Argentina: Ditching the dollar

BUENOS AIRES, Argentina — It was an awkward moment for Anibal Fernandez, Argentina’s former Cabinet chief, when President Cristina Fernandez de Kirchner interrupted herself during a recent speech to order him to convert his savings from dollars to pesos.

Days earlier, Mr Fernandez had defended new restrictions on purchasing greenbacks and told Argentines they should start to “think in pesos.”

But he was later caught out in a radio interview when pushed on why he had chosen to save in dollars. “Because I feel like it,” he eventually responded. “I do what I want with my money.”

The dollar is legal tender in Argentina and is the preferred currency for real-estate transactions. Many Argentines also save in dollars as they view it as safer than their historically unstable peso.

But on Friday morning, the country's central bank announced it will bar Argentines from buying dollars for purchasing property and for saving.

The currency controls form part of an intensification of President Fernandez de Kirchner’s interventionist policies. These also include severe import restrictions and the nationalization of YPF, Argentina’s biggest oil company, in April — moves that have caused jitters among foreign investors and angered ally governments overseas.

Now, some Argentines fear the economy will go full peso — known as “pesification” or “de-dollarization.”

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Axel Kicillof, the economy deputy minister and rising star of the president’s inner circle, has denied that plan is afoot. But recent moves seem to suggest otherwise.

This month, the government introduced checks that oblige Argentines to inform the federal tax agency, known as AFIP, when they travel abroad. They must disclose in which currency they paid for the holiday and a string of other details.

Last October, the Fernandez de Kirchner administration imposed stringent foreign exchange controls. People or businesses wanting to purchase dollars are now vetted by the tax agency, with many requests being refused.

Manuel Jimenez, a barman in Buenos Aires, has saved dollars stuffed under his mattress. “I’m not changing them to pesos,” he says. “I’m holding on to them because I may never get access to dollars again.”

The government says the restrictions are necessary in order to combat money laundering and stem capital flight.

Argentina lost around $30 billion in illicit capital flight last year, according to figures from the Bank of Buenos Aires.

But Leandro Bullor, an economic historian at the University of Buenos Aires, told GlobalPost that the president needs to replenish dollar reserves because of a $2.2 billion bond payment due in August.

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Inflation, which independent economists say stands at 25 percent, is another problem the government needs to confront.

“In terms of inflation, Argentina is like a recovered alcoholic,” Alberto Fernandez, another former cabinet chief, told a leading Buenos Aires newspaper. “But we’ve never had a problem with the dollar like there is today. Cristina has spent a lot of the reserves.”

(He was referring to the president, whom Argentines often call either by her first name or her name by marriage, Kirchner, from her late husband and predecessor, President Nestor Kirchner.)

The president announced she would convert her savings into pesos, claiming it is more profitable. But it will take more than that to convince Argentines, who distrust the peso after enduring a history of economic crises, inflation, and devaluation.

The informal currency market is flourishing with money changers in the center of the capital offering 6 pesos to the dollar. The official rate of around 4.50 “can’t be sustained much longer,” says Bullor, who insists devaluation is on its way.

The dollar restrictions have sparked a series of “cacerolazos,” a “casserole” protest where demonstrators bang pots and pans in the street.

That clamor became famous here during Argentina’s financial collapse of 2001, but it can be traced back to the early 1970s in neighboring Chile, where it emerged as a form of protest against Salvador Allende’s socialist government. Cacerolazos have also spread as far as Spain and, recently, Quebec.

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Lucho Bugallo, an organizer of the recent Argentine protests, claims that 7,000 people gathered mid-June in wealthy neighborhoods of Buenos Aires before marching to the presidential palace.

Local media, however, reported much lower numbers.

The protests are instigated by Argentina’s middle class. They’ve turned against the president because of alleged corruption — including a scandal involving the vice president — and the soaring inflation rate, denied by the government.

Holding up signs that read “It’s OK to think differently,” they also claim Fernandez de Kirchner is trying to quash the free press and say street crime is on the increase.

“We’re tired of an opposition that crosses its arms and does nothing,” Bugallo, founder of the website Argentina Contra K (Argentina against Kirchner), told GlobalPost. “The streets are a place for us to unite.”

Bugallo also claims that the protests — coordinated through social networks — hold more legitimacy than mass rallies orchestrated by political movements aligned with the government.

In May, around 30,000 people celebrated outside Congress when the bill to expropriate oil company YPF from Repsol, the Spanish energy giant, was passed.

“Kirchnerist groups create an air of fanaticism and have huge organizational structures to encourage members to rally,” Bugallo says. “But people join the cacerolazos of their own will.”

The president has pursued a policy of social inclusion and neo-Keynesian state intervention, analysts say.

“These protesters crave a return to the neoliberal policies of the 1990s,” says Bullor, the economic historian.

The recent cacerolazos are less significant than those triggered by a government bill to increase export tax on farmers in 2008. But they still represent discontent with Fernandez de Kirchner’s policies after she was re-elected with 54 percent of the vote last October.

Since then, the president’s approval rating has dropped significantly, from around 63 percent to just 39 percent, according to polls.

While the lower classes continue to back her, others view the manner in which she nationalized YPF — by emergency decree — as undemocratic. Opponents say her social policies, including a universal child allowance, are skewed toward the short-term.

Import restrictions are criticized by the United States and the European Union. The latter has taken steps to enforce trade sanctions.

Fernandez de Kirchner has also renewed claim to the Falkland Islands, which lie 300 miles off the coast of Argentine Patagonia but are controlled by Britain. Her push for the Falklands has sparked a fierce war of words with the islanders and the UK, 30 years after Great Britain thwarted an invasion of the islands by an Argentine military regime. Critics say the new claim to the Falklands is an attempt to whip up nationalist pride and deflect attention from economic problems.

They also make comparisons with Venezuela, which suffers from high inflation as well. Venezuelan President Hugo Chavez has nationalized industry, employed a protectionist economic policy, spent heavily on social programs for the poor — and enforced dollar restrictions.

El Cronista, a business newspaper critical of the Argentine government, published a recent article under the headline: “Argenzuela.”

“Like in Venezuela, Argentina’s economic policy has already scared off investors,” says political analyst Jorge Castro. “And it now risks alienating the country entirely.”

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