The Unfortunate, Uncertain Predicament of Argentina’s Economy — Post Visit Perspectives

 

By:  Austin Kavanaugh, Brian Winstanley, Jack Tuttle, Drew Weaver

 

As we took the ten-hour flight to Argentina, we had many expectations and presumptions about what the financial and economic conditions of Argentina would be like. We felt black market exchanges would be widely accepted and open to anyone at any time, with little risk involved in the exchange process. We also assumed there would be major profit potential through the dual exchange rates. Once we arrived in Buenos Aires, these assumptions and predictions were challenged.

 

Our initial perceptions of the exchange rates were far different than what we expected. Firstly, the unofficial exchanges were much less prominent and more taboo than we thought they would be. Our first exchange with the unofficial rate occurred after our first meeting shortly after arriving. The exchange was carried out behind closed doors in our meeting room and seemed to have an element of secrecy. This was not expected and began to open our eyes with the citizen’s relationship with the Argentine government. Also, after talking to Pablo, it became apparent that exchanging pesos for dollars at the official rate would be difficult, if not impossible. Because of this, we realized making money through the exchanges would not be possible.

economy 1

 

Aside from the exchange rates, we also learned some interesting, new information about the Argentine economy while in Buenos Aires. About 40 percent of the entire economy is under the table. This was a culture shock to our group, as something like this would never happen in modern American economics. This fact also further developed our view of the Argentine Government’s relationship with the people and reality of the economic situation. The government seems rather unaccepting of the true economic situation in their own country. We also learned the Chinese have one of the largest, most influential Mafia in Buenos Aires and control much of the ‘under the table’ economy. This is an interesting parallel with the Chinese FDI and portfolio investment in the Argentine economy, something we also became aware of during our time in Buenos Aires. China has a much larger presence in Argentina than we expected, both officially and through the black market.

 

The people in Argentina seem much more accepting of the adverse economic conditions in the country than any American would ever be. In a conversation with Pablo, this fact was apparent. He told us that many people in the country expect a recession approximately once a decade. While in the United States, we work to prevent economic downturns as much as possible, and work with a mindset of unlimited economic growth, many people in Argentina expect and are almost accepting of economic downturn. This is one of the biggest cultural divides that we observed between the United States and Argentina. An interesting fact we learned that speaks to the economic situation in Argentina is that many people see psychologists because of the economy. This is something we could have never learned in America and is provides insight into one of the unfortunate sides of Argentine culture.

economy 2

We feel that the acceptance of bad economic conditions by the people of Argentina is a reflection of the inability to execute good economic policy by the country’s government. Many people feel the government over-subsidizes many industries, crippling free markets. They are also unaccepting of the true economic indicators like inflation. The true inflation in Argentina is in excess of 20%, but the government puts out real inflation numbers around 18%. Wage rates are determined by this government rate, so people’s purchasing power is constantly being reduced, creating more economic problems for the region.

 

economy 3

Despite this, we feel that Argentina still provides a lot of opportunity for investment as creativity and innovation is extremely high, specifically in the tech industry. Despite the historical and current poor economic situation, we think Argentina is close to breaking through. The middle class is constantly growing (see suburban population image) and there is a lot of hope involved in the current presidential election. It will be interesting to see the future of Argentine finance and economics. Despite the historical precedent, we feel the future is bright.

 

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