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  • Writer's pictureMartijn

Traveling backwards, except for the financial bicycle

Today is day 104 of the lock-down, and the first day of a new 17 day period of stricter controls to reduce circulation in the Buenos Aires area. Are we going backwards? Are we ever going to be able to leave?

Obsessed with getting out, yesterday we booked (flexible) tickets for a trip to Chicago in September (we need to renew our Green cards and this trip is overdue!). International travel is supposed to re-open on September 1st, we're crossing our fingers.

One of the only things that are moving forwards is the so-called "financial bicycle" which is the local expression for making money using the loopholes created by the numerous financial regulations and facilities. Here are a few examples:

1) To avoid capital flight, the exchange rate is controlled by the government. This automatically creates a black market (creatively called blue market here) for foreign currency. To give you an idea of the unbalance, the "official" Central Bank exchange rate today is 73,50 pesos (ARS) to buy 1 US dollar, and you can sell that US dollar for at least ARS 116 on the "blue" market. Obviously, in this situation, everyone would run to the Central Bank to buy dollars but the authorities are smart: there is a US$ 200 purchase limit per person per month and on top of that, there is now a solidarity tax of 30% on official dollar purchases. Doing the math, one official dollar now costs 73,50+30%= 95.55 pesos, which is still less that it's blue value of at least ARS 116. So..... lots and lots of smarter people (40 million dollar worth of people actually) have been opening accounts online in many different banks and buying US$ 200 in each one, thus making an instant 21.5% + profit. If you do it fast enough, the system will not have time to notice you are the same individual. Before the existence of digital banking, people would pay individuals to stand in line to buy dollars at the official rate in many different banks and then collect them in exchange of a small fee. These individuals were called "coleros" (queuers).

By the way: the "blue" exchange rate is prominently displayed in the newspaper...nothing clandestine about it ... There is also the "dolar turista" which is the one you pay when you use your Argentine credit card for purchases abroad (=official dollar + 30% solidarity tax, still cheaper than buying dollars on the blue market) and the "dolar contado con liqui" which has to do with buying internationally traded shares in Argentina in pesos and selling them in US dollars. Smart again!

2) Because of Covid-19, the government can help pay 50% of the salaries of some companies' employees. One of the conditions is that you need to show a very steep decrease in revenue (I think it's something like 30% less income compared to the same period of the year before), so apparently some companies have consciously developed their under-the-counter sales ("black sales") to become eligible. Double whammy for the government: less tax income and more salary subsidies. Non-registered sales are very common, so it's not difficult to boost them.

3) Very small businesses can apply for a 0% loan to pay their rent or other expenses (which, given the inflation rate equates to a negative interest of about 33%). Some have immediately purchased US dollars or placed the loan amount on a savings account yielding 30% interest or more. Good business but probably not the intention.

4) And finally, imports are very controlled because of course they require US dollars, but despite the controls, some importers have been able to buy currency for goods that have never arrived. No comment... except for the fact that I am very happy to have bought several packets of imported tea in anticipation of a potential import ban.

You all now probably think I am very naive and that similar "smart" things happen everywhere. I am sure that's true but I would guess that the currency loopholes in this economy, due to government intervention and inflation, are bigger and more inciting.

In any case, it has taken me almost 7 years to begin to understand the ins and outs of decision making in a place with multiple exchange rates, high inflation and lots of informality. And I don't think I am the only one, here are a few quotes from the foreigners I interviewd for my book about Argentines:

“People are really smart here, they calculate extremely fast”. (Dutch man, 15 years in Argentina)

“They have great financial skills, the delivery boy knows more about finance than I do.” (Spanish man, 2 years in Argentina)

Let me finish with a funny anecdote which occurred shortly after we moved here. We hadn't received our first salaries yet and needed money for our living and moving expenses. If we had transferred dollars from out US account to our Argentine bank account, we would have received pesos at the official exchange rate which was about half of the "blue" one. So we were advised to use one of the numerous "gray economy" intermediaries. Without knowing the person, we had to transfer dollars to his account in the US and then he would bring the pesos (exchanged at the more advantageous rate, minus a small commission) in cash to our house. I knew about the operation but Alex was not home when he arrived. I opened the door and saw a man in a suit but without a briefcase or a backpack or anything in which he could have carried the money to hand it over, so I was a little surprised and did not immediately know what to do or say. After a few awkward seconds, he said "do you want to do this outside or can I come in?" so I invited him in and into Alex' office to give the shady transaction more privacy. Once I closed the door -I was not feeling super comfortable standing in a closed room with a man I did not know- he bent down and started pulling up his pant legs.... and extracted stacks of peso bills from inside his socks!

That is how business is done: it's all down in the socks.

(pun intended for French speakers!)

Thanks to my Google search for a good picture, I now know of the existence of socks with special compartments to hide valuables in. Probably a good item to pack for the trip! I will put it on my list of 100 things which I am planning to run by all of you soon to get your wise input :)

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