Currency Chaos in Argentina (Summer School)

0:01This is Planet Money from NPR.

0:16Welcome back, everyone, to Planet Money Summer School World Tour, the only international economics degree that studies the flows of capital, goods and lost luggage. I'm Robert Smith. Every Wednesday this summer, we are visiting a different continent, listening to some classic Planet Money case studies, and figuring out the economic lessons we can bring back home. I hope you packed a sweater today, because where we're going, it is winter in August. Argentina, where the tango is smooth, the soccer is aggressive, and the monetary policy is a cautionary tale. Nobel Prize-winning economist Simon Kuznets once said, there are four sorts of countries, developed, underdeveloped, Japan, and Argentina.

1:04The point of the observation is that there's nothing in world history quite like the rise and fall, and rise and fall and fall and rise, of Argentina. In 1910, it was one of the richest countries on Earth. The people there had more wealth per person than France or Germany. Argentina had natural resources, a cultural capital to rival Paris, and dreams of being a superpower. But it wasn't going to happen. Argentina became instead a country of lost hopes, as one government after another made economic and political choices that erased much of the wealth over the last hundred years. Entire books have been written about what happened to the Argentinian economy.

1:43Here's a quick and simplified recap in 35 seconds. The challenges started with a military coup in 1930. That ushered in decades of political instability. There was another coup, and one of the plotters, Juan Perón, was elected in 1946 as a populist. He empowered unions, manufacturing, nationalized the railroads, and started to spend away the money reserves of the country. After another coup, Argentina fell into a cycle. Governments that would spend wildly, raising wages, creating inflation, and then came budget cutting. recessions and unemployment. The country was yo-yoing between crises, coups, debt defaults.

2:22And then in 2001, the big one, the economy collapsed. We'll talk about the economic lessons later in the show, but I wanted you to understand how traumatic this was for the people who live there. A personal story. NPR reporter Jasmine Garst grew up in Argentina during this time, 2001, and she watched the collapse happen as a young woman. Here are a few minutes of Jasmine's story. There's this one memory I have of my country coming apart. To this day, I think about it more often than I like to admit. It's the memory of this young man. I saw him on TV. He was protesting outside the presidential palace, not far from where I used to live.

3:07This guy, he's a his early 20s. And he's being dragged away by cops. And as they're taking him, he screams. We're dying of starvation. They're starving us. And then he yells his name.

3:29It was December 2001, and here, in a nutshell, is how the country reached its breaking point. A brutal dictatorship ruled over Argentina in the 70s and early 80s. During that time, foreign debt increased fivefold. Add to that decades of disastrous economic and monetary policies, rampant corruption in the 90s. That's just a few of the things that led to this totally unsustainable situation. People started going hungry. Hospitals started having shortages. It got so bad, groups of people started busting into supermarkets, grabbing whatever they could eat and running. The morning the government declared a state of siege, I was watching the news when the broadcast was interrupted by an official announcement from the president.

4:22The president was basically saying some of our rights were no longer guaranteed. No moving freely in public spaces, no gathering in groups. You could be arrested without explanation. And militarized police were deployed. And the response from the police was brutal. They showed up and whipped people. They shot at them. Elderly people, women, minors. It didn't matter. Eventually, protesters ran the president out of office. over the next month or so, we would get four more presidents. That was Jasmine Garz from her Planet Money episode and podcast, The Last Cup. Her family left Argentina soon after that 2001 crisis.

5:15The 25 years since have seen much of the same sort of political and economic troubles in Argentina. Today on Summer School, we will focus on how economic turmoil, especially inflation, can affect everyday people. Just trying to save money or work a job or run a business. And there's a big lesson here to take home. One of the most important things you need in an economy is stability. The ability to plan what your money will buy tomorrow or next month. What are the rules for businesses? Without stability, well, we'll show you the lengths people go to just to survive. Coming up, we'll meet our guest summer school professor and see what happens when your currency is so unstable that you have to invent different kinds of money just to get a band like Coldplay to perform a concert.

6:00After the break. Support for this podcast and the following message come from Strawberry.me. Be honest. Are you happy with your job? Are you stuck in a job you've outgrown or never wanted in the first place? Are your reasons for staying really just excuses for not leaving? Let a career coach from Strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner and get 50 % off your first coaching session at strawberry.me slash NPR. This message comes from Arctic Wolf. Arctic Wolf combines AI-led security operations with human expertise, helping teams detect, investigate, and respond at machine speed without building it themselves.

6:46More at ArcticWolf.com slash NPR. All right, class, back from the break. Each week on Summer School, we bring in a professor to give us the big-picture concepts about the country we're visiting. And today, we have Sebastian Gagliani, the Weatherhead Presidential Chair in Economics at Tulane University, and a proud Argentine, by the way. Hey, professor. Hey, nice to be here. I was hoping that we'd have a little bit of good news for our trip to Argentina during this lesson, but I suppose that people in Buenos areas will still be crying about their loss in the final of the World Cup? People will be crying for four years, really, until the next World Cup.

7:27I just have more of a view that, you know, at the end of the day, one game, you can win, you can lose. It's what it is. It is what it is. That could be the motto of Argentina for this episode. I know that you have studied and lived the economic history of Argentina and written about how there are very different political factions there. You know, one group wants free trade and openness and wants to interact with the world. And the other political faction wants to protect the country, protect labor unions, build up manufacturing, local products, be self-sufficient. We have these same disagreements in the U.S., but how does this result in these unique economic problems for Argentina?

8:10Yeah, it's a good question. You know, one group gets to power, goes in one direction, and other groups get to power, goes in another direction. And that creates a highly volatile country. Not only that, one group, the one that tries to make the economy modern and integrated to the world, is appealing to the world. So when they are in power, many people want to invest in Argentina. But unfortunately, the other side, when they get into power, they undo all the reforms and they expand the state and they spend a lot. And so the economy has been bouncing between these two groups and these two styles of political economy over decades now.

8:53And that creates a constant volatility, I imagine, where it's hard to plan an economy. And that political instability becomes an unstable currency, unstable debt levels, unstable business climate. Oh, yeah. Let's get one example. So suppose you are someone in the upper middle class in Argentina and you earn the same as someone in the upper middle class in Chile. But in Chile, that person can buy a house with a mortgage, a 30-year mortgage. So a fixed rate 30-year mortgage where what you pay every month is relatively predictable. Yeah. In Argentina, you can't because there's no such thing because of the volatility.

9:32And that makes a whole difference. So the statistics may say, yeah, they are equally wealthy, but the people in Chile live much better, right? Because there are many things that are not captured in those statistics. And, of course, many personal stories that are also not captured in those statistics. We will try to tell you those personal stories today. Our next stop in the timeline of Argentina is 2022, just a few years ago. Severe inflation is starting to rise again. And, yeah, we all complain about inflation. But in Argentina at this time, prices were doubling every year. Students, as you listen to this story, think about what it would be like if you had no idea what your paycheck would be able to buy next week.

10:14How would you plan a purchase or vacation? And of course, with all that inflation, exchange rates, the amount of dollars you can get with an Argentinian peso, are also unstable. Would you be able to even leave the country? Planet Money hosts Jeff Guo and Amanda Aronchik talked to one person trying to plan their life in Argentina in 2022. Just a note, because everything is changing so fast, the numbers you will hear in this story are just for 2022. The economy in Argentina is so chaotic that everyone there has become an amateur economist. You can call up pretty much anyone to find out what they're doing to outrun this chaos.

10:52My name is Lucas Bebek, B-A-B-I-C. Lucas is in his early 40s. He's a freelance video editor. And I'll admit, I just found him through some guy who wrote into Planet Money. Lucas is originally from Brazil, but he's lived in Argentina for 30 years. I've been suffering Argentina since 92, okay? And why do you stay? Because Argentina is awesome, like for real. But everything is wrong with this place. Like, everything is wrong with Argentina. And one of the biggest things that's wrong, according to Lucas, is that you can't trust the peso. So like a lot of people in the country, he stashes away U.S.

11:38dollars. If you can, like, hold on, like, a grudge to dollars in Argentina, yes, you're rich. So I'm not rich, but yes, I do have like$500 in my shoebox like Jay-Z said it. You got to start with the shoebox. So Lucas and I are talking over Zoom. At mid-sentence... I'm really like standing up and going away. I'm sorry. Okay, Lucas has like wandered away. But like for real? This is my shoebox. Lucas, what are you saving the American dollars for? I hold this thing because this is not going to devaluate. $10 is going to still be$10. Bro, I can live, like, a week and a half with this. Just this. Next, he picks up some Argentine money.

12:33This is a thousand pesos. Lucas waves it at me, and he's kind of like, what can I buy with this? I can go to McDonald's and buy like a really big combo with like bacon and cheese and like for real, like a big combo on McDonald's. I'm not going to be able to pay it with a thousand pesos. I got to go with two of this. He shakes his sad peso. And in a year or two, he might need to take three or four of these thousand peso bills to go get that combo meal. Because inflation might hit 100 percent. And what Lucas wants to buy with his pesos, it's not combo meals. It's more U.S. dollars to stash in his shoebox.

13:22And this is where the story gets kind of weird because buying dollars is not straightforward. straightforward. The Argentine government controls foreign exchange transactions because they don't want U.S. dollars to run off and leave Argentina. Okay, so here we go. There is an official rate, so if Lucas wants to play by the rules, he can go to a bank and buy dollars. But the government says there's a limit, no more than$200 a month. And this is going to cost Lucas a lot because they add on a 75 % tax. Instead, what most people do is go to one of these not really legal, but they're kind of everywhere places, known as cuevas or caves.

14:05These have a different exchange rate than the bank. No$200 limit, no 75 % tax to get dollars this way. That's what we call the blue dollar, OK? It's still an American dollar. It's not like literally blue. The blue dollar just means you bought it on the black market. Lucas says that if you've got a guy, you might even be able to get a better deal. I have a friend. He's giving me a pretty elaborate wink. I have a friend that will give me more money for this bill. So there is the official rate, black market rate, you got a friend rate. But then on top of that, there are these other rates, which, like the official rate, are set by the government.

14:52There's one for buying stocks and bonds. There's another for using a credit card. There are more than a dozen of these different rates. Some even have cute names, like the soy dollar or the tech dollar. Now, at this point in Lucas's explanation, he's kind of fuming. He's also literally fuming. I'm watching him chain smoke three cigarettes in a row. And you know what? Coldplay, Coldplay is coming to Argentina. They're going to come to Argentina and play their songs that I hate, like boring or whatever. But there is a Coldplay dollar. Can you believe it? The Coldplay dollar. Coldplay is supposed to play 10 shows in Argentina.

15:40Lucas says he will not be there. And Coldplay, well, the band doesn't want to be paid in quickly devaluing pesos. But the show promoters, they need to pay Coldplay, probably in dollars. and a lot more than the 200 that they're officially allowed to get each month. So the government set up a special exchange rate for promoters so they can pay international talent. And I guess that describes Coldplay. Basically, the Argentine government is using all these different rules and rates to fix problems, like with the Coldplay dollar. But more importantly, they're doing this as a way to keep scarce dollars from leaving the country and to try to prevent their peso from collapsing.

16:21Now for Lucas, he's like a lot of people in Argentina right now, hit by rising inflation, a shrinking peso, a rising dollar. You have to really work it out, like to get to the end of the month. You have to really, really, really work it out to get to pay the rent and the light and the water and your phone. Which is also what the government of Argentina is now doing, trying to work it out. Because most of their bills, billions of dollars of debt, need to be paid back in dollars. And with the value of the U.S. dollar so high, it makes it that much harder to pay all those debts back. In Argentina's government, their shoebox is looking pretty empty.

17:10Just like Lucas, they still need to pay for their phone and their water, and they want to keep the lights on. Amanda Ronchick and Jeff Guo from 2022. After this story aired, the inflation did get worse. The government tried even harder to control the exchange rates. A lot of these rules and exchange rates changed, and Argentines would elect a new president to try to fix it. But we'll get to that in a moment. First, let's talk about how sometimes trying to make the money more stable can have the opposite effect. I want to invite back in our professor for the day, Sebastian Galliani from Tulane University.

17:47Hey, Sebastian. Great to be here. Sebastian, when I was listening to the story, it just felt like so much work. All those different exchange rates, the shoebox, trying to keep the value of a currency from disappearing. Money is supposed to be boring and stable. This seems exhausting. It might look exhausting for someone that don't live in such an economy. And I'm not saying it's not a bad thing. I'm just saying that if you are someone my age, you've been through so many of these ups and downs. Because then it comes to the opposite situation where things stabilize and you want to get rid of the dollars, right?

18:28Because the peso is going to appreciate. And somehow people more or less understand things and know what they have to do. It's not the first time they go through that. Of course, it's not just the inflation. It's also what the government is trying to do to control that inflation, to control the value of the peso, control who gets the good exchange rate, control who gets dollars. Economists call this technique capital controls. Now, pesos are printed by the Argentinian government, so they have some influence. But these capital controls never seem to work for a country. Why is that? Well, it doesn't work because obviously when you put a price that is below the market equilibrium, there's a lot of buyers and soon you get out of what you are selling, which is dollars, right?

19:18But at the end, it's going to collapse, right? So they are very ineffective. But there is a lot of corruption around that because now you decide Coldplay has a good dollar. Lola Palazza didn't got that dollar. And I know that well because they hired me to advise them how to preserve the value of the peso in Argentina. Lollapalooza, the concert tour, is that what you're talking about? Yeah, yeah, yeah. They didn't have the same dollar as Coldplay, so they stayed with pesos. And they didn't know what to do, and they didn't want the peso to devaluate. And they cannot go to the—they are a serious firm.

19:53They cannot go to the black market to buy dollars. So they have to keep it in pesos. And we're seeing what's the best investment in pesos. So that's where I got to know about this. It is so funny to me that in Argentina, it is so complicated that a company who wants to bring a concert tour there has to hire their own economist. Yeah, yeah. Of course, the outcome of all these currency systems is really to make the government even more powerful. Because everyone who wants to do business has to go to the government to beg for their own perfect, great exchange rate. Right, right. The government became very powerful.

20:34And that's why I say there is a lot of corruption around that. Because the government don't decide this just using formula or criteria, some logic. Like, it's all about, are you going to sell you dollars cheap? This is what it costs. In other words, what the government says goes. And this is one of the biggest lessons from Argentina's history. You can make your money appear stable by forcing everyone to use all these different exchange rates. But the real way to stability is to run a country that is growing, where people are working, and you're making things the world wants. Stable countries create stable money.

21:10We will rejoin our professor in a moment with a third story from Argentina. We talk about how inflation affects people saving money at home in a shoebox. But what happens when you have a business trying to sell the shoes themselves and the box? When all your costs keep changing, what do you do? Let's just say we are going to need a lot of price tags after the break.

21:32Support for this podcast and the following message come from strawberry.me. Be honest. Are you happy with your job? Are you stuck in a job you've outgrown or never wanted in the first place? Are your reasons for staying really just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner and get 50 % off your first coaching session at strawberry.me slash NPR. This message comes from NetSuite. They say that every day your business is late to AI, you fall two days behind. Fortunately, there's NetSuite Next.

22:11NetSuite Next is where your business meets AI because AI is built into everything you do. It automatically surfaces custom insights throughout your day. AI agents work alongside you to solve problems. It's just like you're having a conversation with a colleague. If your revenues are at least in the seven figures, try NetSuite Next for free. Go to netsuite.ai slash story. Okay, class, we are back with our third case study and a little tango lesson. Not the actual steps, unfortunately. It's hard to teach ballroom on an audio podcast, but a tango lesson about economics. In 2023, a year after our last story, inflation in the country got even worse for the shoebox holders of Argentina.

22:58And so Planet Money hosts Amanda Aronchik and Erika Barris flew to the country. This was also the year of a presidential election in Argentina. And one of the candidates, Javier Mollet, was promising drastic changes to the economy. More on him in just a moment. We talked earlier about how everyone in Argentina has to act like an economist. And that is what Erika and Amanda found. As you listen to this case study, students, think about how much time everyone is wasting trying to deal with inflation. When Erica and Amanda flew to Argentina, it just so happened there was a tango competition in town.

23:34Probably happens a lot in Argentina. And so that is where they start their story. When we walk into the competition, there are nine couples on stage, all dressed very formally. Men in dark suits, the women in gold lame, dark red velvet, black satin.

23:53We are here to meet one dancer in particular. Her name is Saya Bhatte. Hi, nice to meet you. Saya works in tech in India, and late last year she sold a company she founded. She decided she could afford to spend a few months on this thing that she loves, tango. So now she's part of the first couple to ever represent India at this competition. Saya is finished dancing for the day, and she wants to run a few tango-related errands in town. and we decide to tag along with her in her Uber. First thing we're going to do is go see a shoe seller. Tango shoes, of course. We're going to Neo Tango. It's, I guess, one of the more popular ones among my Indian friends.

24:40And my teacher back home has sent me a list of designs that she wants and asked me to go and buy it for her. Like everyone else in this country, Sia has been watching the dramatic drop in value of the peso over the last few weeks. People here watch the exchange rate between the dollar and the peso as you might watch the weather forecast, checking a few times a day, treating it as a barometer of the overall economic health of the country. When Sia first arrived in June, one U.S. dollar was worth about 490 pesos. Two months later, one U.S. dollar is worth more than 700 pesos. Sia planned her shoe shopping knowing her dollars were only going to go up in value.

25:22For me, I bought like two pairs so that I can practice and compete right off the bat, like as soon as I got here. But I saved my shopping for the very end. We're going to go visit the shoe seller because we want to know how a small business deals with a currency in freefall. But we start to see things immediately, even before we get to Neo Tango. Like on our car ride. We get in, start chatting with the driver. His name is Juan Pablo Gospina Gomez. And I ask him the question we plan to ask pretty much everyone we meet here. When the peso starts to get devalued, what do you have to do differently?

25:57I have to find another job. It will be complicated for Juan Pablo to find another job because he's already got three. He's weak on Uber driving, selling Natura products, which are kind of like Avon, but from Brazil. and then there is his main job. I work with, you probably know, these brands that I'm going to tell you. Oreo. Oreo. Oreo. The cookie? Milka. Oh yeah, I know Milka. I love Milka bars. I work with them. Okay, what do you do for them? I work with customer service. So if I have a complaint about my Oreo, I call you? For sure. Or if I'm happy about my Milka bar, I can also call you. Who has complaints about Oreos?

26:39Never mind. Oreo is always good. Oreos. We all briefly celebrate the Oreo. I mean, come on, what a cookie. Also, turns out, not a bad job. Thankfully, I am working in a good company, so the inflation and stuff is not so hard for me. There are other people that are suffering more or having more trouble to get to the end of the month. Saya's listening to all this, and she gets stuck on what inflation means if you have a regular job and paycheck. She jumps in with a question. Does Oreo also adjust your salary based on inflation? Sure, yes, because inflation is like 10 percent. He's talking about monthly inflation.