Seven-peso itch

By Michael Soltys

Buenos Aires Herald Senior Editor

The greenback was back in the limelight in the New Year as it surged past the seven-peso mark (or at least the “blue” greenback with the official dollar still below five pesos). While inflation shows no sign of abating, last week’s steep climb seemed more due to seasonal than structural factors so that a new plateau is not necessarily sustainable — a combination of holiday demand and Christmas bonuses seeking a harder currency propelled the parallel dollar upwards, 43 percent above the official exchange rate (the end of the year also includes a temporary re-entry of dollars into bank deposits to claim a tax exemption).

This situation may prove entirely temporary but what seems far more permanent is another problem created by the currency curbs reflected by an identical percentage — namely, the 43 percent plunge in property sales in this city last November as compared with the same month of 2011. The second term of the Cristina Fernández de Kirchner presidency has thus quite gratuitously managed to destroy one of the economy’s most dynamic sectors with its drive to pesofy the housing market (while at the same time scorning any effort to give the new transactional currency any value by expanding the money supply 35-40 percent). A more benevolent commentator might point out that Argentina is thus spared the property bubbles wreaking havoc in so many economies across the globe — this country was never in much danger of any such speculative bubbles even ahead of the currency crackdown because of the strong tradition of cash-down housing purchases (always in dollars, of course) and the almost total lack of any mortgage schemes but a vanishing housing market completes the insurance. The slump in the housing market is all the sharper because before 2012 the combination of negative interest rates in real terms and a dollar cheapened by a repressed exchange rate induced many people to seek refuge in bricks from a persistent inflation. But this erstwhile boom market is now a disaster area (even if the havoc created by the subprime and other property-based crises elsewhere might qualify for stronger language).

Since 2013 is notoriously an election year with much at stake politically, the always highly politicized exchange rate cannot be expected to follow any rational economic criteria this year. But housing is a classic motor industry for jobs in particular and the economy in general — the government can only let it languish at its own peril.