Seems Impossible, but Argentina’s Peso Was Able to Collapse even Further Despite $50 Billion IMF Bailout

Why is anyone still lending this government any money?

Today the Argentina peso plunged another 5.5% against the US dollar. It now takes ARS 27.7 to buy $1. Over the past 16 years, the peso has gone through waves of collapses. This collapse began on April 20. The central bank of Argentina (BCRA) countered it by selling $1 billion per day of scarce foreign exchange reserves and buying pesos. The peso fell more quickly. The BCRA responded with three rate hikes, to finally 40%! On May 8, the government asked the IMF for a bailout. On May 16, after a chaotic plunge of the peso, the BCRA was able to refinance about $26 billion in maturing peso-denominated short-term debt (Lebacs) at an annual interest of 40%, and the peso bounced.

It was a dead-cat bounce, however, and the peso plunged another 13% against the dollar through today. Since April 20, the peso has plunged 27.5%. The annotated chart shows the daily moves of the collapse, and the various failed gyrations to halt it (the chart depicts the value of 1 ARS in USD):

The collapse of the peso comes despite an endless series of measures to halt it. Just this week so far: On Tuesday, the BCRA decided to keep its key interest rate at 40%; and on Wednesday, the Ministry of Finance announced it would hold daily auctions to sell $7.5 billion in foreign exchange reserves and buy pesos, to prop up the peso. But it was apparently the only one buying pesos.

With inflation at 25.5% and heading to 27% by year-end, according to government estimates, with a rising budget deficit, a surging current account deficit, soaring borrowing costs, and burned investors, what else is there to do?

Yesterday, IMF Managing Director Christine Lagarde responded to the government’s Letter of Intent and Memorandum of Economic Policies. This is the plan Argentina and the IMF worked out and that the government would have to implement in return for a $50 billion credit line, called a stand-by arrangement.

Among the goodies:

  • A hiring freeze by the federal civil service for two years
  • Phasing out gas and transportation subsidies
  • Foregoing non-crucial public works
  • Delaying planned tax cuts to bring the fiscal deficit down to 1.3% of GDP in 2019
  • Room for some new anti-poverty measures
  • Vows to maintain a minimum of social assistance to protect “society’s most vulnerable.”

And a special tidbit: The government committed to granting the BCRA some financial autonomy and will submit a new BCRA charter to Congress by March next year.

Part of Argentina’s problem is that the BCRA isn’t a central bank in the modern sense. It was nationalized in 1946 and has become a de-facto department of the Ministry of Finance. Successive administrations used its peso-printing press (more recently the digital version) to fund government spending and political goals. It’s very convenient. You can buy a lot of votes that way.

If the BCRA had been an independent central bank, and had acted with a modicum of tough love, the peso wouldn’t have lost 96.5% of its value against the dollar in 16 years and inflation wouldn’t have ranged between 20% and 40% over the years.

But it will be tough to turn off the spigot of increasingly worthless pesos that vote-buying politicians have come to depend on.

The letter — which admitted that economic growth in 2018 would be near 0.4%, and not 3.0% as previously projected — said the policies should be “adequate to achieve the macroeconomic and financial objectives of the program,” but promised that “we will take any additional measures that may be appropriate for this purpose.”

The government requested 30% of the $50 billion bailout loan as soon as the deal is approved. The IMF’s executive board will vote on it on June 20 and the way things are going, will likely approve it. Then Argentina will have succeeded in shanghaiing another set of international investors into lending it money. This is one thing Argentina excels at. But no one should ever lend money to Argentina unless the yield is so huge that it makes a near-certain default worthwhile.

Emerging market countries like Argentina that borrow in dollars to gorge on cheap money have another problem. And gone are the kid gloves. Read… This Fed Grows Relentlessly More Hawkish 
 

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  67 comments for “Seems Impossible, but Argentina’s Peso Was Able to Collapse even Further Despite $50 Billion IMF Bailout

  1. Rates
    Jun 14, 2018 at 9:34 pm

    It’s like Europe obviously. The Argentinian “government” is just a conduit to pay off someone else.

  2. ZeroBrain
    Jun 14, 2018 at 9:39 pm

    Let’s not call it a bailout of Argentina. Let’s call it what it is – a bailout of Argentina’s creditors, paid for by you and I through our nations’ respective IMF funding.

    #MakeTheBankersWholeAgain

    • Gershon
      Jun 15, 2018 at 8:12 am

      +1000

      This IMF bailout will go straight to the banksters who cravenly lent money to this basket-case country knowing full well entities like the IMF – for which US taxpayers ante up 22% of its annual budget – will ensure they get their principle plus usurious rates of return.

      No wonder the last two IMF leaders have been convicted criminals.

      • Jun 15, 2018 at 10:28 am

        NO, the lenders weren’t banks. They were investors, namely bondholders. Argentina issued bonds to the public. This debt is in now bond funds and pension funds, not at banks.

        • Gershon
          Jun 15, 2018 at 10:51 am

          My point still stands. These “investors” in our crony capitalist wonderland expect to be made whole on any losses, by either taxpayers, the Fed’s printing press, or the courts. Let them eat their losses, rather than transferring them to the public ledgers. Anyone foolish enough to “invest” in Argentinian bonds deserves to get their head handed to them.

        • Ambrose Bierce
          Jun 15, 2018 at 10:57 am

          and you mean US pension funds, which makes Argentina a national security risk

        • ZeroBrain
          Jun 15, 2018 at 2:11 pm

          How do we know investment bankers / banks are not on the hook for the defaulted loans? Banks don’t “invest” in sovereigns? Then why is Deutsche Bank and Greece a problem, for example?

  3. Fergus
    Jun 14, 2018 at 9:42 pm

    Watch the money trail.

  4. VarAway
    Jun 14, 2018 at 9:43 pm

    I said it before and I will repeat/say it again:
    Stop this entire peso pony show.
    Make the US $ the national currency.
    Will be rough, tough for a while, but then you will see the light
    at the end of this peso tunnel.

    • raxadian
      Jun 14, 2018 at 10:22 pm

      They tried that for almost a decade, it’s what lead to the 2002 default to start with.

      https://en.m.wikipedia.org/wiki/Convertibility_plan

      Since 2003 until the current Argentine president took office, the dollar was more or less controlled. Allowing it to free float means it went from ten pesos in 2015 to the currently over 28 pesos value.

      Sure printing money has also not helped but whatever.

      • Lion
        Jun 14, 2018 at 11:17 pm

        A family member gave me a 1,000,000 Argentine Peso note back in the early 80’s. I believe since that time, the Peso has gone through a 10,000 to 1, a 1,000 to 1, and another 10,000 to 1 devaluation.

        It is a pretty piece of paper though…….

        • Lenz
          Jun 15, 2018 at 4:01 am

          Hope you locked in the 40% returns for their short term bills =)

        • Erle
          Jun 15, 2018 at 9:57 am

          Gee, I have a few Argentine gold five peso coins that are going for .2334oz X 1300USD/oz = 303.42USD.
          So that puts an Argentine peso at $60.68 USD, not quite the price shown on the chart of $0.03
          What could have gone awry?

        • Jun 15, 2018 at 10:36 am

          Erle,

          You don’t have peso coins. You have gold. The rest on the coins is just decoration ;-]

        • robt
          Jun 15, 2018 at 11:16 am

          Erle, you haven’t been listening to Buffet: gold is just worthless pretty stuff that people mine for no reason and hide away.
          From the guy that sits on 109 billion in cash, loves to collect dividends but never pays them, tells you to always buy his stock but never sell it, and wants to buy back BRK shares with your own (i.e. shareholders’ treasury) money to ‘return value’ to shareholders, leaving you with no shares. But you do get a free ice cream and get to listen to cute stories if you fly to the AGM at your expense for the annual love-in.
          Pardon my cynicism …

        • Javert Chip
          Jun 15, 2018 at 11:58 am

          Erle could be in line to be the next Argentine finance minister…

      • Flip
        Jun 15, 2018 at 4:27 pm

        The peso was linked (for a while) to the dollar, but they didn’t go all the way and eliminate the peso in favor of the dollar like Ecuador, El Salvador, and Panama. They definitely should dollarize. If you don’t have the dollars, you can’t spend them and have to live within your means.

    • gaston
      Jun 15, 2018 at 8:49 am

      R u crazy? Peso pony show? This is a plunder of our wealth going on.
      the argentinian peso is our currency. Our currency is our soberanity.
      We are an independent country and we will defendit.
      Maybe our actual president and goverment will not defend it, because they are representatives of global power and banks.
      But the argentinian people will, sooner or later.

      • Jun 15, 2018 at 9:00 am

        If the people of Argentina really wanted to “defend” their currency, they should sell ALL their dollar holdings and convert them into pesos, and they should buy peso-denominated bonds that the government issues, and they should sell their homes in Miami and repatriate this money and convert it into pesos. If everyone did that, the peso would be a strong currency, and part of Argentina’s economic problems would be solved. But no Argentine trusts the peso or the government’s management of it.

        • gaston
          Jun 15, 2018 at 5:34 pm

          I totally agree with you, wolf.
          “the people” of argentina is a wide diversity of colective and diferente intrest.
          Everyone how behaves like you describe are less than 5% of the citizens. This 5% are the cause of our disgrace. Like in every country of south America, this happened for decades.
          They are creating a new debt monster, at the same time they are taking all of those dollars away. Its not a problem of trust, its a problem of rich and powerful people at both sides of the table. Shell, JpMorgan, DeutcheBank and HSBC CEOs inside our govement and ministys… you know well how this ends in this side of the world.

      • Gershon
        Jun 15, 2018 at 12:51 pm

        Maybe our actual president and goverment will not defend it, because they are representatives of global power and banks.

        Remind me again, who elected these political prostitutes of the globalists and banksters? Oh that’s right, the Argentine voters did.

        As long as the sheeple keep voting for the corrupt, crony capitalist status quo, they have no right to complain about getting shafted by their elected “leaders” and their bankster pimps.

  5. Paulo
    Jun 14, 2018 at 10:02 pm

    I hate to sound like a conspiracy tinfoil hat salesman, but whenever I hear of this and that labeled IMF I sense a smooth talking Tony Soprano standing behind LeGarde, rubbing his hands and thinking about Greek airports, ferry terminals, and airports.

    As for the rhetorical question of who continues to lend them money? It’s not like it gets written off. They’ll take the Country apart, piece by piece, finca by finca, and every asset not nailed down will be occupied and bled out, one way or another. Just like Greece. And throughout they’ll be casting blame on everyday people when it was political insiders playing their game of ‘enrich thyself and friends’.

    • Jun 14, 2018 at 10:51 pm

      But remember, the Argentine government was BEGGING the IMF for this money. When you want to borrow money, you have to accept the lender’s conditions or not borrow the money. When you have a history of having stiffed your prior creditors again and again, those conditions should be onerous.

      In my opinion, the IMF should not lend the government any money, period. There were demonstrations against this IMF deal a couple of weeks ago. So let the people sort this out. They don’t trust the peso at all. They buy dollars as soon as they can, to get rid of their pesos. That’s a big part of the problem. If they all sold their dollars and bought pesos, the peso would be in much better shape. And the IMF wouldn’t be needed.

      Why should foreign investors trust that government when locals don’t?

      • MB732
        Jun 15, 2018 at 7:22 am

        Would like to believe it is as simple and straightforward as that. Don’t know how the IMF works, but intuition says more likely per earlier comments…IMF using taxpayer dollars to make Argentina’s creditors whole (ZeroBrain) in exchange for productive assets (Paulo).
        “The fix was in” appears to be the only rational explanation of why anyone in their right mind would invest where default is a certainty.

        • Jun 15, 2018 at 10:23 am

          National debt is NOT collateralized. It’s not backed by any asset. In a default, creditors are reduced to negotiating with the government. If the government offers some assets, instead of cash, in exchange for a portion of the debt, well, that’s their deal, and creditors may or may not accept it. There is no bankruptcy for countries. So they cannot just ask a judge to wipe out that debt. Investors lend money to Argentina because of the yield, which was a little higher than other yields on dollar-debts. Now they’re ruing the day. No conspiracy there, just yield-chasing.

      • JZ
        Jun 15, 2018 at 5:13 pm

        1. Argentina government can point a gun at Argentina citizen’s head but they can NOT do it to foreign investors. Although international investors can NOT “trust” Argentina government, they may be able to “force” Argentina government into bad positions by using international military or financial power.

        2. Investors, same as Argentina citizen, do NOT trust pesos. The loan are in US dollars or SDRs.

        The loans, unlike other loans people familiar with, are NOT trust or credit based. It is political/military based loans.

  6. Patrick
    Jun 15, 2018 at 12:47 am

    SMH at how the Argentine Gov is still blatantly lying to itself and citizens.

    >40% devaluation of their currency since beginning of the year they’re projecting ‘only’ 0.4% GDP and 27% inflation. In what universe is their GDP not already deeply negative?

    • Jun 15, 2018 at 8:08 am

      Yes that could be a problem. In theory, GDP is adjusted for inflation, but with inflation this huge, even a small error produces a result that would be way off reality.

  7. El mar
    Jun 15, 2018 at 1:11 am

    When I watch our German Target Saldo,I also do not trust our government.
    We will pay for our Exports oueself finaly.
    ECB is Printing as well!

  8. Todd H.
    Jun 15, 2018 at 2:03 am

    If Argentina isn’t shy about printing its own currency, then what is it borrowing from the IMF? If it’s a U.S. dollar or other foreign currency loan, why does it need foreign currency?

    Is Argentina borrowing foreign currency from the IMF just to support the exchange rate? If so, why is the rate between the dollar and the peso that important? The obvious Occam’s Razor answer to me is that there are foreign bond holders who foolishly decided to speculate in peso bonds and now want a bailout.

    I wonder if we can find out who exactly owns peso denominated bonds? The truth shall set you free!

    • Frederick
      Jun 15, 2018 at 2:29 am

      I would imagine they need the hard currency to buy anything on the world market as no exporter is going to accept Argentine Pesos in trade

    • blindfaith
      Jun 15, 2018 at 6:21 am

      Can it be Elliot Management?

      The last time Argentina basically defaulted on their loans, EM was the owner and buyer of the debt. The courts ruled against Argentina, and the international community shut them out of borrowing until they made good to Elliot.

      The government didn’t learn any lesson, except there is always a lender somewhere. Perhaps offering a 40% interest rate might indicate they have no intention of paying any loans back and let the shiu hit the fan. The easy was out for this country (and others like it) has been let the government fall and let the elite or military form a new one…with a clean slate. Enter Eva from stage left.

      The alternative is as Pablo says….National assets on sale this Sunday, consult the newspaper for details. Enter Goldman, from back stage.

      Follow the money…..

    • Jun 15, 2018 at 8:19 am

      Its currency is becoming worthless. It cannot borrow in its own currency except for short periods and huge interest rates (40% for short-term Lebac bills). No one wants to take this crappy peso, least of all the people of Argentina who instantly convert to dollars any amounts except pocket change. No foreign entity will accept those pesos, and so there would be no imports. But Argentina imports a lot of stuff and has a trade deficit (part of the problem). All these imports need to be paid for with hard currency.

      Whoever (hedge funds?) was courageous enough to buy these Lebacs is now in the hole. The 40% annual interest rate works out to be 3.3% a month. But the peso has lost 13% since the were issued about a month ago.

      • Todd H.
        Jun 15, 2018 at 10:34 am

        I am reading Michael Hudson’s book ‘J is for Junk Economics.’ On page 213 is a passage titled “Sovereign Debt.” As he explains, many governments borrow in dollar, euro or sterling-denominated bonds registered in New York or London! They are subject to creditor-nation courts, not their own domestic laws. Their policies are dictated by these bondholders who threaten to cause chaos and seize public assets if they don’t get paid.

        The exchange rate between the peso and dollar is collapsing; ergo, there is less foreign exchange coming to Argentina to pay the foreign currency denominated bonds. This is the main reason for begging to the IMF.

        It’s all about the bondholders. The Argentinian people? They can go pound sand.

  9. John Doyle
    Jun 15, 2018 at 2:41 am

    Argentina MUST understand it cannot use a foreign currency at home. The US$ is a foreign currency that Argentina has no control over. Greece has a similar issue with the EURO, just as Foreign as the USDollar.
    For domestic economy purposes only the Peso is valid. It can be devalued as often as needs be, but at a certain point it can not continue. Seems that point has passed. So now creditors will help themselves to Argentina’s assets. The government is seriously incompetent and incapable of seeing a way out beyond the neo liberal recipes from international banks etc. Borrowing is way beyond an answer. It has to stop borrowing. Let its creditors wait .

    • Jun 15, 2018 at 8:36 am

      I think they know all that. But they can only borrow cheaply in a foreign currency because no one trusts the peso. This is what you get when you have a history of destroying your own currency. And it runs current account deficits, so it must have hard currency to pay for imports. But since it has a trade deficit, it pays out more in hard currency than it receives for its exports.

      And I don’t blame Argentina for borrowing in a foreign currency and then defaulting on that debt. It stiffs its creditors because it can. I do blame foreign investors (including the IMF) for being so stupid as to lend money to Argentina.

      • Erle
        Jun 15, 2018 at 11:29 am

        Wolf, I thank you for replying to my previous post on Argentine gold coinage. That was back in the day when everyone knew the phrase, “rich as an Argentine”. Heck, the country is named for a hard currency.
        As for the IMF funding of the mess, consider that the IMF conjures their loans out of the aether. They make an entry to their account that has only the backing of their ability to force people at gunpoint to make good on this supposed loan.
        In a hard money society there would be no IMF or the need for the “money” creations of the various central banks.

  10. Tom Welsh
    Jun 15, 2018 at 2:58 am

    “Why is anyone still lending this government any money?”

    Well, I’m not a qualified financial expert or economist – but the answer seems blindingly obvious to me.

    When you lend someone money they cannot pay back, you OWN them. Especially in a world where periodic debt jubilees – as recommended by Michael Hudson – never happen.

    Your question, to my mind, resembles the similar question:

    “Why is anyone putting a sharp hook into this big, juicy trout’s mouth?”

    • Jun 15, 2018 at 8:43 am

      Last time, and every prior time, when Argentina defaulted, creditors lost a large amount of money. Sure some hedge funds swept in and bought a portion of the defaulted debt for cents on the dollar and became the famous “holdouts” that tried to make a buck by hounding Argentina for 15 years, and they did. Even with that settlement included, creditors overall lost a large amount of money, and Argentina came out way ahead.

      Argentina defaults serially because this is a good way of not having to pay back the money it owes. It’s free money. Every foreign investors should just always remember that — but they don’t. They already forgot and lent Argentina large amounts of money starting in 2016, including 100-year bonds, and two years later, Argentina is already at it again, needing a bailout.

  11. Nicko2
    Jun 15, 2018 at 4:45 am

    IMF is the lender of last resort. Quite simply, it’s cheaper to lend them $50. Billion now, with the chance of averting collapse…. rather than risking a full-blown collapse. DOes the US want hundreds of thousands of Argentinian refugees flooding the borders? I think not. Foreign investors need incentive, High risk, high reward….

  12. peter
    Jun 15, 2018 at 5:58 am

    Sorry what am I missing here? Argentina prints pesos and it’s bad. US prints dollars and it isn’t bad and people still see it as being a worthwhile currency. Neither backed by gold or anything substantial, just rhetoric and bullshit as far as I can make out.

    • Nicko2
      Jun 15, 2018 at 6:13 am

      USD is backed by the might of the US military and it’s economy. ;)

    • blindfaith
      Jun 15, 2018 at 6:33 am

      You are not missing anything from where I sit. It is just that our devaluation has been slow and ignored, and the numbers ‘seasonally adjusted’ to death. The slow boil has worked well for years, however it looks different this time. That $25,000 house in the 1970’s is 2 million now. That $1600 car is 60, 000 now. How many are still making 30k to 40k a year after 50 years of labor?
      It seems the increasingly worth-less dollar buys less everyday. Perhaps the only bargain left in dollars is gold. If I had some money, I’d buy some, but making ends meet these days is a dream…the new American dream. Don’t cry for me Argentina.

      • Agnostic
        Jun 15, 2018 at 8:56 am

        Exactly. All paper currency (including the FRN) goes to zero either quickly or slowly. Any value it has is illusory and temporary. Money is physical, always has been and always will be. The sooner we admit this fact, the sooner we can reform the monetary system. If not, it will collapse on its own, with all the negative consequences thereof.

        • robt
          Jun 15, 2018 at 11:12 pm

          All that matters is that people in a nation accept and use the money. A very few currencies in the world are accepted beyond the issuing nations’ borders. For nations with inflated currencies, and where the people have lost confidence in the money, all that’s needed is to knock off a bunch of zeros, overnight, and start over. This has been repeated in history countless times. That’s the ‘reform of the monetary system’ for sovereign nations when the currency collapses. ‘Reforming’ the world monetary system implies either a single currency (a non-starter) or backing of something, normally thought to be gold for historic reasons and reasons of discipline. However, probably most of the nations in the world have closed economic systems, rendering a gold-backed system nonviable.

      • Lion
        Jun 16, 2018 at 2:50 am

        In the early 60’s 10,000 silver dollars (worth $10k) could buy a starter home. Today those 10,000 silver dollars worth about $170k could get you close to a starter home (other than major metro areas like SanFran). Agreed the dollar has been in a slow burn over the decades.

        Not sure I’d buy gold which can and is manipulated by the Banksters, but I’m also trying not to hold dollars either.

    • Begbie
      Jun 15, 2018 at 7:33 am

      The Golden Rule:

      He who has the Gold ( or QE Infinity), makes the rules!

    • Jun 15, 2018 at 8:52 am

      To find out the difference, just put $1,000 into pesos and leave another $1,000 in a US bank. After 10 years, reconvert those pesos to dollars (at the rate of recent devaluation, you’ll end up with about $50) and see what you can buy with them. Then check what you can buy with the $1,000 in the US bank. That’s the difference. The difference isn’t “bullshit” but very real for people that hold pesos. Every Argentine knows this. That why they convert all their pesos to dollars as soon as they have enough to make it worth the trouble.

  13. mark
    Jun 15, 2018 at 6:43 am

    “Successive administrations used its ….printing press (more recently the digital version) to fund government spending and political goals. It’s very convenient. You can buy a lot of votes that way.”

    Right exact same as in the USA

    • Kent
      Jun 15, 2018 at 8:20 am

      The federal government sterilizes 100% of its printing by collecting taxes and issuing treasury bonds.

      Argentina’s problem is that it hasn’t always done that leading to massive inflation. It was 40% in 2016.

      The federal reserve can increase the monetary base by expanding its balance sheet, but it is currently doing the opposite.

  14. Aussie andy
    Jun 15, 2018 at 7:31 am

    It’s a wonder the crypto dudes aren’t pushing there wheelbarrow down there. Not a crypto fan but I would rather bitcoin than peso’s at the moment. Maybe the uk/ Falklands can help them out with some of that black stuff, before we all go electric

    • Jun 15, 2018 at 10:25 am

      Since December, bitcoin is down nearly 70%. So it’s a lot worse than the peso :-]

  15. Paulo
    Jun 15, 2018 at 7:57 am

    Trade War starting in 5,4,3,2……. Today, unless His Greatness publicly backs down at the last minute.

    I guess we’ll see how strong that printed USD is, and the highly vaunted economy. Hopefully, not the military, although its been on display pretty regular these past 50 years.

    Argentina still has good arable land, water, and people used to hard times. It’s all relative when the fan speeds up and people are reduced to the basics. My parents went through the Great Depression….that wasn’t so long ago. History rhymes. We are in an crazy bubble now of no substance, just ones and zeros on servers with a printer on standby, and lots and lots of hype. What can go wrong? Everything, my friends…everything and when you least expect it.

    Trade wars are not good.

  16. Drango
    Jun 15, 2018 at 8:18 am

    So Argentina burns through billions in foreign reserves, and it makes no difference whatsoever. Foreign reserves aren’t currency insurance. You can have trillions of dollars and euros, and still have a currency crisis. Why EM’s follow the advice of the IMF is beyond me. As others have said, the IMF represents the interests of bondholders. It’s like taking advice from a bank on how to best pay off your credit card bill.

  17. Gershon
    Jun 15, 2018 at 8:23 am

    Why is anyone still lending this government any money?

    It’s simple: the financial elites realize that the first time a major sovereign default occurs, the counterparties will attempt to call in the credit default swaps they purchased as insurance. These derivatives, what Warren Buffet correctly called “instruments of financial mass destruction,” cannot be paid out without starting a cascade of claims and counterclaims that will finally expose (and explode) the massive fraud and make-believe valuations (and illusory risk insurance) underpinning the giant debt and credit bubbles blown by the Keynesian fraudsters at the central banks and their bankster partners in crime. The banksters have no choice but to keep the Ponzi going by playing extend and pretend, knowing full well they’re pouring money down black holes.

  18. nick kelly
    Jun 15, 2018 at 8:27 am

    I see WR making the point that the IMF is not a vulture fund, it is a lender of LAST resort and Argentina asked it to step in.
    The IMF does not go looking for these situations and doesn’t want them.
    Originally it had little to do with these loans, it was set up to deal with the problem of competitive devaluations.

    The granddaddy was the mid- 70’s loan, not to an African, South American or even European country, it was to the UK.
    The pound was collapsing.
    The UK had been turned down after trying to hit up West Germany.
    The loan was the biggest in IMF history (at that point) and required it to borrow from West Germany and the US.

    The usual paranoid rants about it being some kind of front for a secret cabal pretty much echoes the populist politicians in the countries needing these emergency loans. They got elected by promising goodies and printed money to pay for them. Part of the IMF deal is telling them to cut back on goodies. (Greece had over a hundred occupations allowing retirement at 55: e.g. disc jockey)

    Another perennial symptom in the IMF waiting room is an uncompetitive
    economy. When the UK was trying to borrow from West Germany, one UK car maker had only managed two weeks of production not interrupted by a strike. (VW had just had its first strike, lasting two days.)

    In addition to WR reminding us that the loan to Argentina was not the IMF’s idea. we have DQ reminding us that central banks can be useful:

    ‘If the BCRA had been an independent central bank, and had acted with a modicum of tough love, the peso wouldn’t have lost 96.5% of its value against the dollar…’

  19. Kent
    Jun 15, 2018 at 8:36 am

    Argentina’s core issue is that after all this time it is still primarily just an agricultural based economy. Most of its exports are ag based and prices can fluctuate significantly based on the vicissitudes of the market.

    Couple that with the fact that there are a relatively small number of families/corporations that own and control the agricultural industry. These folks do not reinvest their profits on any scale to expand and diversify Argentinian industry. Instead they invest those profits in US and European financial markets.

    Of course the Argentinian people want to have at least the basics of modern life, so to get that they have to import a lot more than they export. In order to do that, they have to borrow dollars that they can’t pay back. So every now and then, they have to default.

    I agree with Wolf. The IMF should not bail them out. “Investors” should be wiped out. Then Argentina should take a very cold, hard look at the structure of its economy and make some very wealthy and powerful people very, very scared.

    • Sneaky Pete
      Jun 15, 2018 at 9:54 am

      I think you are correct in explaining the fundamental reason why Argentina can’t print with abandon and get away with it like the US does, and other more advanced economies do. And they’ll only get away with it longer, but not forever.

      Maybe Argentina should consider itself lucky. At least they have a way to know when enough is enough. A market still exists to tell them so. But who will tell us here in the US, or those in Western Europe when enough is enough? There’s no market to say that. Only world-wide economic catastrophe will signal the money printers in the West that the jig is up.

    • nick kelly
      Jun 15, 2018 at 2:22 pm

      It’s an issue but nowhere near the core issue.
      If it was then New Zealand would be in the same boat.
      I’m pretty sure that NZ is even more concentrated in Ag.
      But NZ is fine. Now that is, after going bust and dumping its far- left gov in the mid-seventies.
      The core issue is governance and has been for a hundred years.

      The old, old mantra: ‘make the rich pay’ is not going to work any better than it has anywhere else.

  20. Gershon
    Jun 15, 2018 at 9:10 am

    Argentine truckers are going on strike to protest wages that do not keep pace with inflation. Neoliberal governments that impose austerity and hardships on their own people to facilitate bankster looting of sovereign nations and populations are going to face rising challenges from populists and nationalists fed up with seeing their countries treated as Goldman Sachs looting colonies while they fall further behind economically.

    https://www.bloombergquint.com/onweb/2018/06/14/argentine-truckers-begin-strike-as-inflation-eclipses-wage-gains

  21. GSH
    Jun 15, 2018 at 9:13 am

    It always comes down to who the creditors are. If US or European banks have again speculated in Argentina, they will be bailed out. Period. No question about it. Systemic risk has to be avoided – you know :) .

  22. Ishkabibble
    Jun 15, 2018 at 10:18 am

    I used to think that Japan was the canary in the capitalist-system coal mine. But maybe it’s Argentina.

    In short, the people of Argentina have to develop an economy that is independent from the rest of the world. In other words, Argentinians must somehow organize in order to produce all the stuff they need to survive while at the same time “paying” each other to produce all that stuff.

    ALL of the individual national economies of the world must NOT depend upon exporting or importing stuff — whether that stuff is TVs or weapon systems or terrestrial resources or food.

    The logic of this recommendation is easier to understand if one thinks of the entire world as only ONE nation with only ONE SINGLE economy. Looking at the world in this way, if importing and exporting is vitally necessary for ANY economy (including the aforementioned macro-economy) to survive and thrive, to and from just exactly WHOM would this true macro-economy “export” and “import” — the people of Mars?

    No. This one-economy-world (the one we are actually living in right now) will at some point HAVE to figure out how to “go it alone”. NOT having accepted that this is necessary is IMO exactly why “the world” is going through what it is going through today. And this is why all of the individual national economies of the world should IMMEDIATELY, DELIBERATELY start “figuring out” and then implement the design of an economic system in which they “go it alone” while providing a decent standard of living for their citizens.

    One might argue that a “fully globalized” world of individual nations importing from, or exporting to, each other would, in the end, be better prepared to go it alone “as a whole”. But all we have to do is look around at the real, fully-golbalized world that is in existence today to see how well that is going and the likely-horrible next steps in its evolution — war, more war and even more war.

    The US, once a great manufacturing powerhouse for the world, in the present more-competitive world, has now fully reverted back to employing a much older, simpler gangster, colonialist, war-based “economy” —“buying” (extorting/stealing) everything it needs from the rest of the nations of the world literally at the point of a gun.

    Very unfortunately for the US, the rest of the world is not going to put up with its “exceptionalism” and its “spreading freedom and democracy” and its mercenary-buying USD for much longer.

    Some of the other nuclear-powered nations of the world are already saying “no” to US diktat and USD and they’re actually surviving.

    In addition to not having figured out how to go it alone, there is another very important, but rarely mentioned, cause of the still-ongoing and IMO worsening “financial crisis”. Just as contemporary humans have come to understand that the human race has evolved over at least hundreds of thousand of years, we relatively-recently-born humans MUST fully appreciate that the present economic systems that we live within have ALSO evolved into their present configurations over thousands of years.

    Not only are genes of our genetic past residing within our present bodies, the genes (remnants) of our distant political and economic past are also residing within our present political systems and economies.

    For a bone-simple example of the latter, money and property in all their forms are passed from generation to generation as inheritances. The significance of inheritances in the present economies can not be over-stated. Most importantly, the present, for lack of a better expression, “buying power” of inheritance (of “old money” from perhaps even the very distant past) is, for all practical purposes, unlimited.

    Inheritance and all of its accompanying powers now function as a counter-productive “burden” that must be “carried” by the recently-born who do not have inheritances of their own. Not only can the latter be ordered to do the bidding of the inheritance-owners for literally both of their lifetimes (and corporations, as “persons” — as beneficiaries of the inheritance — may have infinite lifetimes), much of these inheritances (much lately in digital form) flies around the world in an instant as speculative, bubble-creating investments in property, currencies, weapon systems, etc. creating economic as well as POLITICAL havoc.

    Again, the negative impact of inheritance should obvious, yet, like so many other important things, is almost never a topic of discussion in the MSM.

    To sum up, an economic system’s design that requires imports, exports, slave labor as well as perpetual war; while at the same time “just happens” to make its citizens “unable to afford” to pay each other a living wage to produce the things and provide ALL the services that all citizens vitally need (including taking care of the sick, elderly or infirmed, and allowing senior citizens to retire with some basic necessities of life provided before they drop dead at their jobs) is fatally flawed.

    Even though we at the grassroots level have been carefully taught to find collective discussion of an alternative to the present economic design (in which a microscopic percentage of the population owns the vast majority of wealth and capital equipment) repulsive, that is precisely what we are going to have to do. THERE IS NO WAY AROUND IT. We are going to have to stop bitching to each other and begging the Elite to behave better, and start discussing what the “foundation stone” of a better economic system should be. If the outcome of that discussion is that “greed is good” and “growth is God” (when the already-unsustainable human population is 7.6 billion living/consuming individuals), all we have to do is stop talking and hold on tight to the design we’ve got right now, because those are exactly its “core beliefs”.

    • Sneaky Pete
      Jun 15, 2018 at 10:56 am

      Recovering from capitalism’s excesses are way better than what you have in mind. Sheesh. Frightening stuff!

    • nick kelly
      Jun 15, 2018 at 12:02 pm

      Next time you have a coffee ask where it came from.

  23. John
    Jun 15, 2018 at 11:05 am

    Argentina refuses to pay foreign debts on principle since 1827.To rub it in they even opened in 2005 The Museum of Foreign Debt in Buenos Aires.

    Maybe prospective lenders should visit this museum on a regular basis ?

    https://www.bloomberg.com/news/features/2015-07-17/-no-why-argentina-refuses-to-pay-its-debts

    Musea de la Deuda

    http://museodeladeuda.econ.uba.ar/

    It is not like Evil Bankers vs Good People.It is their national character.

  24. robt
    Jun 15, 2018 at 11:27 am

    Argentine economic policy strange loop analysis:
    1: Print money. Inflation ensues.
    2: Women go out in the street, banging pots and pans.
    3: Print more money
    4: Get bailout
    5: Default
    6: Go to 1:

    For the Peronista/Kirchner version insert 2a: Make it illegal to report inflation in the media, disband the department that calculates Consumer Price Index.

  25. Hans Schieber
    Jun 20, 2018 at 3:26 pm

    Patagonia
    My last trip over the border to Argentine was frustrating, sort of small Venezuela. Restaurants empty, with waiter more interested to talk to local friends instead of attending tourists from Chile, reduced meal variety due to supply issues, and now I hear lot about corruption even in regions, for example human sex-trade linked with officials.
    Will continue to invest outside Chile only in Peru.

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