Will Argentines opt for harsh shock therapy to help their country get rid of hyperinflation?

Will Argentines opt for harsh shock therapy to help their country get rid of hyperinflation?

Due to high inflation, Argentines are constantly trying to exchange the weak peso for the strong dollar as quickly as possible. The entire country is groaning under the devaluation of money. Will the new president who will be elected on Sunday shut down the money printing press? so what?

Joost de Vries

Gustavo (37 years old, hat, shorts) unzips a large backpack and takes out six hundred bills: four hundred 1,000 Argentine peso bills, two hundred 500 Argentine peso bills. Sofia Lopez Mañán (41, large, wavy head) handed him five $100 bills.

He is one of countless money changers in Buenos Aires who earns a good income from the “spread,” which is the margin between the buying and selling price of the US dollar. She is a freelance photographer and, like any adult Argentine, a seasoned currency speculator.

In a country plagued by chronic inflation, underground trading in US dollars is a well-established practice. During this tense election year, the inflation rate has already risen to 143% year-on-year. Each month, products become 12 percent more expensive on average. So the peso notes evaporate in your pocket (or backpack), unless you exchange them for a coin or commodity that retains its value.

About the author
Joost de Vries is the Latin America correspondent for De Volkskrant. Lives in Mexico City. De Vries previously worked on the Economic and Political editorial team.

Just as speculators around the world flee to the dollar or the euro when they risk losing their investments in emerging economies, Argentines also cling to the dollar. Their pesos are like a hot potato they can’t ignore – they get paid in pesos, buy groceries with them and pay their rent with them. But they prefer to pass on their pesos as quickly as possible.

This way they can go to well-built places like Gustavo or to informal exchange offices known as “caves”. Since Gustavo’s work is strictly prohibited, he does not want his surname to appear in the newspaper. Within the cashiers guild, he belongs to the subcategory of home delivery. This morning he parked his car in front of Lopez Manian’s house.

The deal takes place in the living room while enjoying bitter Argentinean tea. “I wanted to be a footballer,” Gustavo laughs. His client needs the peso because one of her cameras needs to go to the repairman. “They expect the price to rise further after the weekend,” says the money courier. Lopez Mañán heard it too. Within a few days, she might be able to get more pesos for her dollars, but repairs can’t wait any longer.

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Presidential elections

This day trading game has been around for decades, but the stakes have never been as high as they are in 2023. The uncertain political situation has sent prices and rates soaring. On Sunday, Argentina will elect a new president, succeeding the leftist Alberto Fernandez. Opinion polls predict a close race between two diametrically opposed parties.

Appearing on the ballot paper are on the one hand Sergio Massa, the economy minister of the current left-wing populist “Peronist” government, who is seen as relatively right-wing, and on the other hand the far-right economist Javier Maile, a right-wing politician. A roaring anti-politician who promises an end to the noisy leftist welfare state. The liberal campaigned using a chainsaw, which symbolizes the knife he wants to spend.

Teller Gustavo and Sofia Lopez Mañán.Photo by Irina Werning for Volkskrant

This “quilombo” (an Argentine term that can mean a complex and chaotic situation) has a direct impact on the already troubled economy. Inflation this year reached levels not seen in Argentina since hyperinflation in the early 1990s. The “black” dollar, known in Argentina as the “blue dollar,” was not expensive at all.

Presidential candidates Javier Miley (left) and Sergio Massa.  Photo by Agence France-Presse

Presidential candidates Javier Miley (left) and Sergio Massa.Photo by Agence France-Presse

During the election campaign, Minister and presidential candidate Massa distributed additional funds to retirees and the unemployed. Meanwhile, Hodijn Miley compared the Argentine currency to feces. The unofficial rate of the dollar rose from 500 to 1,000 pesos within a few months.

So basic groceries cost thousands of pesos, which is the same for a few US dollars. The number of Argentines living below the poverty line rose to 40 percent this year. People in the shrinking middle class engage in a daily race against inflation to avoid falling below the subsistence level.

Meat for Christmas

Photographer Lopez Manian and her boyfriend say they are lucky because their house belongs to the family. Some friends could no longer keep up with inflation and were evicted from their rental properties. This unequal competition requires unprecedented flexibility. “We’re all constantly calculating.” Argentines look at the “el blue” exchange rate more than the weather forecast. Because although it seems safer than the peso, the value of the dollar can also fluctuate by several percentage points daily.

“We buy bulk goods from the supermarket,” Lopez-Manian says. “Rice, pasta, oil and toilet paper.” A friend recently bought thirty bottles of shampoo. Teller Gustavo’s mother asked him to freeze a large piece of meat for Christmas dinner. Lopez Mañán: “We are constantly looking for ways to spend our money as quickly as possible. Tourists are wondering about the crisis, because all the restaurants are full.”

This fast and turbulent life has not only made Argentines exceptionally creative, but also deeply dissatisfied. “People are angry.” Here is the success of political newcomer Miley, who curses and screams. The eccentric economist with unkempt hair and fiery eyes filled event halls with thousands of young people last year with his angry displays. He rages against the current “political class,” which can only fill the gap by printing billions of pesos.

The defendants in his argument are the “Peronists,” the political heirs of former President Juan Peron (1946-1955 and 1973-1974). Left-wing populist Peronism has been the dominant trend in Argentine politics for three-quarters of a century, albeit in various incarnations. Of the last four presidents, three were Peronists. Miley portrays them as corrupt politicians who made a rich country poor through money-making and patronage.

On the streets, as here in Buenos Aires, there has been more and more commerce since the country's hyperinflation.  Photo by Irina Werning for Volkskrant

On the streets, as here in Buenos Aires, there has been more and more commerce since the country’s hyperinflation.Photo by Irina Werning for Volkskrant

Not only does he promise to deal with established power, he also offers a panacea for the future: shock therapy that will forcibly revive an ailing Argentina. If he became president, he would cut government spending, cut interest, abolish many ministries, leave the market completely free, close the central bank and replace the peso with the dollar. In order to eliminate inflation, he says, rampant spending of the peso must stop.

Steaming money journalism

Argentine economist Miguel Boggiano, educated at the American Liberal University in Chicago, counters that Miley’s analysis is correct. Argentines owe inflation to their financial press, he says over the phone. “Alberto Fernández’s government has printed money worth 20% of GDP in recent years.” At the same rate as the notes came off the printing press, they lost their value.

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On one of the posh streets of the popular Palermo district, “Maxi” (51 years old, bald, glasses, Professor Barabbas beard) runs a small exchange office. His business has no name on the front. If you don’t know it, you’ll pass it by. In the waiting room, people draw a number to buy pesos or dollars at one of three closed kiosks. “We are a necessary evil,” says Maxey. “Everyone needs us.” He also counts police officers and judges among his clients.

Like Miley, he holds the Peronists responsible for Argentina’s malaise. It is believed that they got the country into huge debt and then spent the money poorly. “Instead of building ports, roads and infrastructure, we provided everything through social programmes.” He believes that breaking away from the current collective spending pattern is inevitable. “We’re all going to have to grind our teeth and move on.”

Fear among the poorest people in the country

But this is exactly what, according to opinion polls, about half of the population fears. Many of them had already voted for government candidate Massa during the first round of voting on October 22 (then with five candidates), fearing that Miley’s chainsaw would influence not only the government, but them as well. At least 20 million of the 46 million Argentines receive some form of government aid. He reassured Massa that the support was safe with him. He received 37 percent of the votes in the first round.

More than a hundred international economists said last week that Miley’s government would hit the poorest people hardest. The concerned academics signed an urgent letter, co-written by left-wing French economist Thomas Piketty. The letter stated that Miley’s “quick fixes” would further harm the Argentine economy. “Unregulated markets are not benign; they reinforce inequality.”

But maybe the steaming soup Miley has served up so far won’t be eaten so hot after all. His outstretched leg earned him 30% of the votes in the first round a month ago, which is not enough. Since then he has already moved to the middle in the fight with Massa. For example, he said in a recent discussion: “We are not changing existing rights.”

His competitor wondered: What about the dollar? Has he returned to that? No, Miley responded fiercely as usual: “We will introduce the dollar, we will close the central bank, and we will eradicate the cancer of inflation.”

In the apartment of photographer Lopez Mañán, the cashier Gustavo closes his suitcase. He also doesn’t have much sympathy for the Byronists, as he admitted before he walked out the door. But he doesn’t know yet who he will vote for. “If Miley wins, I will lose my job.”

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