Argentine dollar restrictions intensify malaise in real estate and the wider economy
On June 7 the Argentine government presented a bill to require debt and new contracts are denominated in pesos, while the government is mulling the de-dollarisation of real estate contracts. This would make real estate purchases even more difficult than they currently are in a country with ever-tightening capital controls.
The increasingly extreme measures from the administration of President Cristina Fernandez are attempts to stop the depletion of foreign currency reserves and the deterioration of the current account balance, which continue despite increasingly stringent measures.
The restrictions on real estate purchases in dollars will cause further damage to economic growth, given that construction represents around 15% of Argentine GDP, and the majority of purchases are currently transacted in dollars. The market is already experiencing difficulty: since October 2011, authorisation from the tax agency AFIP is needed to convert pesos to dollars, and such authorisation is becoming increasingly difficult to obtain.
Few sellers are willing to accept pesos given inherent mistrust of the currency. While the restrictions on peso-dollar conversions are encouraging more to do so, peso prices are often calculated at the high black market exchange rate of around ARS5.90/US$ (the official exchange rate stands at US$4.49/US$), which deters buyers.
An additional problem for the real estate market is the underdeveloped mortgage market. Given Argentina’s high inflation, annual interest rates on mortgages is often over 20% - another deterrent to potential homebuyers.
The Cristina Fernandez administration repeatedly uses nationalist rhetoric to justify the increasingly intrusive measures to control capital outflows, which has worked relatively well in maintaining popularity.
However there are signs that this is beginning to wane as governmental controls and import restrictions become harsher. While approval has not yet dropped to the levels of 2008, when it plummeted from 57.8% to 23%, it fell 12 percentage points in eight months to 41.2%, on June 10 2012, according to polling agency Management and Fit. It is likely to fall further as households and businesses alike are detrimentally affected by unorthodox government policy.
There are still very few signs the government will address the causes of Argentina’s intensifying economic malaise and the resulting inflation, such as high, unsustainable fiscal expenditure and endemic corruption.
Instead, the government is likely to use the quick fixes of capital controls and fabricated statistics to prolong the status quo and maintain the value of the peso, although these are looking increasingly ineffectual. Dollar reserves are at their lowest levels since April 2010, and weak external demand will impact further on the current account balance through 2012. A drastic change in the government’s economic trajectory may soon become inevitable.
By Cosima Cassel
Suggested Stories
-
May 18th 2013
“Blue” dollar in Argentina picks up in last day of trading and reaches 8.95 Pesos
-
May 17th 2013
Argentina’s ‘autarkic project’ worsens bilateral relations and multiplies problems
-
May 17th 2013
Argentine whitewash bill turning into ugly electoral debate
-
May 16th 2013
Argentina inflation in April was 0.7%, according to the official stats office
19 comments Feed
Note: Comments do not reflect MercoPress’ opinions. They are the personal view of our users. We wish to keep this as open and unregulated as possible. However, rude or foul language, discriminative comments (based on ethnicity, religion, gender, nationality, sexual orientation or the sort), spamming or any other offensive or inappropriate behaviour will not be tolerated. Please report any inadequate posts to the editor. Comments must be in English. Thank you.
Soy...drought
Car Export...Brazil Recession
Construction...U$ restriction
Consumer Vat.... Import Restriction
Don't they know there is nothing left to destroy?
“In the blue-chip swap market, which sets the implied exchange rate used to buy Argentine assets traded abroad, the peso traded at 6.50 per dollar on Tuesday, traders said. That marks a 45 percent spread above the formal price.”
online.wsj.com/article/SB10001424052702303444204577460502395870724.html
Don't get sick in Argentina...
I bet Fat Maxi isn't wanting for anything while he is nursing his blown our knee.
“There's not much mobility up and down,” he says. “The chances of someone from the top [income bracket] who doesn't do very well in school are better than someone from the bottom who does well in school.”
:(
Jun 13th, 2012 - 09:11 pm
Well it is all relative. The USA has gone from being incredibly powerful to not quite as incredibly powerful. On the otherhand Argentina started at the bottom and is sliding ever further down.
Started at the bottom? Certain about that, my sciolist fiend? We are still wealthier than 85% of the nations and societies of the world. I guess you believe “relativism” must work solely to your mealymouthed argumentative convenience. If “Argentina” is relative to the “United States”, then “Argentina” is also relative to ”(insert country name here___________). In 4 of 5 cases, we come out on top.
As usual with all of you argie-haters, you can't tell a duck from a horse. You are fibbing, duplicitous, dishonest scoundrels. And this prevents you from attaining even a microscopic degree of repute.
Try again next time. :(
BTW did you see Arg doesn't have a University in the top 10 in LATIN AMERICA any longer!!
Becoming Bolivia more and more every year.
Jun 13th, 2012 - 09:44 pm
I think there is a difference between an 'Argie hater' and a Malvinista hater. A big difference but Malvinistas can only deal in absolutes and therefore cannot tell the difference.
Amongst the G20 Argentina is at the bottom, hanging on by the skin of its fingernails but looking more and more likely to drop out. Like the feller said. It is all relative.
How many countries were there in 1900s? How many are there today? The number of countries has doubled in Europe, Asia. There are many “countries” that are nothing but tiny islands and enclaves.
If you take all of those superfluous entities out Argentina would be in the top 30.
If the USA had 40 million people, it would have dropped to 14-15 when Japan, China, Brazil, and most of Western Europe recovered after WWII.
@15
I think Europe is more like to fall off the G20.
Quickly looking at the list I don't see one country that is below Argentina that could have been once above. Please show me where I am wrong.
www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
Everyone here lambasts Argentina for dropping from top 5 to whatever it is now.
Have any of you haters eve for a minute sat down and considered the other side of the curve? How was it that us monkey argies did manage to get so supposedly wealthy in the first place?
In other words, if your child gets a 105 on a test whne the average kid got a 75, if your child then gets an 80 and the average is still 75 does it make him/her retarded?
So I am assuming you can't name 1 other country in the last 112 years that has had a great economic fall than Argentina. Am I correct?
Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!