“There is no clear reference price after the fall of the Argentine peso.” Tommy Samson explains why he has been forced to reduce his business amid the crisis in the Argentine financial market . His firm, based in Buenos Aires, imports surgical equipment for which he pays in foreign currency, and then sells it to local clients in pesos.
The last link in your business is collapsing, because the Argentine currency is in free fall . The peso has lost half of its value this year and 20 percent just this week. The fall threatens to wreak havoc on a US $ 640 billion economy, putting corporate supply chains and household finances at risk.
The crisis is also generating a black cloud over President Mauricio Macri’s prospects of winning re-election next year. Even the Argentine leader more aligned with the markets in more than ten years has had difficulties to recover the confidence of investors.
The unsuccessful efforts of Macri
Your government has tried. The central bank raised interest rates to 60 percent on Thursday, the highest in the world. A day earlier, Macri surprised the country, and investors, by requesting the International Monetary Fund to accelerate disbursements of the approved credit line. The agency said it was considering the request.
The $ 50 billion credit line achieved by Argentina in June was the largest delivered in the history of the IMF. The country was also under an agency program when it collapsed and fell into default on its debt in 2001. That event was the catalyst for more than a decade of populist left governments, which ruled at the expense of increased public spending, and isolation of global financial markets. All this ended with the election of Macri in 2015.
Maria de los Angeles Rezk voted for him, but “I would not do it again.” “I see that the country has lost the way,” said Rezk, a 46-year-old bank employee in the capital, shortly after buying some dollars, which she hoped to sell later, in the expectation that the peso will continue to weaken.
“They have to find a way to stop this fall,” he said. “The problem is that they do not know what to say.”
The warning signs began before the market crisis. The government projected that the economy will contract 1 percent in 2018, in what was a sharp decline from the 3 percent growth anticipated at the beginning of this year.
Inflation has remained above 30 percent and will accelerate due to the weakness of the peso.
Pablo Ricatti says he bought two trucks loaded with flour two weeks ago, “to protect me from an increase in prices.”
Your provider would usually give you financing for a couple of weeks, “but not now,” says Ricatti, who runs a company that makes bread for hamburgers and hot dogs. “I have to pay them immediately. And I will do it, “he said, because prices are rising” as we speak. “
Even much larger companies find it difficult to see the future.
TN & Platex is the largest textile company in Argentina. You can quote prices for buyers who have money to pay at this time, says CEO Teddy Karagozian. But the volatility of the currency means that it can not offer the usual 60- or 90-day credit to customers, Karagozian said.
If the collapse of the currency is slowing down the economy, government response measures will have the same effect.
Macri’s pre-crisis plan included a gradual reduction of Argentina’s fiscal deficit, from 6.5 percent of last year’s GDP to 3.8 percent in 2019.
Now, more drastic measures are expected. Finance Minister Nicolás Dujovne told reporters on Thursday night that the government will present its plan for a “substantially lower” fiscal deficit on Monday in 2019. On that day he will travel to Washington to meet with IMF officials. No more details were delivered.
In the face of accelerating inflation, government negotiations with unions over public sector salaries will be “extremely difficult,” Paul Greer, a fund manager at Fidelity International in London, said in an email. The executive predicted “general strikes of workers next year.”
Outside the office of the National Administration of Social Security, Anses, in Buenos Aires, union leader Rubén Garrido was part of a group of protesters. “Our salaries are constantly eroding,” said the 62-year-old man. And pension funds are being affected by the fall in the stock and bond markets, he said. “It’s not sustainable.”
Higher up the income scale, in an economy that is very unequal like most Latin American countries, is Alicia Quadri, a dance teacher and former star dancer at the prestigious Teatro Colón.
“I expected to go to Europe with my daughter at the end of the year,” he said. “With this kind of change, I will not do it.” I’ll wait for things to calm down. ” When and how will that happen? Quadri is not sure.
“They need all the major stakeholders, the best economists, to find a solution,” he said. “But not the IMF, or strangers. They will only make the country become more indebted. And they can not bear the consequences. “