The Two-Tier Currency Rate in Argentina

 

QUESTION: Dear Mr. Armstrong,
Can you please explain how the Contado con Liquidacion exchange rate works in Argentina? It’s now at around 80 pesos per dollar, while the official rate is 58.37. Is it possible for the average person living in Argentina to get the Contado exchange rate? Also, do you have any advice for the new government? https://www.ambito.com/contenidos/dolar-cl.html
Thank you,
JT

ANSWER: The Cotización del dólar Contado con Liquidación exchange rate is a form of a two-tier currency which is a way to buy dollars and move your money out of Argentina. This is an operation that can be performed both with bonds and stocks that are trading within Argentina but also in the United States. There are a number of Argentine stocks that trade in the USA (see list). Smart investors have used this as a vehicle to buy dollars as well as companies. However, the government has imposed a USD $10,000 per month limitation as of September 2nd, 2019.

You or a company can buy public security or share in the local Argentine market that is also listed in New York. The purchase of that bond or share is made with pesos. You then ask the broker to transfer the title or share abroad and once they are received in New York, you can sell them and the proceeds of that sale are then credited in US dollars in your account in the USA. To carry out this type of operation, you need an account in Argentina and an account in the USA which you are obligated to report to the AFIP in Argentina. Therefore, it is a legal way to get your money out of Argentina provided you report your foreign account, but there is a $10,000 per month limitation.

Ever since the election on August 11th, 2019 when Argentina’s currency collapsed along with stock and bond prices not witnessed in 18 years on schedule with the 18-year Monetary Crisis Cycle, the currency has reflected the collapse in international confidence. Voters turned to interventionist economics rejecting President Mauricio Macri and his free-market approach in favor of the opposition. The Argentine peso dropped 30%, to a record low of 65 per one United States dollar, following Alberto Fernández dominated the primary by a 15.5% point margin which was substantially more than local polls expected. Then on October 28th, 2019, Alberto Fernandez became the new President but immediately he faces suggestions that he is a puppet for ex-president Cristina Kirchner. This has led many to assume that she will really be running the country. This is not a great position for confidence in his administration.

When President Cristina Fernández de Kirchner reached her two-term limit in 2015, many believed it was for the best. She was flamboyant and divisive and became the populist Peronist politics. She believed in economic interventionism and was a strong nationalist and to a large extent that underlying position has dominated Argentina for the majority of the past 80 years. Under Argentine election law, a president may serve no more than two consecutive terms. They can run again only after sitting out a term. In the case of Cristina Kirchner, she has reemerged as the running mate rather than the top of the ticket. This is what many now assume  Alberto Fernandez is just a puppet. It is hard to imagine that someone has tasted power and is willing to just walk away. Time will tell, but many suspects she will be the real power behind the throne.

Nevertheless, when we look at the chart of the Argentine Peso, we can clearly see that the fall in the Peso began when she left office in 2015. From the average person’s perspective, it is not hard to imagine what the people were voting with her on the ticket as Vice President. From a cyclical perspective, we see that we will have a Panic Cycle and major turning point shaping up in Argentina during 2024 in line with the peak of the next Economic Confidence Model wave.