (who won as many footbal cups, whose women have the sexiest asses, who has the most impressive history, etc...)

--- paternalism defines their life. The "Holy Father" (not necessarily the Pope) is the one that sets the tone. It start from the head of family to the State. The Big Pater Nostrum sometimes is the head of family, sometimes the big-dick-dictator, sometimes is the State itself

--- family is important, but only if you screw your neighbour's family. Your family's gains have to be  your neighbour's family loses. It's how shit works.

--- as a Latin your cock is not black-like-big. You hide that with words.

"Mamma mia que belle ragazzine...oiiaaa.. como mi piaci... ---INSERT-HERE-LOTS-OF-HAND-GESTURES..." 

You get the idea

--- never criticize your own tribe. Never. Write it down. Never.

Fuck the gringos yankee but not your tribe.

--- critical thinking is a sin. Better substitute that with pride. Pride is better. Make you feel good.

 

Of course Latins have great things too about them. Problem is, exaggerated pride, egoism (selfishness) are huge problem which makes Latins blind to their own mistakes.

The whole of Latin America could be the greatest continent. Huge size. Low population compared with size. Lots of natural resources. Decent enough education. Education in Latin America is not third world like Africa.

 

And still something invisible fucks them up.

CIA probable has something to do with that.

But I think is Españolism. A subconscious disease.

 

 

Mon, 01/27/2014 - 10:44 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Good thing there's no double-digit inflation in the U.S.  Just double-digit reduction in food package sizes.  Phew!

Mon, 01/27/2014 - 11:01 | Link to Comment j0nx
j0nx's picture

Agreed. Anyone who thinks there isn't double digit inflation in consumables in America hasn't been paying attention to price, package size and quality reductions of the products they buy.

Mon, 01/27/2014 - 11:05 | Link to Comment Bearwagon
Bearwagon's picture

Man, the products a consumer buys, like groceries or heating oil, have no impact on inflation. None at all! Didn't you get the memo? That stuff simply doesn't count.  ;-)

Mon, 01/27/2014 - 11:14 | Link to Comment y3maxx
y3maxx's picture

Only way out for Argentina....Another War with Britain over the Falkland Islands.

Mon, 01/27/2014 - 11:31 | Link to Comment eurogold
eurogold's picture

Only way out for Argentina......a civil war

Mon, 01/27/2014 - 13:01 | Link to Comment Metal Minded
Metal Minded's picture

Only way out for Argentina......... Bitcoin.

You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete.
-Richard Buckminster Fuller

Mon, 01/27/2014 - 13:58 | Link to Comment Leaf of Tree
Leaf of Tree's picture

Be careful what you wish for. They might win.

They have The Messi on their side.

Britain has William Hague.

Mon, 01/27/2014 - 11:19 | Link to Comment fijisailor
fijisailor's picture

Who says fat guys can't Tango?

http://www.youtube.com/embed/wd5xaPT2I9M

Mon, 01/27/2014 - 11:49 | Link to Comment Debugas
Debugas's picture

"only Argentines who earn at least 7,200 pesos ($901) per month will be allowed to buy dollars"

 

Is this a joke ?

Mon, 01/27/2014 - 11:50 | Link to Comment americanspirit
americanspirit's picture

Any thoughts on what this will do to Casey's little enclave in Cayafete? If they bring in their dollars will they have to leave them in the bank for a year or pay 20% penalty? How about property taxes? I think somebody dropped a big turd in paradise, but maybe it's just an early gift from the Easter Bunny. Hard to tell.

Mon, 01/27/2014 - 12:27 | Link to Comment LvMises
LvMises's picture

The restriction is only for purchasing dollars locally. You can still wire dollars in to buy property, but you get paid in pesos at official rate and then have to buy back the dollars on the black market for 50% more. Then give the dollars to Casey.

Only alternative is to sneak in a suitcase of US cash.

Mon, 01/27/2014 - 14:14 | Link to Comment StandardDeviant
StandardDeviant's picture

Right; I've read some of Casey's stuff, and that always seemed like an odd place to promote as an alternative to disastrous US fiscal and monetary policy.

You'd think he'd go for something like Switzerland, Singapore, or, ummm, maybe a Caribbean tax haven?  Or a big honkin' sailboat?  Not too many good choices out there right now.

Mon, 01/27/2014 - 11:54 | Link to Comment zipit
zipit's picture

Bitcoin, bitchez.

Mon, 01/27/2014 - 11:55 | Link to Comment eurogold
eurogold's picture

I am sure there are "special provisions" included for those  participating in Casey's Cayafate Camp, don't you ?

Mon, 01/27/2014 - 12:48 | Link to Comment Gromit
Gromit's picture

Lovely day in Buenos Aires.

Staying in Recleta across the street from Cafe La Biela.

Looks like the blue quotaion just opened up again - www.dolarblue.net

The tirck is to buy no more pesos than you can spend in a few days - then spend them as fast as possible!

 

 

Tue, 01/28/2014 - 14:54 | Link to Comment Icelandic
Icelandic's picture

If this is done, what anchors the peso?

Sun, 02/02/2014 - 16:39 | Link to Comment Spungo
Spungo's picture

I can understand ditching a rapidly falling peso in favor of bitcoin, but why would someone accept pesos for bitcoins when they could just as easily sell the bitcoin for dollars?

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