16
Oct

Cristina de Kirchner has brought her country to the brink of the abyss.

By Daniel Altman

Step into a discount department store in New York or Miami these days, and you’re likely to hear Spanish in the aisles. Not just any Spanish, though — Argentine Spanish. The distinctive accent, where “y” becomes “zh” and the final “s” sometimes disappears entirely, has lately become the sound of a massive transfer of wealth. Ringing through American checkout lines, it is also the sound of another economic crisis on the way.

Argentina has become much more important to the global economy in the decade following its last crisis, which began in 2001. Back then, its exports were only worth about $31 billion, or 11 percent of its gross domestic product. Today, Argentina’s exports have almost doubled, even after accounting for inflation, and it is a central player in commodity markets ranging from lithium to soy. Yet its trading regime is notoriously fickle, and another crisis — economic, political, or more likely both — could cause severe disruption.

Argentines have been talking about the imminence of their next crisis for about two years now, and their economy is showing plenty of worrying signs. Private economists estimate that inflation is running between 20 and 30 percent, while the government has doctored economic statistics to such an extent that the International Monetary Fund may censure it. The peso trades at more than six to the dollar in the street, though the official exchange rate is 4.7. The central bank maintains the artificially high value of the currency by buying pesos with its reserves, while the government limits the purchase of dollars by ordinary Argentines.

The combination of high inflation in wages — as well as prices — and an artificially strong peso has been a boon to Argentine consumers, especially the upper-middle class. Foreign goods are cheaper than ever, as is tourism. Visitors to Argentina, on the other hand, will find prices for clothing, electronics, and other manufactures in Buenos Aires on a par with New York, London, or Tokyo. The question for many well-to-do Argentines is not whether they will go abroad to shop, but how they will sneak their purchases through customs on the way back. Read more…

Daniel Altman teaches economics at New York University’s Stern School of Business and is chief economist of Big Think.

As published in www.foreignpolicy.com on October 15, 2012.

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