10 ms·

Why does Argentina always have such a volatile currency?

missedthecue 4y ago
"Due to many governmental economic measures, a deficit in the fiscal balance, and a large issue of local currency..." (From the article). Chronic lack of competent governance seems to be the culprit.
- azinman2 4y ago
  But this isn’t the first time. You’d think they’d learn their lessons. So something is amiss— perhaps they don’t have a choice? And if so, why?
  - droopyEyelids 4y ago
    way off course on my comment here, oops!
    - missedthecue 4y ago
      Hmmm. Argentina and the US have no beef. Not even historically. The US didn't even officially take the UK's side during the Falklands War. And that's despite the fact that the US/UK alliance is probably the strongest one.
      - the_af 4y ago
        The US did provide military assistance to the UK and none to us, so I'd say they definitely took the UK's side [1]. Complicating things, of course, is the fact the US saw our military junta as a bulwark against communism, and so provided some support to them [2] (and, it is argued, our military dictators thought they saw indications the US would support us in our war against the UK, which is just as deranged as it sounds. Then again, our dictatorship was as incompetent as it was bloodthirsty). --- [1] https://en.wikipedia.org/wiki/National_Reorganization_Process#U.S._support https://en.wikipedia.org/wiki/National_Reorganization_Proces... > "However, relations soured after the U.S. supported the United Kingdom in the Falkland Wars." [2] https://en.wikipedia.org/wiki/National_Reorganization_Process#U.S._support https://en.wikipedia.org/wiki/National_Reorganization_Proces... > "The United States provided military assistance to the junta and, at the start of the Dirty War, Secretary of State Henry Kissinger gave them a "green light" to engage in political repression of real or perceived opponents." > "The US Congress approved a request by the Ford Administration, to grant $50,000,000 in security assistance to the junta. In 1977 and 1978 the United States sold more than $120,000,000 in spare military parts to Argentina, and in 1977 the US Department of Defense granted $700,000 to train 217 Argentine military officers."
      - gftttgggfffddd 4y ago
        By not aligning with Argentina in that dispute, the U.S. betrayed their own Monroe Doctrine
      - masijo 4y ago
        Well they did finance and train several members of the dictatorship's Junta[1]. Same as in other countries in the region. [1] https://en.m.wikipedia.org/wiki/Operation_Condor https://en.m.wikipedia.org/wiki/Operation_Condor
    - TulliusCicero 4y ago
      ...how exactly do you think Argentina's volatile currency is a result of US foreign policy?
  - missedthecue 4y ago
    Latin American politics is just above quantum theory and WeWork's path to profitability on the list of "difficult to understand" things.
  - Cyberdog 4y ago
    Figuring out how to stop a country with a history of corrupt government from being a country with a future of corrupt government is one of the biggest problems in human civilization.
    - missedthecue 4y ago
      The thing about Argentina is that it's not even particularly corrupt.
    - the_af 4y ago
      The problem with the dollar in Argentina is not just about corruption, though it does have some of its roots in our dictatorship from the 70s. Later governments and businessmen did their part, of course.
  - TulliusCicero 4y ago
    Sometimes there's an incentive for a government, or voter base, to not learn their lessons. Using US examples because those are the ones I'm most familiar with, just look at how long there's been a "housing crisis" due to insufficient housing in some US cities. There's been plenty of time to fix it, but policy changes just nibble at the edges. Why? Because some people don't want to fix it, or don't care, or there are some downsides to fixing it properly. Similarly, the US has a high rate of traffic fatalities among developed nations. The fixes for this are well understood, but they involve tradeoffs or design changes that many people do not want. (The US is getting better at safe road/street design, but very slowly)
    - cozzyd 4y ago
      Also known as https://en.wikipedia.org/wiki/%22No_Way_to_Prevent_This%22,_Says_Only_Nation_Where_This_Regularly_Happens https://en.wikipedia.org/wiki/%22No_Way_to_Prevent_This%22,_...
  - the_af 4y ago
    It's not just the government. There's a broader problem, including unpayable loans from the IMF, lack of dollars leading to restrictions, some things are traded in dollars since our last dictatorship (e.g. real estate) and this is difficult to change, and widespread speculation of our agricultural sector (one of the most powerful groups in Argentina). Also: the black market of dollars is relatively small and also easily manipulated, but generates panic in people's minds.
    - kragen 4y ago
      As this comment illustrates, partisan propaganda in Argentina is effective at getting much of the population to blame anybody except the ruling party, who somehow believe that "widespread speculation" is something that doesn't happen in countries like the US, the UK, Taiwan, Japan, etc. The current ruling party (the one that likes to blame the agricultural sector) just signed up for some new unpayable loans from the IMF last month.
      - the_af 4y ago
        Please follow HN's guidelines and be respectful. I've no particular respect for the current government, and I did mention "it's not just the government", meaning I believe part of the blame is theirs. Do you deny the agricultural sector is one of the most powerful in Argentina, and one that speculates on the dollar and has a vested interest in it going higher? Do you deny the illegal dollar market is relatively small but has a high impact in people's minds? Do you deny the real estate sector trades in dollars? > As this comment illustrates, partisan propaganda Your comment is autological!
        argentinian 4y ago
        Prices of commodities are expressed in dollars and are global. The agricultural sector thinks in dollars, not in pesos. It's not that the dollar goes higher: the peso goes down. The illegal dollar market is not small, and its prices change similarly to the legal dolar market (mep, ccl).
  - kragen 4y ago
    With the exception of a few of the mass murderers of the 01970s, the people who have caused our currency to be so volatile over the last 50 years have all retired to enjoy their wealth. Some of them died at a ripe old age. The people currently running the government definitely did learn a lesson from that: they learned that they, too, will retire to enjoy their wealth, even if they impoverish the country in the process. However, a number of presidents and finance ministers have had to resign in disgrace when their policies (or those of their predecessors) provoked immediate crises. Printing money is a common way to postpone an immediate crisis.
    - neuralRiot 4y ago
      Ahh the old “the previous generation fucked us”, i think i’ve heard that before.
      - kragen 4y ago
        That would be nice if it were the case, because it would mean that things are going to start improving soon. But no, the current generation is at least as bad, which was a main point of my comment that seems to have been less obvious than I thought.
  - Magnusmaster 4y ago
    Poor people want free money and will never learn any lesson. They just vote Peronism no matter what, because it's a religion to them
- rmbyrro 4y ago
  Depends on the point of view. The government there is very competent at stealing their people's wealth through inflation. I bet there are people like this in every country. They just couldn't find a way to do it unchecked. Yet...
likortera 4y ago
I lived for 20 years there. In my opinion the root of all problems there is that it is embedded in the culture to be as egoist as possible and to steal as much as you can from everyone else in the most ruthless and shameless possible way. People usually complain about the government being corrupt and stealing to the people. But most people are the same, at their own level. They will try to steal as much as they can at their level or what is close to their hands. From bit paying taxes to actually pocketing others money, etc. I know it is not everyone, but it is the majority of the people that are like this, politician or not. I still have a friend there, always complaining public services don't work (healthcare, police, etc) but then in the same conversation he says with a straight face that he prefers not to pay with credit cards or bank accounts because then he'd have to pay taxes and declare the money. There are people like this all over the world, but the proportion in Argentina is huge, a big majority I'd say. It's part of the culture.
- deleted 4y ago
  [deleted]
- ab8 4y ago
  How is this related to currency?
  - mgh2 4y ago
    Exchange rates are indirect measures of the country's production vs. others. ex: 1 usd is worth more because its population has a higher output (GDP) relative to Argentina
  - likortera 4y ago
    I'm not an economist. But I'm pretty sure a culture of stealing each other and not paying taxes is somehow related.
    - notch656a 4y ago
      Not paying taxes is the opposite of stealing IMO. It is the taxing that is theft.
ajot 4y ago
The current administration (as many others before, mostly of the same party, Justicialism, but also of the other main party, UCR, and de-facto governments) doesn't allow for a floating exchange rate [0]. Nowadays, the ARS follows a (very slow) crawling peg devaluation against the USD, buuuut if you want to buy dollars (or want to pay some product or service abroad, think Aliexpress but also App Store, Netflix, AWS, etc.) you have to pay a tax, and can't buy more than 200 per month per person. Then you have dollars that you can acquire via a broker, buying and selling bonds or shares; these are more expensive than the official+tax rate. And then yoy have the black-market, which tends to be the highest priced. Argentina also has a chronic problem with inflation (in my opinion, due to printing more money than required by the economy, most times to solve the fiscal deficit you obtain when the national state spends too much), so everyone knows that you have to save money in a hard currency, USD being the most common one. So it has a real big demand for savings and capitalization, e.g. real estate is priced in dollars. As why argentinians keep voting parties that keep the dollar artificially cheap, I believe it's a mix between a survivorship behaviour (if USD goes up, prices of goods and services will more or less go up) and wanting to consume more than what one can afford (holidays in Brazil, trips to Europe or USA every other year, cheap electricity and natural gas so you can leave your air conditioner on all day, etc). Disclaimer: I am not an economist, and as everyone else, I have a biased point of view. [0] This newspaper article has a (badly cropped) chart of the difference between black-market and official dollar exchange rate through the years. https://www.infobae.com/economia/2020/08/22/la-historia-de-los-controles-de-cambio-como-se-comporto-la-brecha-entre-el-dolar-libre-y-el-oficial/ https://www.infobae.com/economia/2020/08/22/la-historia-de-l...
mastax 4y ago
I'm no expert, but my understanding is that: 1. Low value of exports leads to a trade imbalance and long term decline in foreign currency reserves. 2. The government prints money to spend not on productive investments to solve 1. but on vanity projects or more-or-less bribes for their constituents to stay elected, leading to inflation. 3. Many historical periods of high ARS inflation leads to a lack of confidence in the local currency debt market. 4. 1+3 mean that Argentina needs to borrow in foreign currency, mostly USD. 5. Over time the debt accumulates and even more borrowing is necessary to pay interest. 6. Recently, rising US interest rates lead to a stronger USD, exacerbating the problem. 7. As debt rises so does the default risk and investors won't lend except at higher interest rates to compensate. 8. Eventually the country risks a default. Nobody wants that because the country wouldn't be able to import anything due to a lack of foreign currency (see Sri Lanka) and the creditors don't want that because they won't get paid back. So the IMF offers a bailout on the condition that the country will implement reforms to reduce spending so that it won't need to be bailed out again - austerity. 9. Austerity is unpopular and the government is replaced with one who promises to raise spending again and stick it to the IMF. 10. GOTO 1 This probably describes most countries in the world.
- tristor 4y ago
  This is pretty accurate, but somewhere between step 8 and 9 or step 9 and 10 is "Argentinian government 'resets' the currency, causing even deeper loss of confidence"
- wbsss4412 4y ago
  11. Due to extremely taxes and an extremely unfavorable official exchange rate, citizens hoard dollars illegally and it exacerbates their currency reserve problems. Note that 11 is really an issue of both government policy and the culture. Tax evasion is both a response to inflation and a result of a culture that doesn’t see an issue with putting private benefit over public good.
  - xkcd1963 4y ago
    On the other hand, its antagonising to see such malfancioning of the state and keep feeding the machine with taxes
conanbatt 4y ago
Simply bad monetary policy. Argentina has a long history of resorting to money printing for its budget deficit and every generation thinks they will get away with it.
pa7x1 4y ago
The country is incapable of taxing fairly and efficiently as there is rampant corruption and tax avoidance. This creates a very negative feedback loop, nobody wants to pay taxes as nobody else does so you would put yourself at a disadvantage and the tax money doesn't get put to good use anyway due to corruption, so why do it. The above means that the government has to run permanent fiscal deficits and get indebted. At some point they are unable to pay the debt and the first temptation is to debase the currency. Rinse and repeat in an infinite loop of mistrust, tax avoidance and default. It's a very hard problem to solve, unfortunately, as it's at this point deeply integrated into argentinian culture.

"Due to many governmental economic measures, a deficit in the fiscal balance, and a large issue of local currency..." (From the article). Chronic lack of competent governance seems to be the culprit.

azinman2 4y ago
But this isn’t the first time. You’d think they’d learn their lessons. So something is amiss— perhaps they don’t have a choice? And if so, why?
- droopyEyelids 4y ago
  way off course on my comment here, oops!
  - missedthecue 4y ago
    Hmmm. Argentina and the US have no beef. Not even historically. The US didn't even officially take the UK's side during the Falklands War. And that's despite the fact that the US/UK alliance is probably the strongest one.
    - the_af 4y ago
      The US did provide military assistance to the UK and none to us, so I'd say they definitely took the UK's side [1]. Complicating things, of course, is the fact the US saw our military junta as a bulwark against communism, and so provided some support to them [2] (and, it is argued, our military dictators thought they saw indications the US would support us in our war against the UK, which is just as deranged as it sounds. Then again, our dictatorship was as incompetent as it was bloodthirsty). --- [1] https://en.wikipedia.org/wiki/National_Reorganization_Process#U.S._support https://en.wikipedia.org/wiki/National_Reorganization_Proces... > "However, relations soured after the U.S. supported the United Kingdom in the Falkland Wars." [2] https://en.wikipedia.org/wiki/National_Reorganization_Process#U.S._support https://en.wikipedia.org/wiki/National_Reorganization_Proces... > "The United States provided military assistance to the junta and, at the start of the Dirty War, Secretary of State Henry Kissinger gave them a "green light" to engage in political repression of real or perceived opponents." > "The US Congress approved a request by the Ford Administration, to grant $50,000,000 in security assistance to the junta. In 1977 and 1978 the United States sold more than $120,000,000 in spare military parts to Argentina, and in 1977 the US Department of Defense granted $700,000 to train 217 Argentine military officers."
    - gftttgggfffddd 4y ago
      By not aligning with Argentina in that dispute, the U.S. betrayed their own Monroe Doctrine
    - masijo 4y ago
      Well they did finance and train several members of the dictatorship's Junta[1]. Same as in other countries in the region. [1] https://en.m.wikipedia.org/wiki/Operation_Condor https://en.m.wikipedia.org/wiki/Operation_Condor
  - TulliusCicero 4y ago
    ...how exactly do you think Argentina's volatile currency is a result of US foreign policy?
- missedthecue 4y ago
  Latin American politics is just above quantum theory and WeWork's path to profitability on the list of "difficult to understand" things.
- Cyberdog 4y ago
  Figuring out how to stop a country with a history of corrupt government from being a country with a future of corrupt government is one of the biggest problems in human civilization.
  - missedthecue 4y ago
    The thing about Argentina is that it's not even particularly corrupt.
  - the_af 4y ago
    The problem with the dollar in Argentina is not just about corruption, though it does have some of its roots in our dictatorship from the 70s. Later governments and businessmen did their part, of course.
- TulliusCicero 4y ago
  Sometimes there's an incentive for a government, or voter base, to not learn their lessons. Using US examples because those are the ones I'm most familiar with, just look at how long there's been a "housing crisis" due to insufficient housing in some US cities. There's been plenty of time to fix it, but policy changes just nibble at the edges. Why? Because some people don't want to fix it, or don't care, or there are some downsides to fixing it properly. Similarly, the US has a high rate of traffic fatalities among developed nations. The fixes for this are well understood, but they involve tradeoffs or design changes that many people do not want. (The US is getting better at safe road/street design, but very slowly)
  - cozzyd 4y ago
    Also known as https://en.wikipedia.org/wiki/%22No_Way_to_Prevent_This%22,_Says_Only_Nation_Where_This_Regularly_Happens https://en.wikipedia.org/wiki/%22No_Way_to_Prevent_This%22,_...
- the_af 4y ago
  It's not just the government. There's a broader problem, including unpayable loans from the IMF, lack of dollars leading to restrictions, some things are traded in dollars since our last dictatorship (e.g. real estate) and this is difficult to change, and widespread speculation of our agricultural sector (one of the most powerful groups in Argentina). Also: the black market of dollars is relatively small and also easily manipulated, but generates panic in people's minds.
  - kragen 4y ago
    As this comment illustrates, partisan propaganda in Argentina is effective at getting much of the population to blame anybody except the ruling party, who somehow believe that "widespread speculation" is something that doesn't happen in countries like the US, the UK, Taiwan, Japan, etc. The current ruling party (the one that likes to blame the agricultural sector) just signed up for some new unpayable loans from the IMF last month.
    - the_af 4y ago
      Please follow HN's guidelines and be respectful. I've no particular respect for the current government, and I did mention "it's not just the government", meaning I believe part of the blame is theirs. Do you deny the agricultural sector is one of the most powerful in Argentina, and one that speculates on the dollar and has a vested interest in it going higher? Do you deny the illegal dollar market is relatively small but has a high impact in people's minds? Do you deny the real estate sector trades in dollars? > As this comment illustrates, partisan propaganda Your comment is autological!
      - argentinian 4y ago
        Prices of commodities are expressed in dollars and are global. The agricultural sector thinks in dollars, not in pesos. It's not that the dollar goes higher: the peso goes down. The illegal dollar market is not small, and its prices change similarly to the legal dolar market (mep, ccl).
- kragen 4y ago
  With the exception of a few of the mass murderers of the 01970s, the people who have caused our currency to be so volatile over the last 50 years have all retired to enjoy their wealth. Some of them died at a ripe old age. The people currently running the government definitely did learn a lesson from that: they learned that they, too, will retire to enjoy their wealth, even if they impoverish the country in the process. However, a number of presidents and finance ministers have had to resign in disgrace when their policies (or those of their predecessors) provoked immediate crises. Printing money is a common way to postpone an immediate crisis.
  - neuralRiot 4y ago
    Ahh the old “the previous generation fucked us”, i think i’ve heard that before.
    - kragen 4y ago
      That would be nice if it were the case, because it would mean that things are going to start improving soon. But no, the current generation is at least as bad, which was a main point of my comment that seems to have been less obvious than I thought.
- Magnusmaster 4y ago
  Poor people want free money and will never learn any lesson. They just vote Peronism no matter what, because it's a religion to them
rmbyrro 4y ago
Depends on the point of view. The government there is very competent at stealing their people's wealth through inflation. I bet there are people like this in every country. They just couldn't find a way to do it unchecked. Yet...

likortera 4y ago

I lived for 20 years there. In my opinion the root of all problems there is that it is embedded in the culture to be as egoist as possible and to steal as much as you can from everyone else in the most ruthless and shameless possible way. People usually complain about the government being corrupt and stealing to the people. But most people are the same, at their own level. They will try to steal as much as they can at their level or what is close to their hands. From bit paying taxes to actually pocketing others money, etc. I know it is not everyone, but it is the majority of the people that are like this, politician or not. I still have a friend there, always complaining public services don't work (healthcare, police, etc) but then in the same conversation he says with a straight face that he prefers not to pay with credit cards or bank accounts because then he'd have to pay taxes and declare the money. There are people like this all over the world, but the proportion in Argentina is huge, a big majority I'd say. It's part of the culture.

deleted 4y ago
[deleted]
ab8 4y ago
How is this related to currency?
- mgh2 4y ago
  Exchange rates are indirect measures of the country's production vs. others. ex: 1 usd is worth more because its population has a higher output (GDP) relative to Argentina
- likortera 4y ago
  I'm not an economist. But I'm pretty sure a culture of stealing each other and not paying taxes is somehow related.
  - notch656a 4y ago
    Not paying taxes is the opposite of stealing IMO. It is the taxing that is theft.

ajot 4y ago

The current administration (as many others before, mostly of the same party, Justicialism, but also of the other main party, UCR, and de-facto governments) doesn't allow for a floating exchange rate [0]. Nowadays, the ARS follows a (very slow) crawling peg devaluation against the USD, buuuut if you want to buy dollars (or want to pay some product or service abroad, think Aliexpress but also App Store, Netflix, AWS, etc.) you have to pay a tax, and can't buy more than 200 per month per person. Then you have dollars that you can acquire via a broker, buying and selling bonds or shares; these are more expensive than the official+tax rate. And then yoy have the black-market, which tends to be the highest priced. Argentina also has a chronic problem with inflation (in my opinion, due to printing more money than required by the economy, most times to solve the fiscal deficit you obtain when the national state spends too much), so everyone knows that you have to save money in a hard currency, USD being the most common one. So it has a real big demand for savings and capitalization, e.g. real estate is priced in dollars. As why argentinians keep voting parties that keep the dollar artificially cheap, I believe it's a mix between a survivorship behaviour (if USD goes up, prices of goods and services will more or less go up) and wanting to consume more than what one can afford (holidays in Brazil, trips to Europe or USA every other year, cheap electricity and natural gas so you can leave your air conditioner on all day, etc). Disclaimer: I am not an economist, and as everyone else, I have a biased point of view. [0] This newspaper article has a (badly cropped) chart of the difference between black-market and official dollar exchange rate through the years. https://www.infobae.com/economia/2020/08/22/la-historia-de-los-controles-de-cambio-como-se-comporto-la-brecha-entre-el-dolar-libre-y-el-oficial/ https://www.infobae.com/economia/2020/08/22/la-historia-de-l...

mastax 4y ago

I'm no expert, but my understanding is that: 1. Low value of exports leads to a trade imbalance and long term decline in foreign currency reserves. 2. The government prints money to spend not on productive investments to solve 1. but on vanity projects or more-or-less bribes for their constituents to stay elected, leading to inflation. 3. Many historical periods of high ARS inflation leads to a lack of confidence in the local currency debt market. 4. 1+3 mean that Argentina needs to borrow in foreign currency, mostly USD. 5. Over time the debt accumulates and even more borrowing is necessary to pay interest. 6. Recently, rising US interest rates lead to a stronger USD, exacerbating the problem. 7. As debt rises so does the default risk and investors won't lend except at higher interest rates to compensate. 8. Eventually the country risks a default. Nobody wants that because the country wouldn't be able to import anything due to a lack of foreign currency (see Sri Lanka) and the creditors don't want that because they won't get paid back. So the IMF offers a bailout on the condition that the country will implement reforms to reduce spending so that it won't need to be bailed out again - austerity. 9. Austerity is unpopular and the government is replaced with one who promises to raise spending again and stick it to the IMF. 10. GOTO 1 This probably describes most countries in the world.

tristor 4y ago
This is pretty accurate, but somewhere between step 8 and 9 or step 9 and 10 is "Argentinian government 'resets' the currency, causing even deeper loss of confidence"
wbsss4412 4y ago
11. Due to extremely taxes and an extremely unfavorable official exchange rate, citizens hoard dollars illegally and it exacerbates their currency reserve problems. Note that 11 is really an issue of both government policy and the culture. Tax evasion is both a response to inflation and a result of a culture that doesn’t see an issue with putting private benefit over public good.
- xkcd1963 4y ago
  On the other hand, its antagonising to see such malfancioning of the state and keep feeding the machine with taxes

conanbatt 4y ago

Simply bad monetary policy. Argentina has a long history of resorting to money printing for its budget deficit and every generation thinks they will get away with it.

pa7x1 4y ago

The country is incapable of taxing fairly and efficiently as there is rampant corruption and tax avoidance. This creates a very negative feedback loop, nobody wants to pay taxes as nobody else does so you would put yourself at a disadvantage and the tax money doesn't get put to good use anyway due to corruption, so why do it. The above means that the government has to run permanent fiscal deficits and get indebted. At some point they are unable to pay the debt and the first temptation is to debase the currency. Rinse and repeat in an infinite loop of mistrust, tax avoidance and default. It's a very hard problem to solve, unfortunately, as it's at this point deeply integrated into argentinian culture.