The country where houses are bought in $100 bills
Marcelo Capobianco was inspecting the carcass of the calf he had just hung on a hook in his small butcher shop outside Buenos Aires on Tuesday, when he admitted that the prime beef would hardly earn him anything.
That’s because since his favored candidate, Javier Milei, won Argentina’s presidency two days earlier, the cost of meat had risen by five percent, while the street value of the Argentine peso had fallen by 12 percent, impacting the purchasing power of his customers. harmed.
Mr. Capobianco says he has raised prices so many times in recent months that he is reluctant to pass the costs on to customers again. “It is already proving difficult to sell at these prices,” he says.
All around his shop were signs of the spiraling economic crisis and 140 percent inflation that has roiled Argentina and brought Mr. Milei, a self-described “anarcho-capitalist” libertarian who wants to replace the peso with the U.S. dollar, to Argentina’s highest office.
There was a wall of prices written in chalk to allow for frequent increases; the counter where every morning he livestreams the day’s prices to customers watching on Facebook; and the sandwich board on which he recently advertised a dollar bill of beef, with Mr. Milei’s campaign slogan scrawled next to it: “Long Live Freedom!”
It was an ironic demonstration, Mr. Capobianco said, that “we already live in a dollarized economy.”
Not yet.
Milei, 53, an economist and former television pundit, has made “dollarization” the centerpiece of his radical plan to save Argentina’s economy, which includes closing the central bank and sharply reducing the size of the includes government.
Yet after years of high inflation and a 93 percent plunge in the value of the Argentine peso since the pandemic began three years ago, Argentina’s already roiled economy has evolved to become even more dependent on U.S. dollars to function from day to day. day.
Argentinians buy houses and cars with stacks of $100 bills. News sites track the “blue dollar” in real time, a black market exchange rate for dollars that is technically illegal for Argentinians, but that almost everyone does anyway.
And after Argentines convert their pesos to dollars, many hide them under floorboards, in old clothes or locked in rented safes in underground vaults.
Because their paychecks disintegrate in value the moment they receive them, Argentinians who can save money tend to opt for hard U.S. cash.
As a result, about 10 percent of all U.S. currency in circulation is in Argentina. according to some estimatesThat’s roughly $200 billion, more than any other country outside the United States. That’s an average of about $4,400 in cash for each Argentine, compared to $3,100 for each American.
The dollar has long been prominent in Argentina, with its movement against the peso serving as a gauge of the country’s economic health for decades. It has also long been the preferred way to pay for expensive items. This includes the transfer of Diego Maradona, the country’s football superstar, to an Argentinian club in 1981.
As a result, the US dollar has become a symbol of security for many Argentinians. So when Mr. Milei made it a symbol of his campaign, it proved to be an effective political strategy.
At his rallies, dollars rained down with his face on them and his supporters passed him inflated $100 bills, which he lifted over his head like a trophy.
Now Mr. Milei will be sworn in as president next month, and he may soon find that his promises will be much harder to deliver than to make.
Economists have warned that it will be challenging to dollarize Argentina’s economy because this usually requires a country to have a large sum of dollars to start with. And while many Argentinians have dollars tucked under mattresses, the Argentine government actually has none.
“Dollarization will not be possible, at least not immediately,” said Santiago Bulat, an Argentine economist. He also pointed out that other countries that have dollarized, including Ecuador and El Salvador, are still struggling to improve their economies.
“Ecuador has dollarized money, yes, in a very critical situation,” he added. “But now they are dependent on the monetary policy of the United States. They have gone bankrupt twice in twenty years.”
Economists say using the dollar as an official currency deprives countries of important monetary tools, such as interest rates, in an effort to control inflation or ease the economic downturn. Some economists said the switch to dollars also often forces countries to lower the value of their currencies, effectively cutting wages for the country’s workers.
During his campaign, Mr. Milei said that if an outside investor — he did not name specific names — were willing to lend Argentina tens of billions of dollars, he could quickly dollarize. If not, he said it would be a matter of “financial engineering” and would simply take longer.
What does he say to the economists who doubt that dollarization is possible or even necessary? ‘They are animals’ he told The Economist in September. “It’s like trying to discuss Pontryagin’s maximum principle with people who can’t even add with an abacus.” (Pontryagin’s maximum principle is a complicated mathematical theory.)
What all Argentinians agree on is that the current economic situation is unsustainable.
The crisis has its roots in years of government economic mismanagement, including overspending, large deficits, protectionist trade policies, complicated currency controls, $44 billion in international debt and an overreliance on printing more pesos to pay the government’s bills to pay.
Annual inflation has been in triple digits for months, more than two-fifths of Argentines are poor, and hunger and homelessness are on the rise.
The government estimates that many workers have received an average pay rise of 92 percent over the past year – a figure that seems astonishing if you don’t take into account that prices have risen even faster.
But half of Argentina’s workforce is in the so-called informal economy – a list that includes Uber drivers, street vendors, nannies and freelancers – and their wages have risen very little.
Jonathan Araya, 30, a supermarket worker in Buenos Aires, said he recently took a second job as a waiter because his costs have increased so quickly. Still, he tries to save money every month to buy $200 in U.S. dollars, but the plunging value of the peso has made that more difficult.
In April 2020, at the beginning of the pandemic, 1 dollar bought 80 pesos at the “blue dollar” rate. A year ago you bought $1,300 pesos.
On Tuesday, as markets in Argentina opened for the first time since Mr. Milei’s victory, the value of the peso fell to a record low. That day, $1 bought 1,075 pesos.
“You’re constantly raising money quickly to buy dollars,” Mr. Araya said, “because it gets devalued the next day.”
Mr. Capobianco was in his butcher shop on Tuesday, greeting customers he was seeing for the first time since the election.
“Did we vote correctly?” Mr. Capobianco, 53, told one of his longtime employees, Isabel Michelitsch, 75.
“We voted well,” she replied, pulling out a horn in the blue and white colors of the Argentine flag she used to celebrate Mr. Mieli’s victory.
Ms. Michelitsch said Argentina’s economic quagmire has made her the “economy minister” of her household, leaving her constantly searching for a deal. She was carrying three large ears of corn that she had bought for a thousand pesos (less than one dollar) at a store around the corner.
Mr. Capobianco said his company’s problems were caused by the weak peso. A drought in much of Argentina had devastated the pasture that normally fed the animals that supply his store, so producers instead used livestock feed, which is priced in dollars.
“This automatically makes the product more expensive,” he says, “and you then pass that on to the people.”
The truck that brings him many of his products also broke down and the replacement parts were priced in dollars, costs that his supplier will pass on to him.
“It was a pretty traumatic situation,” Mr. Capobianco said, adding that he almost closed his store this year. But now that Mr. Milei is about to take power, he is hopeful that a solution will emerge, even if getting there may be painful.
“There’s a new atmosphere,” he said. “But we know we have tough months ahead of us.”