A Stormy Affair with the Dollar

What is this you say about a cent? (…) In England they have a piece they call a farthing, which is about half a cent (…) But then, there is France; they have a small coin there which they call a centime, and these go five to the cent or there-about.

Robert Louis Stevenson, “The Bottle Imp”

On March 31^st, 2019, the Argentinean football league crowned a new champion. Among the many posts on social media that commented on the event, one tweet asked: “how much was the dollar [in Argentinean pesos] the last time your team won the league?” and listed the value of the American currency next to the names of the teams that had alternated the first place over the last two decades. With Racing Club, the new champions, the dollar was almost 44 pesos. In 2018 Boca won the league when the dollar was worth 25 pesos. River, the champions of 2014 won with the dollar at 8 pesos; Vélez in 2012, with the dollar at 5. In 2010 the winning Estudiantes team overlapped with a dollar at 4 Argentinean pesos. Independiente, Racing’s archrival, had won the championship for the last time in 2002 with the US dollar worth 3 pesos.

The tweet inevitably concealed some sass: the cheaper the dollar, the more years had passed since your team won the league. Leaving this aside, two things stand out. First, the price of the dollar in Argentina is so ubiquitous that it is even used to tease football rivals. Second, that the peso plummeted during the current decade in Argentina and the dollar had increased eleven times in value.

No new champion of the league was crowned yet, but the dollar still took another leap and surpassed the 60 pesos mark right after the results of August’s primaries were known. The primaries (PASO for the Spanish acronym) in Argentina are simultaneous: all candidates from all parties run in a preliminary election that is mandatory for all. However, parties can decide by themselves who their candidate is with no internal competition. All parties had decided their candidates already, so the PASO became a mock general election, whose results are supposed to anticipate the results of October’s elections. The winning opposition ticket, which includes former president Cristina Fernández de Kirchner (CFK) for vice-president and her former chief of staff Alberto Fernández running for president, obtained almost half of the votes. This made them, by far, the favorites for the October general election and indicates the return to government of the coalition that ruled the country between 2003 and 2015. One of the first variables to respond to such a surprising result was the price of the dollar.

Why is the dollar so present in Argentinean daily life?

When Mauricio Macri took office in December 2015, the price of the dollar circled 15 pesos. By the end of May 2019 it was almost 46 and settled at around 60 by September. Argentineans coined the term #Macrisis to refer to the economic problems coupled to these devaluations, which once again heavily hit their pockets. It is now frequently used in conversations and social media to refer to everyday decisions around saving habits and food choices. People blame on #Macrisis things as diverse as mass layoffs or the choice of a domestic vacation over one abroad.

To understand why the dollar is such an important factor in the life of Argentina’s domestic economy we need to look back further than this latest iteration of crisis. According to data of the U.S. Department of Treasury, Argentina is the country with the greatest amount of dollars per capita in circulation within its national borders after the United States. Researchers such as Mariana Heredia and María Soledad Sánchez provide an account of how this came to be. Argentinean love for the US dollar was born and grew during the 1970s, in parallel to increasing inflation and concerns around it. Between 1975 and 1991, inflation rates showed an average of three digits per year. To put things in perspective, while between 1972 and 1976 inflation in Japan, France, and the United States increased from 10 to 25 percent, in Argentina it was almost always above 100 percent per year for the period 1975-1991.

Furthermore, there were two hyperinflationary events. In 1985, prices increased 600 percent. In 1989 and 1990, prices increased 3,080 and 2,310 percent respectively. Imagine the money in your bank or pocket would let you buy less and less things every week or month, until you found a good in the market that would protect your funds against that depreciation. That good was the dollar.

The military dictatorship that took over in 1976 initiated the generalized use of the dollar for domestic transactions, a measure that has stuck until today. To be shielded against inflation, contracts and leases were signed in dollars and real estate sales were paid with dollars. This, combined with the lag in an exchange rate that could not keep up with the inflation, made the green currency a very appealing and convenient good in the market. Not only did local elites expand their financial and commercial operations to US dollars, but so did the middle class. Professionals, employees, and SME owners resorted to the exchange market to save or invest in dollars.

Between 1991 and 2001, President Menem imposed an exchange parity by law and made one dollar worth one peso. Such parity became unsustainable and the system collapsed in 2001 when the state defaulted and devalued the currency, leading to a crisis that buried 55 percent of the population below the line of poverty. A few years of moderate economic prosperity followed, but the dollar regained prominence when inflation resurged in Argentina around 2007. The situation escalated and in 2011, soon after CFK’s reelection, the first restrictions to purchase foreign currency were introduced.

By 2014, these restrictions (popularly known as “the clamp”) were in full functioning and generated multiple exchange rates. The “official” exchange rate was inaccessible for consumers, as banks would buy dollars at this price but not sell. There was an exchange rate for savings, worth the official price plus a deductible surcharge of 20 percent and capped to a percentage of the declared income. There was a “credit card dollar” for expenses abroad at the official rate plus a deductible surcharge of 35 percent for tourism. Finally, in the black market, the parallel or blue dollar usually remained around 50 percent more expensive than the official price.

What this complex exchange system did in practice was subsidize the savings and tourism abroad of the middle and upper classes at the expense of the state. Informal workers, in contrast, had to put whatever savings they could gather into the black market or see them pulverized by inflation.

2014 was a key year for two additional reasons: first, inflation reached an annual rate of 40 percent, according to private estimates. Second, Argentina entered into a voluntary default after an unfavorable New York ruling regarding a conflict with bond holders.

What is the purpose of all this context? The price of the dollar and people’s access to it was an active element of Macri’s campaign, as he made the technocratic promise of bringing the “best team in the last 50 years” to fix these imbalances. But instead, things have worsened: inflation seems to have spiraled out of control reaching 47 percent in 2018, the highest in 27 years. It is expected to reach 55 percent in 2019 after the latest shake. This has accentuated the general problem of stagflation (stagnation + rising prices), where the only thing that grows is unemployment. Poverty increased by the end of 2018, reaching 32 percent of the population (enough to return to the levels of 2014-2015). This conjunction pushed Argentina to the top (discounting Venezuela) of the private Misery Index, which measures the combination of unemployment, poverty, and inflation. This does not mean that Argentina is the second worst place in the world, but speaks volumes of a context in which poor heads of households have to choose between paying rent, keeping up with augmenting utility bills, or feeding their children, showing that there is not much room for the austerity set in motion by Macri’s government since he took office and reinforced later by the IMF’s 2018 loan.

All these rates and indexes might overwhelm readers but they are important for two reasons. First, as anthropologist Federico Neiburg indicates, Argentina has a history of turning specialized, expert, and in some cases private indexes into public numbers. That is, economic indicators transcend the specialized fields in which they were developed and reach a high degree of circulation and visibility among heterogeneous spaces and agents, becoming socially relevant to make sense of everyday life. In the wake of the 2001 collapse, sociologist Martín De Santos recalls an Argentinean cab driver commenting on the raising country risk, a private index that measures how risky a country is for investors by looking at how much more interest the bonds of a country pay in comparison to the US treasury bonds. Even if no one knows how statistics such as these work, they infiltrate everyday life — and have regained public visibility after the bank run and devaluation of 2018. The latest iteration of this phenomenon occurred in the days before and after the PASO. The last business day before the PASO, the largest national newspaper remarked how well Argentinean bonds, stock markets, and country risk were doing in face of what they expected to be an even election. Starting the day after, on the contrary, both the dollar and country risk numbers skyrocketed and the stock market plummeted; which motivated the resignation of the minister of economy and finance.

Second, the transparency of public indexes has marked a stark contrast between Macri’s government and its predecessor. Between 2007 and 2016, the national institute of statistics (INDEC) was intervened by the executive to manipulate inflation rates. While INDEC would present an accumulated inflation of 83 percent for the period 2007-2013, private measurements would locate it around 300 percent. In tune with this, CFK’s minister of economy stated in 2015 that his administration did not measure poverty because it was “stigmatizing.” With no respect for factual truth whatsoever, the chief of staff affirmed that same year that Argentina had less poverty than Germany.

Making these numbers transparent, however, has taken its toll. When indicators of foreign exchange rates, inflation, poverty, country risk, US interest rates, unemployment, recession, and even schemes of gradual raises in prices of utilities or transportation permeate the media and conversations on a daily basis, the public is reminded of the anxieties of domestic economic life in Argentina. Macri’s government, in other words, is showing its citizens how unable they are to fix all these problems. Such panorama has only intensified after the PASO.

Macri’s supporters blame the crisis on the “heavy inheritance” received from CFK, and in contraposition highlight progress in public infrastructure programs, like sewage systems in precarious neighborhoods and improvements in transportation. Macri’s fiercest opponents, on the other hand, compare the #Macrisis to 2001. Structurally, this seems exaggerated or ill-intentioned, but filled with a dramatism frequent in Argentinean political campaigning. Just like Argentina was not bound to “become Venezuela” if kirchnerismo won again in 2015, the country’s vital signs are healthier now than in 2001. Symbolically, however, the sudden devaluations and bank run of 2018, plus the resort to IMF for funding after almost two decades (even when it is a softened IMF that authorized the use of its funds for social spending), has a certain turn of the century reminiscence. Such reminiscence was accompanied by a “reprofiling” of the national debt that the government announced after the PASO, which rescheduled payments. In some kind of self-fulfilling prophecy, and within Argentina’s inflationary history, any movement of the dollar is likely to be accompanied by a general surge in prices in a way that does not happen in other economies, impacting the economic welfare of the whole population.

This history is already a central part of the 2019 electoral campaign. The Fernandez’s team seems to propose a more socially conscious model to fix the Argentinean economy, based on labor and production and far from financial valorization. This is shared by other Peronist opposition leaders who blame a neoliberal model for the volatility of Argentina’s currency and economy. It is not clear how they would carry out such a model, given that Peronism dominated the scene since 1989 and failed repeatedly to enact an economically sustainable and socially viable project.

One thing is certain: everyday economic life has gotten worse, and not better, under Macri’s presidency, whose support in this year’s elections might be due to a rejection of kirchnerismo/peronismo rather than based on concrete, material improvements. Macri’s side states that the crisis is the consequence of trying to repair an imbalance that is decades old, a sacrifice that has to be made to definitely amend the country’s problem. The post-PASO upheaval ignited another chapter of the same blame-game of the last four years: the opposition attributed it to the incompetence of the government, while the president blamed the bank run on the lack of confidence that a return of kirchnerismo provokes in investors. In practice, everyone in Argentina simply became 20 percent poorer right after the landslide victory of the Fernández-Fernández formula in the PASO.

All the sacrifice, in the end, has brought no reward. Instead, the country is heavily indebted in foreign currency and has re-imposed some mild currency controls, which indicate that the dollar will remain relevant for years to come and that this affair is far from over.

Santiago Mandirola is a Ph.D. student in sociology and history at The New School for Social Research. His research examines how the sophistication of consumer credit scoring technologies in South America reshaped markets and opened up new possibilities of gain for the actors involved. He holds an M.A. in sociology from The New School and a B.A. from the University of Buenos