Argentines Dust Off Their Survival Skills
Jorge Blanc has seen it all before. In 1989, the owner of a small camera store in Buenos Aires watched in disbelief as the government seized his entire savings, some $60,000, and converted it overnight into bonds of dubious value so the bureaucrats could pay their bills. He's not about to be burned again. As Argentina teeters once more on the brink of insolvency, Blanc, 53, is spending his money as fast as he can. He even dipped into his retirement savings to buy $10,000 worth of developing machines--for customers he doesn't have. "At least this time I'll get something real for my money," he says.
With the government on the verge of defaulting on its $132 billion debt and the 10-year-old scheme that ties the currency to the dollar under threat, Blanc isn't the only Argentine dusting off survival skills honed during previous crises. For months now, they've been trading in their pesos for greenbacks and stuffing them under their mattresses or spiriting their money overseas. A total of $1.3 billion fled the banking system during a single day in November.
To stop the flight, on Dec. 1, Economy Minister Domingo Cavallo took the extreme step of imposing capital controls. But the new measures could in fact accelerate the outflow, as every account holder attempts to withdraw the maximum amount allowable. "The new limits are more than enough to cripple the banking system," says Christian Stracke, emerging-markets strategist at Commerzbank Securities in New York.
To get around the monthly restriction of $1,000 per account, depositors opened multiple accounts--until authorities set a limit of two per person. The local press reports that 500,000 new accounts sprang up in early December.
Lessons learned during the days of hyperinflation in the 1970s and 1980s are coming in handy. Despite the recession, domestic sales of durable goods, everything from television sets to cars, are surging as Argentines look to sink their savings into something of enduring value. At Tizado Propiedades, a large Buenos Aires real-estate brokerage, the number of property sales in progress is up 60% this month. "People are buying homes out of fear, not necessity," says Guillermo Rivanera, vice-president of Tizado.
ADR GAMBIT. Other schemes require a bit more financial savvy. Buenos Aires' normally sleepy stock exchange jumped 25% in the week following Cavallo's announcement. The short-lived rally was prompted by investors who loaded up on shares in a handful of Argentine blue chips, then converted them into their corresponding American depositary receipts, sold them on the New York Stock Exchange for dollars, and parked the proceeds abroad. Since few U.S. investors want these shares, Argentines have to sell their ADRs at a loss. But apparently those in search of a safe haven for their money are willing to pay a price.
Big business is also having to jump through hoops. To get their cash out of Argentina, local subsidiaries of foreign companies are attempting to prepay debts owed to their parent companies. But all requests for funds to be remitted abroad must now be approved by the Central Bank. Industrias Metalurgicas Pescarmona, a company that builds power plants, says the added red tape caused it to miss some $16 million in payments to bondholders in December.
Argentines' coping strategies, of course, are making the crisis worse. Over 18% of total deposits has exited the banking system since July. Cavallo promises that the measures imposed to halt the exodus will last only 90 days. But the three-hour lines stretching outside Buenos Aires banks are a testament to how few believe him. "People here aren't stupid. They know that the ones who trust the government are the ones who get taken to the cleaners," says Christopher Ecclestone, an economist at Buenos Aires Trust Co., a local investment house. The disappearance of that trust, hard-won over a decade of financial stability, is as important a loss to Argentina as the flight of its money.
By Joshua Goodman in Buenos Aires