Friday, June 1, 2012

Is Argentina Headed for Hyper-Inflation?

Last time I discussed Argentina was back in April, I warned about the two women controlling the money printing in the country.

I wrote back then:
Two women have taken control of Argentina's central bank and are about to use it as if they are on a weekend shopping spree.. Cry for Argentina
My worst fears are developing. Argentina's inflation rate is at 23%. According to Businessweek, it is the second highest in the world (Only Venezuela has a higher rate).

The soaring inflation is causing a flight out of the currency, which, you guessed it, is causing the government to put currency controls on, preventing Argentinians from exchanging their pesos for dollars. From Businessweek:
Argentine lawyer Julio Cesar Duran wanted to exchange a pocketful of pesos for $10 to give as a gift to his two grandsons. With the government clamping down on dollar purchases, the tax agency rejected his request.

President Cristina Fernandez de Kirchner’s tightening oversight of the foreign currency market is hitting international companies as well as average Argentines, who have traditionally bought dollars to protect their savings in a country with a history of devaluations and hyperinflation. In the unregulated market, the dollar costs about 40 percent more than the official rate of 4.47 pesos, a record gap.

“I wanted to buy $10, not $10 million, and the tax agency says I can’t,” Duran, 59, said in a telephone interview from Mar del Plata, a seaside town in Buenos Aires province, where he tried to buy the dollars at an exchange house last week. “I didn’t intend to do something that would destabilize the country’s finances.”...

The purchase of dollars by individuals and companies drains central bank reserves. With $21.5 billion being pulled out of South America’s second-biggest economy last year, up from $11.4 billion in 2010, Fernandez decided to staunch the losses following her October re-election...

Within days of winning a second four-year term, Fernandez ordered mining companies including Xstrata Plc (XTA) to keep export revenue in the country, told insurance companies to repatriate investments and gave the tax agency the mandate for limiting dollar sales. The government said the moves were needed to limit money laundering and terrorist financing. In April, Fernandez banned Argentines from using their ATM cards to withdraw dollars abroad from peso-denominated accounts.

Bottom line: The latest actions of the Argentinian government point to what Ludwig von Mises warned about. There is no half way method between free markets and central planning. One step on the road to central planning leads to another. In this case, the central bank money printing is now leading to currency controls.

There's also a second lesson here. If you live in a country that is becoming more totalitarian, get your money out of the country well before the draconian currency laws come in that will prohibit you from moving funds outside the country.



  1. There is even more: FROM this week, any Argentine wanting to take a foreign holiday must not only provide his tax identification-number but also tell the tax agency (known as AFIP) where, when and why he is going.

  2. seems like a trip to Brazil, Chile or Uruguay is in order.

  3. It should be kept in mind that there are individuals who, in the event of hyperinflation, hold goods, commodities or other currencies that come into high demand as an alternative to the government's paper will find themselves in a very good position vis-a-vis being able to cut lucrative deals with creditors.

  4. Wait a minute.

    After ALL the abuse by the FED and the GUV, is the USA ***STILL*** the last man standing?
    In other words, are those socialist bastards winning a war of attrition?

  5. As a practical matter what good does it do to get your money out of a country like Argentina if you can't do anything with it after that? Once the government clamps down with strict currency controls real money can't move in or out. Then your screwed anyway.
    Don't cry for me Argentina, cry for yourselves you socialist suckers.

  6. If any argentinian is reading this and is interested in moving his/her money out I recommend looking into Bitcoin, apart from the typical move to gold and silver. Bitcoin can be easier to move around since its electronic. There are Bitcoin exchanges in Argentina and they will allow to move your money bypassing the government controls.

  7. The upside to all of this would be to holders of non-Argentine currency who are interested in buying Argentine assets like real estate. There is no better time to buy a condo or other real estate than during a hyper inflation episode because while the nominal value is going higher, the real vale of the asset plunges and become steals to non peso holders.

    1. Especially if you can get a fixed interest loan denominated in Pesos. You could get the property virtually for free.

    2. No, Gentlemen, All Real Estate transactions MUST be MADE with dollars----- those by a foreigner (who must first get a special ID):
      for example, a 1,000,000 DOLLAR apartment CAN ONLY be bought in DOLLARS-------whether this also applies to Argentinians themselves I am unclear, but I believe they have been barred as soon as identified as citizens.
      Therefore, for an Argentinian that apartment will cost ROUGHLY FIVE MILLION PESOS.........
      Perhaps Cristina will suffer the fate of her husband, and a large percentage of her people will have their prayers answered...........