Wow! Whadda Week ...making sense of the Argentine Peso
Monday found every "old Argentina hand" impressed by the US dollar surging to more than eight pesos to one dollar ...something that most watchers didn´t expect until April. Bueno, que vas a hacer / Oh well, whaddaya gonna do.
Less than a week later, however, the unofficial "dollar blue" went to 8.75 to 1 dollar. Now that will freak even the longest of long-timers here in the Paris of the Palmeras. By this writing, the dollar has dropped back to less than 8.50 ...but that´s still worthy of wonderment given the accelerated and short time-frame.
What´s that mean to ordinary folks who live in the peso-denominated economy? Answer: nothing terribly immediate ...but it won´t be very long until it does.
Allow yer humble cattle rancher Mike to let you in on a little ripple that is sure to reach Buenos Aires Capital's pond almost as quickly as this week's currency spike.
Before Monday, My Missus and I sent a big load of autumn calves into the system that supplies all the beef that people eat here in this beef-eating nation. Although our animals brought the best prices at auction, those prices were a tad depressed. We wrote it off to selling in the fall when everyone else was selling. Nonetheless, we were reasonably pleased with the money.
This week, however, our cattle buying/selling sources informed us of many auctions in which there were no buyers and/or the sellers refused to sell at such low prices.
That, my friends, is unheard of ...at least in recent memory.
For a cattleman to pay the freight to take cattle to auction ...and then refuse the offer ...and then to pay the freight to take them back to his ranch ...where there is probably scant pasture to feed them is a BIG deal.
I can only attribute that to this week's weirdness regarding the exchange rate.
In the big city of Buenos Aires, even big fluctuations in the relative value of the peso vis-a-vis the dollar are taken in stride with little effect on day-to-day life.
This week was different. I predict that the ripples of this week will reach ordinary people in the big city sooner rather than later.
The prediction business, on the other hand, is a very tricky business ...especially when you're talkin' bout the future!
Wild fluctuations in the dollar here can be attibuted to how small is the market for foreign currency. The scary thing about this week is how the market seems to have gotten smaller. There are now many more buyers of dollars chasing fewer sellers of dollars.
When I first visited Argentina in 2000, it was estimated that there were 1 Billion US dollars "in mattresses" here ...that's in addition to any US dollar denominated bank accounts that existed then. Over more than a decade, those dollars have been depleted ...both in private and government holdings.
Now, the market for dollars has become so small that any demand for dollars has the power to swing the exchange rate wildly.
Like the exquisite antiques that used to regularly appear in the famous Sunday street market in San Telmo, US dollars have been fished-out of the local economy to a degree which no one could have reasonably predicted ...until this week.
Full disclosure: even though it has bitten me in the pocketbook, I have always supported the government's effort to restrict the export of food from Argentina simply because some other nations' currencies are stronger. We have had that luxury because of the official and unofficial stores of hard currency.
However, just like only 1 million US dollars suddenly invested in the Buenos Aires Stock Market is enough to make values swoon ...the amount of hard-currency wealth in this rich country and its capital appears to have been depleted to the point where almost any demand for dollars can make the exchange rate really swing.
It´s not just you who wants/needs dollars ...the national coffers are dwindling as well.
The nation will probably begin to encourage the export of what we do best: agricultural products. Already, Argentina counts more and more on the export of heavily taxed GMO soy. Although we are rich in energy and mining products, those will take time to ramp-up. If basic foodstuffs are suddenly allowed again to be exported at lower restrictions, there will be hunger here ...and hunger here means hunger for much of the world until Argentine production catches-up with our export capabilities of a decade ago.
I don´t know how bumpy this ride is gonna be ...but I´m holding onto my seat. Brace yourselves.