Argentine Finance Minister announces end of currency controls and a devaluation.

[forest444]

Source: Buenos Aires Herald

Argentine Finance Minister Alfonso Prat Gay is expected to announce during a press conference to be held at 6 pm the implementation of two campaign promises by right-wing candidate Mauricio Macri: the lifting of dollar restrictions and a devaluation of up to 50% he refers to as "exchange rate unification."

President Mauricio Macri had already announced he would start lifting restrictions this week to access to U.S. dollars that had been imposed by the previous administration nearly four years ago. He has not specified the speed at which he will lift the restrictions.

Freeing capital controls will likely weaken the official peso exchange rate. Sources said they expect a speculative selloff to weaken the exchange rate to between 13.5 and 15 pesos to the dollar, versus the current rate of 9.83.


Read more: http://buenosairesherald.com/article/205080/end-of-currency-controls-to-be-announced-today

---

The "Finance" Minister, of course, is the same one holding millions in put options against the peso in a Swiss account (confirmed by Swissleaks). http://www.democraticunderground.com/110845605

This, then. isn't so much a devaluation as it is his writing a check to himself - at everyone else's expense: http://www.democraticunderground.com/110845684

[elias49]

1. Yep. Argentina and Venezuela

going full-boat capitalism. Fuck the little people.
Here's to all the folks that celebrated as Venezuela fell...f*** you.

[forest444]

3. It appears so. The Argentine right already pulled this in '59, '75, '81, '89, and '02.

And it was an unmitigated disaster for most people and the economy as a whole, each and every time.

A tremendous windfall for big landowners and the dollar-holding elite though (most of which they squirreled overseas anyway). Three guesses as to which candidate they backed this time.

[FLPanhandle]

5. Name one instance in economic history where artificial currency controls have worked.

They haven't. It's a smart move.

[forest444]

9. Well, there are ways and ways - and this, historically, has usually been the wrong way.

Unless, of course, the intent is to manufacture a windfall for big agro and dollar-hoarding upper class. Both groups were the very people who bankrolled Macri's far right candidacy (with a major assist from the media), such this can also be described as payback.

That's why I mentioned those examples of past mega-devaluations, which pretty much always had the above effect with much less of the "upside" (mainly promises of increased portfolio investment - read: laundering, which Macri changes also seem tailored to appeal to). They did so, moreover, at everyone else's expense. A jump in inflation, lower real wages, and a sharp recession was all most people got out of it.

Even Bloomberg News came out against this: http://www.democraticunderground.com/110845637

When, on the other hand, changes like the kind you mention were applied incrementally, even if somewhat aggressively so, the medium-term results were far more positive.

[totodeinhere]

4. The problem is that the little people weren't doing so well under the socialist

government either. Inflation and commodity shortages hit the poorest people the most.

[forest444]

10. The Kirchner administrations were only as 'socialist' as Bernie is; people really were doing better.

Last edited Thu Dec 17, 2015, 10:16 AM - Edit history (1)

But big landowners and the tax-evading elite hated being made to pay taxes for the first time. And they were quick to get Argentine media - and by extension foreign media, which usually copied their Breitbart-like hit pieces verbatim - to throw all the mud they could. Red-baiting was a big part of that.

The fact is, that from 2003 to 2015 real incomes for the working and middle classes increased dramatically - by 72%, even using the higher "private" (often politically-motivated) inflation estimates. The number of middle class households actually doubled (and that's by all estimates). Shortages were actually rare (you're thinking of Cuba and Venezuela - a whole other kettle of fish).

Very few developing countries, and none in Latin America, achieved improvements of that scale. http://www.buenosairesherald.com/article/194579/argentinas-middle-class-doubled-in-ten-years-us-report-shows

Whatever mistakes were made (and there were a few, notably the dollar restrictions enacted in 2012 to curtail a media-fanned run - and those were later eased), Cristina Kirchner was actually better for business, and the working man. The way it should be, I think.

Average profit margin in publicly traded companies was 39% in 2014; 57% in public/private partnerships.
https://translate.google.com/translate?hl=en&sl=es&tl=en&u=http%3A%2F%2Fwww.tiempofiscal.com%2Fvernota.asp%3Fid_noticia%3D4539

After stellar 2013 and 2014, stocks up 53% so far in 2015 (until Macri's election, that is).
http://www.buenosairesherald.com/article/140375/merval-breaks-new-record

Press shills and right-wing ideologues may be happy; but I think Argentine business is starting to miss the Kirchner era already. Since Macri was (narrowly) elected, stocks are off 9%.

Yes, there has been a lot of inflation since 2007 or so; but keep in mind that 20-25% is actually quite moderate by historical Argentine standards, and that wages have increased by close to 30% a year since 2007 as well. They were better off in real terms every single year but one (a slight decrease in 2014).

That all ended the day Macri was elected (November 22). Even before taking office (December 10), wholesale prices already began to skyrocket on the mere anticipation that he would devalue the peso by close to 50% as a gift to his backers. Prices are expected to rise even further now that the devaluation is, in fact, taking place (many Macri voters had been convinced by the media that he "would never do this to them&quot .

And look who else is happy: http://www.democraticunderground.com/110845191

[totodeinhere]

12. I was referring more to Venezuela. The comment I replied to mentioned both countries.

n/t

[forest444]

13. I see. My apologies.

It was a favorite trick of right-wing media to conflate the two (often copied verbatim from right-wing Argentine media). It's a milder but similar tactic to the one Republicans use to make their voters believe that Scandinavia is like North Korea.

Part of the irony, of course, is that now, under free-market darling Macri, they finally have the massive inflation, eroding real wages, and shortages they were trying to provoke when Cristina Kirchner was in office - and that it's by their own hand.

There's a joke going around in Argentina right now:

Macri is speaking to a correspondent, explaining to him that his devaluation is actually unifying the exchange rate as a "single dollar."

"How so?," asks the skeptical man.

"Because," Macri explains, "after we lift all dollar controls, there won't be a single one left!"

That's the part they never told the many middle class Macri voters who thought they'd hit the jackpot buying unlimited dollars at the bank: 'exchange liberation' means that banks and big business (especially Macri's friends) get first right of refusal. The middle-class saver gets the inflation.

Bush's 'ownership society' scam, Argentine style.

[Judi Lynn]

8. Great post. So good to see it. Thanks. n/t

[forest444]

11. You bet.

A lot of it is a question of degrees. It remains to been how far Macri is willing to see this go.

It could easily snowball into an all-out run on the peso, given the rapaciousness of some in the speculative finance sector in Buenos Aires. That's what usually happened when past right-wing governments did this - although occasionally they were able to control the panic snow ball. I certainly hope it's the latter.

[Warren Stupidity]

2. The last time the neolibs ran the government in Argentina they completely wrecked the economy.

Why do people have such short memories?

[forest444]

6. Alas, the power of big media.

Macri was their darling; and even so he won by 2.7% - the narrowest win in Argentine electoral history.

Outside his hard-right, xenophobic base, a lot of them are sorry now, I can tell you that. Many of them really didn't believe he'd do this.

[elias49]

7. OK. So Prat Gay is a former JPMorgan currency strategist.

I bet this works out just great!