Argentines Go for Gold

March 20, 2013 at 09:51

truthing

When it comes to saving options in Argentina, it’s not so much a case of “all that glisters is not gold” but, perhaps, “the only thing that glisters is gold”.

Let’s face it, saving is hard with galloping inflation and an outright government ban on buying dollars specifically to save. Buying dollars for any other purpose is hardly much easier, and who would want to save in pesos when their value is on the skids?

Already, the overvalued official exchange rate is wildly out of step with the market (sorry, unofficial) rate. Officially, one dollar costs about 5 pesos but unofficially its 8 and shows no sign of being brought to heel.

Meanwhile, inflation expectations are in the 25-30 per cent range (according to the opposition, based on private estimates,inflation is still running above 25 percent despite price freezes that look set now to continue at lest until June.

Taken all together, it’s little surprise that gold sales are booming at Banco Ciudad, Argentina’s only gold trader, as citizens literally go for gold as an inflation hedge.

Luis Secco, an economist, says the government has changed its tune dramatically. No longer does it bang on about fiscal strength as a way of differentiating itself from what it considers the irresponsible governments that preceded it. That’s history. But clearly, he says, the government’s fiscal management cannot go on like this.

Argentina’s economy has certainly lost its lustre – it grew last year at the slowest pace since 2009.  Some kind of nasty policy shock would take the shine off things, to say the least.

Mid-term elections, key to the government’s future plans (an attempted constitutional reform to keep Cristina in power, or a gameplan and a successor to keep her “national and popular” model going) are looming in October and are likely to spur enthusiastic government spending, in an attempt to get the economy to shine.