If you find yourself driving through the suddenly packed condo canyons of Miami—lamenting not having bought during the property crash—shake a fist or two at the Argentines. So many of them ponied up 80 percent cash down payments on units (mortgage market be damned) that South Florida’s condo depression rather abruptly turned into another boom. Their thinking was defensive: Swap iffy pesos for dollars and store that value in U.S. property, out of the prying hands of the government back home.
Now, with Buenos Aires finding some rather innovative ways to crack down on the flight to dollars, that spirit of capital preservation has morphed into a panic in Argentina to get out of the peso, the world’s worst-performing currency. In the black market for dollar-denominated bonds, Argentines are spending dearly to circumvent President Cristina Fernández de Kirchner’s expanded limits on foreign exchange, and inflation that’s privately estimated at 25 percent. According to data compiled by Bloomberg, the black market exchange rate is at 8.98 pesos per dollar, after touching a record 9.14 pesos last week. Compare that with the government’s official exchange rate of 5.17 pesos per dollar, and it’s easy to see why Argentines are so desperate to get out of the local currency in South America’s second-biggest economy.
The anything-but-cash mood is also helping the store-of-value appeal of Argentina’s equities, where the benchmark Merval stock index is up 23 percent this year.
To stem dollar flight, the Fernández administration is requiring Argentina’s national tax agency to sign off on all dollar purchases; in July it banned Argentines from buying greenbacks, except for travel. In March it hiked the tax on foreign credit-card purchases to 20 percent. Argentina’s foreign currency reserves, its main source of funding to service its debt, are at a six-year low of just under $40 billion.
“The first thing Argentines do when there is bad news is buy dollars as protection, and there’s no lack of things to be nervous about right now,” remarked Bank of Americs’s (BAC) Ezequiel Aguirre to Bloomberg’s Camila Russo. “The more the government tries to control the market, the more people will want to buy dollars.”
Argentines are particularly on edge this week over less-than-inspiring comments made by their top economic official about true inflation. When asked by a Greek documentary maker about the International Monetary Fund doubting the government’s economic statistics, Economy Minister Hernan Lorenzino responded: “Look … I’ll repeat to you again. I think that, eh, it’s a … Can we cut this off? Sorry.” The interview, which took place in December, aired in Greece on Tuesday—and caught fire on Twitter this week, just days after a million people poured into the streets of Buenos Aires to protest Fernández’s policies. At a September speech at Georgetown University, she remarked that U.S. inflation data are misleading, too. September was also when IMF Managing Director Christine Lagarde said Argentina could receive a “yellow card” for poor data-tracking and transparency.
According to JPMorgan Chase (JPM), this year Argentina’s reserves will see their biggest drop in a decade. Twelve years after the country’s record $95 billion default, it has the status of being the only distressed borrower of the 55 developing economies tracked by the bank.
In these circumstances, the government insists—literally: U.S. dollars are bienvenidos to stay awhile in Buenos Aires.