Monday, October 28, 2013

Argentinians are Italians speaking Spanish who pretend to be British

There were a lot of fascinating stories and anecdotes from our Strategic Partnerships Mission to Argentina this past week. One throwaway comment, in particular, really struck me. It was made by a macroeconomist who spoke with our group. I asked him what would be the wisest thing he does – as an economist – for his family living in Argentina.

I’ll get to his response in a moment. But first, a bit of framing.

There's so much uncertainty in the Argentinian economic climate right now. The official exchange rate is 4.5 pesos to the dollar – but the real “blue market” exchange rate is more like 9 pesos to the dollar. The official inflation rate is 10% … but most economists will tell you that the real inflation rate is more like 25%. Imagine trying to get a business loan, or a mortgage, when you don’t know (or: your lender doesn't know) what the rates will be like in six months time? The answer is, you can’t.

And when the government started to limit the purchase of dollars in 2009, most analysts saw this move as pretty much like shouting “fire” in a crowded theater. Foreign investment ran away, the middle class shifted their assets abroad … and the economy changed forever.

The good news ... is that even if we’ll see another recession in the next twelve months (which is probable) … it won’t look like what we saw in 2001-2002. The main reason is that the Argentinian economy has changed so much since then: there was major “Chinese” growth (9%+) for some years, strong import-substitutions, a solid tourism base has been built up, and … most interestingly, so many of the middle-class have moved their funds out of the country. So the scale of impact is going to look different next time. If there is a next time.

Explaining the economics of Argentina, and how people who cheat on taxes are more celebrated than disparaged, our presenter said, “Argentinians are Italians speaking Spanish who pretend to be British.” That’s a fascinating statement of national identity (and there are layers and layers of meaning behind his comment, too).

But more importantly, I asked him what does he, as an economist, think the smartest thing he can do to protect his family?
“That’s easy,” he said. “We don’t buy any clothes in Argentina. We buy our clothes in outlet malls in New Jersey. That’s the smartest thing I do as an economist.”

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