Cry For Argentina - Part Two, The Gathering Storm

Two views of the Hippodromo (horse racing track) from Avenida Dorrego. I took the cloudy pic on Wednesday the 9th, and the sunny one on Friday the 11th.

Culos Al Pared

The phrase above means "asses against the wall" and is used by Argentinos to describe a situation of uncertainty and mistrust, in which nobody wants to let anyone get behind them, for fear of being stabbed in the back. Personally I'm reminded of an old book by Glen Cook, in which the hero Bragi Ragnarson describes events which overtake him as being "like the opening notes of some long, slow opera of doom". The picture above is intended to be somewhat allegorical.

Late on Friday afternoon, the dollar surged above 24 pesos. In truth, it would be more accurate to say that the peso dropped below one-twentyfourth of a dollar. When our present much-reviled President, Mauricio Macri, took office in December 2015, the peso was 12 to the dollar, or double its present value. 

I have no doubt the government has spent the weekend frantically twisting arms and making promises. I'm expecting that Monday will see the dollar back down to 23 or even 22. But the point is that they can no longer control it. The dollar will surge again, in another week or so, and will probably exceed 25 or 26. Inflation is out of control, and nobody knows where it ends.

Remembering The Corralito

In 2001 occurred one of the most traumatic events in the history of Argentina, the Corralito (untranslatable). To offer a quick and grossly over-simplified explanation, it went like this -

The last dictatorship ended in 1983. The first President after was Raul Alfonsin, who served from 1983 to 1989. The financial idiocy of the dictatorship had damaged the economy badly, and Alfonsin had to resign in 1989 because inflation was raging out of control. Then came Carlos Menem who sold Argentina down the river, privatizing publicly-owned businesses left and right, but got inflation temporarily under control. Next President was De La Rua, who inherited Menem's foul harvest. The economy spiraled totally out of control, massive hyper-inflation returned, and De La Rua resigned and had to leave the Casa Rosada (think Argentina's White House), in a helicopter to avoid the mob baying for his blood.

One of De La Rua's last acts before resigning was the Corralito. Basically it was like this - "Hey guys, you know that money you have in the bank? Uh, yeah, you can't have any of it."

Many Argentines at that time had accounts denominated in US Dollars. The government forcibly converted those accounts to pesos at a 1-1 rate. One peso for one dollar. But the peso was really only worth a quarter of a dollar. So those with savings in the bank lost 3/4's of their money, (or sometimes all of it). But the same was also done with debts, so those who owed money to the banks had 3/4's of their debt erased. 

In actual fact, the rich and the corporations were warned ahead of time, so they were able to move their money offshore. Ordinary people were never warned. This meant that the middle class lost 3/4's of their life savings, while the rich and politically well-connected were forgiven 3/4 of their debts, enabling them to go on a buying spree and snap up "distressed assets" at pennies on the dollar. Does any of this sound familiar?

And that explanation, my friends, as long and complicated as it may have been, was the grossly over-simplified version. If I had tried to give you a proper explanation, this blog entry would be longer than War & Peace, and twice as boring.

Why worry now?

So, why is this on everyone's mind right now? Because one of the scary events of last week was a visit to the boss of the Argentine Central Bank by Domingo Cavallo. The same Cavallo who was Minister of the Economy in 2001, and who was primarily responsible for the Corralito. Last we heard from him was December 1st of 2015, (nine days before Macri assumed office), when he was convicted of embezzlement, sentenced to 3.5 years in prison, and barred from holding public office for life. Now somehow he's out of prison and visiting the head of the Central Bank, perhaps to advise him on a new Corralito, or maybe just to give him a few tips on how to embezzle without getting caught.

Oh, we are so screwed...