Argentines have the equivalent of foreign debt ‘on the mattress’ – 03/30/2023 – Market

While the poverty rate in Argentina jumped 15 percentage points in ten years, leading 19.7 million of the 45 million Argentines to this condition and increasing inequality, official data reveal that the richest have the equivalent of almost all the foreign debt of the country “under the mattress”.

This includes dollars and other foreign currencies held at home, in company and bank vaults, and in regular external accounts, but outside the regular flow of transactions in the banking system.

According to Indec, the body that checks national accounts, Argentines had US$ 261.8 billion (R$ 1.3 trillion) under these conditions at the end of last year. The gross external debt closed 2022 at US$ 276.7 billion (R$ 1.4 trillion).

This mountain of dollars outside the system reflects the distrust of Argentines in the local currency (the peso), in banks and in the government. And it is one of the main reasons why the parallel (or “blue”) dollar in the country is worth almost twice the official rate —which is why Argentines do not have free access to the US currency.

According to the official estimate, the treasured value increased by 2.7% in one year. In the country, it is common for Argentines to quickly exchange pesos they intended to save for dollars, in order to protect themselves from an accelerating inflation that reached 102.5% in the 12 months ending in February. During the period, the dollar exchange rate also practically doubled.

To do this, the population resorts to hundreds of “cuevas” scattered throughout the city, many operating behind a front trade where the main business is the parallel exchange rate. On Florida Street, the city’s main commercial thoroughfare, there are dozens of money changers operating in this manner.

According to economist Dante Sica, former Minister of Production and Labor in the government of Mauricio Macri (2015-2019), the level of account holder deposits in Argentine banks is one of the lowest in the world, equivalent to 9% of the Gross Domestic Product.

Contributing to this is the fact that many Argentines are traumatized by “corralitos” (confiscations) of deposits in past crises. One of the consequences is that the financial system does not have the reserves to operate with financing of higher value goods and longer terms to the private sector.

The situation is made worse, according to Sica, by the fact that the government, which is highly deficit —due to overstaffing, non-contributory pensions and energy subsidies— takes about 70% of available domestic credit.

In the country, transactions for the purchase of real estate and cars, for example, are normally made in dollars.

The growth of poverty, on the one hand, and of dollars in the hands of Argentines and outside the financial system, on the other, also reflects the trend of increasing social inequality in Argentina, and the increasingly accelerated shrinkage of its still large middle class. .

As of 2010, there was a jump of more than 25% in the number of favelas in the country, while more wealthy Argentines began to live outside urban centers —in gated communities like those existing in Brazil.

According to the inequality database WID (World Inequality Database), from the Paris School of Economics, in which economist Thomas Piketty participates, between 2012 and 2018, the share of national income appropriated by the richest 10% in Argentina rose from 39 % to 47%. The poorest 50% fell from 15% to 13.5%.

The data, up to 2018 (latest available for the country in the WID), do not capture the recent disorganization of the Argentine economy, with the acceleration of inflation —worst scenario for the conservation of the income of the poorest, who are unable to save in dollars.