Economics is always an interesting topic of discussion and something that surrounds us no matter where we are. “The economy” is right up there with “the weather.” But while this is true in countries that are stable economically, it is even more true in unstable economies, such as Argentina. (I try not to use words like “fascinating” to describe the situation, because to Argentineans, it is not fascinating or funny – it is dead serious and the economic policies are making people’s lives more difficult. While I live here now, I am still an outsider and I can leave whenever I want, get a job in stable Norway and I recognize that privilege. With that disclaimer – it is kind of fascinating… How, oh how, can the government make so many bad decisions??)
Under both of President Cristina Fernandez de Kirchner’s terms she has shown to be great at following text book examples of what not to do. I have written about the currency controls earlier, which naturally has led to a large black market for dollars, the so-called blue dollar. In May, it reached its highest value ever, at over 10 pesos to the dollar, which was close to double that of the official exchange rate.
The currency control/black market issue is quite easy to understand. What is not so easy, though, is Kirchner’s latest plan to get more dollars back into the economy by having citizens bring “hidden” dollars into the economy. I will let The Economist explain it:
The scheme, referred to locally as the “laundering law”, invites those with undeclared dollars to invest in property and the energy industry without facing penalties for their previous financial chicanery. The government believes that Argentines have about $160 billion tucked under their mattresses or hidden away in foreign bank accounts. That is about four times the value of Argentina’s foreign currency reserves.
Under the plan, citizens can trade their dollars for two financial instruments: a dollar-denominated bond for investments in Argentina’s energy sector, and a dollar-backed certificate valid for property transactions, known as a CEDIN. Whereas the energy bonds will not launch until July 17th, the CEDINs made their entrance on July 1st.
In exchange for their surrendered dollars, investors will be awarded a certificate of equal nominal value which must be spent on buying or renovating a house, business premises or land. The recipient of the CEDIN may then sell the certificate or cash it in for real dollars at the Central Bank.
Economists have little faith that this new measure will bring in dollars, and after two days of operation, no certificates have been purchased. Personally, I will keep my dollars where I have them now – in a US bank and in my closet.