Argentines are desperate to gain access to the US dollar, the WSJ reports. Cuevas (caves) where residents can exchange pesos for dollars at black-market rates are flourishing, and people are trying all sorts of tricks to profit off of an economy in crisis.Why is this happening? Argentina is experiencing severe inflation: 10.8 percent if you believe the government, upwards of 25 percent if you believe the private economists the government has threatened into silence. As a result, people are rushing to buy up dollars, and the government is trying everything it can to stop wealth from leaving the country:
Buying dollars for savings is banned, and authorities make only small amounts of foreign currency available for travel abroad. Travelers must submit an online request to the national tax authority just days before leaving, and they usually receive approval for much less than they requested.
The problem is these measures aren’t working. The official exchange rate for pesos to dollars is 5.14 to one. But on the currency black-market, it’s 8.44 to one. Enterprising Argentines have found a way to benefit from these rates:
Dollar-flush Argentines traveling overseas will rack up purchases on their credit cards, which are converted into pesos at the official exchange rate. Once back home, they pay their credit-card bills with pesos bought on the black market, for a savings of about 40%.
The government has upped the tax on these credit card purchases from 15 to 20 percent, but that hasn’t stopped the currency flight.This is the latest iteration of a sad cycle in Argentinian politics. A new leader comes to power promising a return to the country’s past glory. A wave of optimism sweeps the populace as the country’s natural economic advantages (i.e., its natural resources) come to the fore. But bad policy, economic mismanagement, and weak leadership conspire to squander that potential. How many times can this merry-go-round go round?[Argentine peso and dollar bill images courtesy of Shutterstock.]