The Parrilla la Luli in Buenos Aires grills thick cuts of beef, accompanied by big bowls of salad, copious cups of Malbec and surly customer service. Prices are pencilled in on faded menus—no reflection of the restaurant’s down-market decor, but rather of runaway inflation, which independent economists peg at 25 per cent. That’s more than twice the official rate of approximately 10.6 per cent—a number the International Monetary Fund (IMF) considers so corrupted that it censured Argentina, the third-largest economy in Latin America, for fudging its official financial figures. “The Argentine [economy] can be characterized by [a level of] inflation, which no one recognizes,” says Sergio Berensztein, an independent political analyst in Buenos Aires.
Such is the state of affairs in Argentina, where politics permeates everyday economic activities. Inflation is so sensitive that the government has prohibited the publication of independent estimates and sacked and prosecuted staff in the statistics service. It has also recently frozen fuel and food prices.
It’s just the latest sign of trouble in a country with a history of economic collapses—most recently in 2001, when it defaulted on $95 billion in debt and devalued the Argentine peso. Not surprisingly, many Argentines have sought to safeguard their savings by snapping up assets such as apartments and automobiles, along with U.S. dollars, which became scarce with the implementation of currency controls. The controls are an attempt to keep U.S. currency in the country, mainly because Argentina has been unable to access international capital markets since its 2001 default. The controls also came as holdout bondholders from the default pursued and won a $1.4-billion judgment in a U.S. court. Argentina refuses to pay the holdouts, which it brands “vultures,” a decision that could ultimately lead to another default, says Berensztein.
The monetary controls allow Argentines to take only US$100 per day when travelling abroad, and they impose a 20 per cent fee on credit-card sales outside the country. Argentina also sets an official exchange rate—currently 5.15 pesos per U.S. dollar. That has created a black market, where the “blue dollar”—as the unofficial exchange rate is known—now tops nine pesos per U.S. dollar.
The increasing gap between the official and unofficial exchange rate can make buying merchandise cheaper in Argentina for those able to obtain or arrive in the country with U.S. dollars (which are converted to pesos on the much weaker black market). The country’s auto dealers’ association says BMW and Mercedes-Benz sales surged 111 per cent and 45 per cent respectively in January and February, compared to the same two-month period last year. An Audi dealer quoted by the El Liberal newspaper says anyone spending “blue dollars” could buy a luxury car for 40 per cent cheaper than in the United States. Less affluent Argentines also seek to purchase dollars—the traditional currency for keeping savings and buying big-ticket items—but not always with success.
“People should be able to buy whatever currency they want,” complains cabbie Roberto Herrero. “This country increasingly resembles Cuba”—only with much nicer cars, of course.