A dollar bill and the Florida Street in the background, a traditional Buenos Aires shopping and currency exchange bureau. Photo: Arikaff / Shutterstock

The "dolores" of a nation that sees in the economy its biggest phobia, and in the dollar its way out from chaos

The more recent disbelief in the Argentine peso and in banking institutions seems to come from a dated trauma: the 2001 crisis

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In Buenos Aires, taxi drivers like to tell stories about dollar fortunes found in apartments in the Recoleta neighborhood, in a hidden safe, or even under the mattress. The historic district had a glorious past and a population that has grown older. This kind of urban legend is not associated with the concern of an impending armed conflict or any imminent tragedy – the 1983 Malvinas war never reached the Argentine capital. So how to explain the resistance of Argentines to saving in pesos and using traditional bank accounts?

The disbelief in the Argentine peso and in banking institutions seems to be due to a dated trauma: 2001. That year, the country entered an economic tailspin that led to an external moratorium, the confiscation of savings, and the limitation of bank withdrawals by the government.

It was a period of chaos marked by mass layoffs, social upheaval, violent protests, looting, suicides, and despair, with different presidents entering and leaving Casa Rosada – one of them, Fernando de La Rúa, fled the government’s headquarters in a helicopter, leaving the country for an uncertain future. This happened in December of that year, just before Christmas, in the midst of a popular uprising whose repression by the police forces left more than 30 dead.

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It must be said, however, that Argentines resorted to the dollar even before that period. Argentina’s economy is marked by highs and lows so strong that the middle class is always struggling to protect its savings.

The first big fall came in the 1920s, when the country was seen as one of the most prosperous in the world due to its agro-export model. Before the Great Depression, it was common to hear the expression “as rich as an Argentine”. The pompous architecture of some of the oldest buildings in Buenos Aires is a testament to this dismantling of the country, a skeleton of the prosperity that Argentines enjoyed until the early 1930s.

That is why the Argentine’s relationship with the dollar is so controversial. The currency has up to twelve different prices, depending on the purpose of use. And, following the political tide, the issue comes and goes, as in the last month of September, when Alberto Fernández‘s government imposed severe restrictions on the purchase of the currency.

A monthly limit of $200 was established for the official purchase of dollars, taxes and a withholding to be eventually refunded in the income tax, in a bureaucratic tangle that even economists have difficulties explaining. All to discourage Argentines from buying dollars, as part of the decades-long effort to de-dollarize the economy and control the country’s foreign debts and reserves.

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There are hundreds of economic factors for the restrictions: federal debts with foreign multilateral organizations, low reserves in the Central Bank, defaults, hyperinflation, among others. Or even the depreciation of the Argentine peso, which this year already exceeds 230% (and that on September 22 it was worth zero in exchange offices in neighboring Uruguay).

However, the backdrop is always in the people’s habit of protecting themselves from the country’s economic and political changes by buying dollars. The phenomenon is so complex that it is difficult to understand the different prices of the dollar and the proliferation of what Argentines call dolar blue, sold at illegal exchange offices at a gold price. The government turns a blind eye to places whose literal translation is “caves” (cuevas). This creates a complex scenario for Argentines, foreigners, and investors.

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The topic is so intriguing that it’s the focus of studies at the National Council for Scientific and Technical Research in Argentina (CONICET). Among the council’s researchers are Mariana Luzzi and Ariel Wilkis, who study the dollar as “an instrument for interpreting the national reality”. In 2019, they released a book: El Dollar: Historia de una moneda argentina, as a result of four years of research efforts.

“Different stories are linked to the dollar in Argentina: an economic history, of course, but also a political and cultural history. Argentina’s uniqueness is not only its economic instability, but that the dollar has this double character as a financial instrument and as an artifact to decode a reality in profound change. The concern with the dollar, or being aware of changes in its price, speaks less of our economy than of the tools with which we read the reality,” says Luzzi.

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For the researchers, the explanation for this type of link with the dollar in the country goes back to the 1950s, when an economic restructuring plan was launched by President Arturo Frondizi, and to the subsequent crises, such as those of 1989 and 1991 (linked to the attempts pegging the dollar to a fixed price, known as convertibility), and finally the one from 2001.

They also highlight the dollarization of the real estate market. Until today, it is common for the sale and rental of real estate to be quoted in dollars. Even when this does not happen, rents are adjusted according to inflation, an indicator for which the dollar is a major factor.

Politically, leftist governments, like Cristina Kirchner‘s and Fernández‘s, try to prove that the dollarization of the economy is the root of many ills. Liberal governments, on the other hand, believe that the free movement of currency is part of liberal doctrine, and that control over this circulation creates more problems than solutions.

But politicians themselves fail to try to demonstrate to the population that it is necessary to de-dollarize the economy when, in their family and personal businesses, they also continue to be tied to the foreign currency.

The fact is that when the population faces restrictions on the purchase of the currency, there is a reaction, often on the streets, as this restriction is seen as an interference in the Argentinean’s shielding mechanisms against the ups and downs of the country’s economy

The fact is that, when reserves in foreign currency are low, even liberals, such as ex-president Mauricio Macri, resort to limiting the purchase of the currency. The dollar culture is so ingrained that Macri’s main electoral platform, which cut a three-term Kirchnerism cycle (one by Néstor Kirchner and two by Cristina Kirchner) in 2015, was about a crazy plan to attract foreign investment that, without further explanation, the population read immediately as an injection of foreign currency into the economy, that is, dollars – something that never really happened.

“All these considerations that seek to minimize the value of the dollar or the foreign exchange market start from the assumption that the dollar is only a financial asset and, therefore, only challenges those who are part of the financial investment game or are linked to the foreign market. But in our country, the dollar is also an artifact to interpret reality,” point out the CONICET researchers.

Based on economic data collected on the currency in the United States, the economist Fernando Marull calculated that Argentines save four times more in dollars than the total pesos that circulate in the country today. It would be something around $ 130 billion. Marull says that probably no country in the world has so many dollars circulating internally without this being its official currency.

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This economic volatility intensifies in times of global uncertainty such as this of the COVID-19 pandemic. The lack of confidence in the peso grows, pushing Argentines to the same old habit of protecting themselves from the country’s ups and downs with dollars.

These are the “dolores” of a nation that sees in the economy its biggest phobia, and in the dollar its way out from the chaos.

Translated by Fabiane Ziolla Menezes