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As our dinner ended at a chic Peruvian restaurant in Buenos Aires last month, my Irish uncles and cousins, in town for a family wedding, pulled out their phones. Shaking their heads in amazement, they photographed the mountain of Argentine pesos they had assembled to pay the $90 bill. I cringed.
I understood the impulse: for tourists paying in cash, any large sum in Argentina requires a comically large wad of 1,000 peso notes, each worth about $1 — the result of the Argentine currency losing 98 per cent of its value against the dollar since 2017, when the 1,000 peso note was first released. I’ve seen many foreigners do the same since I moved here in June.
But I was still embarrassed, not wanting to be seen laughing at this symptom of Argentina’s economic distress. The South American country is suffering its worst crisis in two decades, with annual inflation above 140 per cent and two-fifths of Argentines living in poverty. That’s the backdrop that propelled Javier Milei, an eccentric libertarian economist, to victory at recent presidential elections. He has pledged swingeing spending cuts and deregulation to reboot the economy.
This year’s crisis is hardly the first. Stability has eluded Argentina for decades, thanks in part to politicians’ chronic overspending, financed intermittently by money printing and heavy borrowing, triggering inflation and defaults. On top of that, the outgoing government has built a labyrinth of tight economic restrictions, including currency, price and import controls.
“This country is hopeless — I don’t care who is in power,” said Tomás, a plumber who saved my bathroom from flooding after a toilet malfunction last week. He cackled when I told him about the UK’s panic at its recent 6 per cent annual inflation.
Tomás gets paid off the books, like almost half of Argentines, and has only been able to wrangle a 20 per cent rise this year, despite food and rent costs doubling, he said.
Many Argentines have developed strategies for dealing with their unique economy. Taxi drivers give me tips on which fixed-income saving instruments will shield one from price rises. Generous shop assistants advise me to look elsewhere for somewhere that offers 12 monthly payments without interest — a popular scheme that allows buyers to afford goods, and keeps consumption up for retailers.
Argentines know it’s better to splash any extra cash than hold on to pesos — particularly ahead of market-moving events such as elections — which is why Buenos Aires enjoys a booming restaurant scene as the economy crumbles. Others buy up non-perishable goods, such as cleaning products, and later trade them for food on online marketplaces.
Up the economic ladder, advice differs. At a conference, one executive told me how he had skirted Argentina’s asset wealth tax, which exempts dollars stored in banks, but not those kept at home. “They count the dollars on December 31, so I drop them off around Christmas, and pick them up on January 2,” he said.
For anyone in a privileged elite earning in dollars, there is a disjunction between the price of food and services (made ludicrously cheap by wide-ranging government subsidies and the peso’s decline) and that of goods (made expensive by protectionist policies). I paid $50 for the cheapest clothes horse I could find, and $70 for a T-shirt that disintegrated after three washes. But a subway ride costs eight cents, an upscale haircut around $8 and a lavish seven-course tasting menu comes to $50 a head.
Change may be on its way. Milei has said he intends to stamp out inflation and deregulate the economy. Even if it goes well, he has warned any benefits will not be immediate — exchange controls are likely to remain for the foreseeable future and inflation may spiral even faster as he begins to unpick a web of price controls. Analysts say his austerity plan will inflict serious pain, particularly on Argentina’s working and middle classes.
It looks as if for Tomás and most Argentines, things will keep getting worse before they have a chance at getting better. If my family visit again next year, there may well still be shocking sights to see in Buenos Aires.
ciara.nugent@ft.com
Source: Economy - ft.com
