As Marcelo Capobianco inspected a freshly hung calf carcass on a hook in his small butcher shop on the outskirts of Buenos Aires on Tuesday, he acknowledged that he could barely make any money from the premium beef.
It comes as meat prices have increased by 5 percent and the circulating price of the Argentine peso has fallen by 12 percent, hitting customers’ purchasing power since his preferred candidate Javier Millay was elected president of Argentina two days ago. This is because the.
Capobianco said the company has already raised prices multiple times in recent months and is reluctant to pass those costs on to customers again. “It’s already proving difficult to sell at this price,” he said.
Everywhere in his shop are signs of the escalating economic crisis that has shaken Argentina and propelled Mr. Millay, a self-described “anarcho-capitalist” liberal who wants to replace the peso with the U.S. dollar, to Argentina’s top job. There were signs of percent inflation.
There was a price wall chalked to allow for frequent price hikes. Every morning, the counter livestreams the day’s prices to customers watching on Facebook. And Mr. Millay’s campaign slogan, “Long live freedom!” was scrawled on a sandwich board he recently used to promote his dollar cuts of beef.
Capobianco said it was a tongue-in-cheek demonstration that “we already live in a dollarized economy.”
still.
Mr. Millay, 53, an economist and former television critic, has put “dollarization” at the center of a radical plan to save Argentina’s economy, which includes shutting down the central bank and reducing the size of the government. This includes significant reductions.
Still, after years of high inflation and a 93% plunge in the value of the Argentine peso since the pandemic began three years ago, Argentina’s economy, already in turmoil, will become even more reliant on the U.S. dollar to function day and night. It has evolved like this. Day.
Argentines buy houses and cars with $100 bills. The news site tracks in real time the black market exchange rate for the dollar, the “bruder”, which is technically illegal for Argentines to use but is used by most people.
And after exchanging pesos for dollars, many Argentinians hide the pesos under floorboards, wear old clothes, or lock them in rented safe deposit boxes in their basements.
Salaries collapse in value the moment they are received, so Argentinians who can save money usually opt for hard American cash.
As a result, about 10 percent of the currency in circulation in the United States is in Argentina. According to some estimates, or about $200 billion, more than any other country outside the United States. This equates to an average of about $4,400 in cash per Argentine, and $3,100 in cash per American.
The dollar has long had a strong presence in Argentina, and its movement against the peso has served as an indicator of the country’s economic health for decades. It has also long been the preferred method of paying for big-ticket items. This included the transfer of Argentine soccer superstar Diego Maradona to an Argentine club in 1981.
As a result, the US dollar has become a symbol of security for many Argentines. So Millais made it a campaign symbol, and it turned out to be an effective political strategy.
At his rallies, dollars with his face on them rained down, and supporters handed him a blown-up $100 bill, which he held above his head like a trophy.
Mr. Milais, now scheduled to take office next month, may soon find it much harder to keep his promises than deliver.
Economists have warned that dollarizing the Argentine economy would be difficult because dollarizing would normally require holding large amounts of dollars. And while many Argentines have dollars stuffed under their mattresses, the Argentine government basically has no dollars.
“Dollarization is unlikely to be possible, at least for the time being,” said Argentine economist Santiago Brat. He also noted that other dollarized countries, such as Ecuador and El Salvador, are still struggling to improve their economies.
“Ecuador certainly dollarized in a very critical situation,” he added. “But now they are dependent on U.S. monetary policy. They have defaulted twice in 20 years.”
Economists said using the dollar as an official currency would deprive countries of important financial tools, such as interest rates, to control inflation or cushion economic downturns. Some economists said the switch to the dollar would often force countries to take haircuts in the value of their currencies, resulting in substantial pay cuts for domestic workers.
On the campaign trail, Milay said that if outside investors (who he did not name) were willing to loan Argentina tens of billions of dollars, dollarization could happen quickly. If not, he said, it would be a matter of “financial engineering” and simply take time.
What does he say to economists who doubt whether dollarization is possible or necessary? “They’re savages.” he told The Economist During September. “It’s like wanting to discuss Pontryagin’s Maximum Principle with people who can’t even add with an abacus.” (Pontryagin’s Maximum Principle is a complex mathematical theory.)
What all Argentines agree on is that the current economic situation is unsustainable.
The crisis stems from years of overspending, large deficits, protectionist trade policies, complex currency controls, $44 billion in international debt, and an overreliance on printing more pesos to pay the government’s bills. It is rooted in the government’s economic mismanagement.
Annual inflation has hovered in triple digits in recent months, more than two-fifths of Argentines live in poverty, and hunger and homelessness are on the rise.
The government estimates that many workers have received an average pay rise of 92% over the past year. This number seems surprising before you consider that prices are rising even faster.
But half of Argentina’s workforce belongs to the so-called informal economy, a list that includes Uber drivers, street vendors, nannies and freelance workers, whose wages have barely increased. .
Jonathan Araya, 30, who works at a supermarket in Buenos Aires, said he recently started a side job as a waiter because his expenses had skyrocketed. Still, he tries to save up money to buy $200 in American dollars each month, but the plummeting value of his peso has made that more difficult.
In April 2020, when the pandemic began, $1 bought 80 pesos at the “bruder” rate. A year ago, $1 could buy 300 pesos.
On Tuesday, as Argentina’s markets opened for the first time since Mr. Millei’s victory, the value of the peso fell to an all-time low. On this day, 1 dollar bought 1,075 pesos.
“We always raise money quickly to buy dollars, because the next day the value of the dollar falls again,” Araya said.
Mr. Capobianco was at his butcher shop Tuesday to greet customers for the first time since the election.
“Did we vote well?” Capobianco, 53, said to one of his regulars, Isabel Michelitsch, 75.
“We voted well,” she answered, pulling out the blue and white horns of the Argentine flag that she had used to celebrate Mr. Mieri’s victory.
Michelic said the quagmire of Argentina’s economy has made her the household’s “minister of the economy” and that she is always looking for an agreement. She was carrying three large corncobs that she had bought for 1,000 pesos, or less than a dollar, at the store around the corner from her.
Capobianco said his business’s struggles were caused by the weak peso. The drought in much of Argentina has destroyed the pastures that normally feed the animals supplied to stores, so producers are instead using animal feed priced in dollars. Ta.
“It automatically makes the product more expensive and that goes back to the people,” he said.
The trucks that transport many of his products also break down, and replacement parts are priced in dollars, a cost that suppliers pass on to him.
“It was a pretty traumatic situation,” Capobianco said, adding that he was on the verge of closing his shop this year. But now, with Mr. Millais on the verge of seizing power, there is hope for a solution, even if it may be painful to get there.
“It’s a breath of fresh air,” he said. “However, we know that the coming months will be difficult.”