Tuesday, May 07, 2013

It's $10:08 in Argentina. Everybody's Waiting for Midnight.

We broke the psychological barrier today: Argentina's highest denominated note is now worth less than 10 dollars.  "What happens now?"  That was the question on everyone's mind this morning.

By afternoon, the government announced what would happen.
If that sounds to you suspiciously like money-laundering, you're in good company ...almost simultaneously, the national government announced:
That announcement was not really for domestic consumption; Argentina has only recently been given a clean bill of health from western central bankers as being cured of her free-wheeling ways as regards the sanitary movement of currency.

The prediction business is a tough business ...especially when yer talkin' about the future.  However, yer humble blogger has never been afraid to stick his neck out ...so with everybody ringing my phone off the hook, you can have my 2¢ (about 20.2 centavos.)

#1. Without these announcements, the Argentine peso would be well on its way to 12 pesos to each dollar ...beyond that, who can say?  Once unthinkable, today's double-digit dollar changed brain chemistry all over the country.  People who have been waiting for "things to settle down," made plans to buy this morning ...pretty much without regard as to how much a dollar would cost them.  "Buy 'em at 10 before they go to 12," flashed across the synapses of every citizen of the world's most talented amateur economists.

#2. With these announcements, however, brainwaves have become scrambled at least momentarily.  The bill draft to establish a recovery of undeclared assets seems to be an amnesty of sorts.  It would allow folks to bring out their hard foreign currency from both mattresses here and off-shore accounts, and pay no penalties nor taxes.

#3. This lightening fast action on the part of the administration could actually keep the peso from going to 11 to the dollar before close of business Friday.

#4. The plan seems exceeding smooth: your hidden foreign currency (nobody hides pesos) comes out, gets declared, and you receive a bond of sorts that pays interest, is endorsable, and payable as soon as the current president leaves office.  You pay no penalty, interest, nor taxes on the amount.  Amnesty ends about 90 days from now.

#5. Life is beautiful and monetary stability is restored.

I have a few problems swallowing all of this not the least of which is how this comes hard on the heels of money-laundering accusations by operatives close and/or inside the administration regarding 500 euro notes.

The plan is too smooth, sunshiney, and easy.  Maybe a decade of living here has hardened me ...but nothing ever seems to turn-out quite like this.  When you figure that, in order to qualify for these lollipops and sunshine, one would have to bare one's most private of assets to the national government ...a sudden increase in everyone's confidence in national fiscal policy would be necessary to make it work. 

The payment date for the bond is scheduled to take place after the new administration is inaugurated.  Somehow, methinks this puts to bed any rumors or hopes that la presidenta will be back for another term.

Today's announced plan is too slick and too responsive.  It seems to have been waiting in a box marked, "do not open until $10.00."  It seems designed as a weapon of mass-distraction against the last hundred-dollar bill in Argentina being purchased before the end of the month.

Although I´ll be following the currency rates closely for a while, I´ll be especially interested in the international reaction as regards money-laundering.  This policy apparently would allow you to smuggle a large sum of money into the country, declare it at any local bank, and be forgiven of any taxes and penalties with no questions asked as to its provenance.  That´s not gonna sit well with US and European central bankers.

A final thought on hitting ten and this/these new announcements: this looks tremendously desperate.

A word of advice: hold on to your ass; this is some good acid.

3 comments:

Anonymous said...

Mike,

Great post. I'm looking forward to your take on the continuing monetary weirdness.

Alan

Anonymous said...

Rumor has it, Cristina's government is hard at work to effect the price of the blue dolar (as per a recent public threat that if the parallel market price continues increasing the government will crack down on the cuevas who sell them). Recently the price of the dolar blue has been trending sideways. Coincidence? Anyone have an opinion or comment on this?

yanqui mike said...

Yep, after it hit 10 to 1, they intervened in the market big-time.

But that takes precious currency reserves ...something they don´t have a lot of. That made it drop to about 8.5 to 1 immediately.

I also heard that they cracked down on places that sold dollars. They were always illegal but they were tolerated. I think that is what has made the rate go sideways ever since.