Inflation in Argentina
Vocabulary
| crisis | cyclical | spotlight (2) |
| default | recession | run/ran/run (2) |
| value | inflation | raise/rise/risen |
| beef | stable (2) | translate (2) |
| wheat | instability | Great Depression |
| debt | currency | depression (2) |
| abroad | sovereign | sovereign debt |
| prefer | optimism | double digit |
| solve | digit (2) | devaluation |
| main | generate | repeatedly |
| appear | monetary | spend/spent/spent |
| inflow | take over | administration |
| control | convert | investment |
| adjust | portfolio | grow/grew/grown (2) |
| fiscal | devastate | depreciate |
| tie (2) | common | interest rate |
| elite | sector (2) | as soon as |
| cash | preserve | interest (2) |
| pattern | mistrust | expectation |
| policy | borrow | take office |
| amend | massive | pessimism |
| repeat | attempt | over and over |
Video
Transcript
It’s ten o’clock in the morning in Argentina — and the question everyone has is: “How much is the dollar today?”.
Argentina is in the middle of an economic crisis, and it’s the US dollar that is in spotlight, once again.
Jorge Lopez, Businessman: “Crises in Argentina are cyclical, and things happen again. Argentines look at the dollar and people want to save themselves instead of the country in general.
In the past year, recession was everywhere.”
Even though the national money is the peso it’s the US currency that runs the economy. The main reason is inflation, because a raise in the value of the US dollar immediately translates into a raise in the price of almost everything.
In the early twentieth century, Argentina was one of the richest countries in the world, thanks to the export of beef, wheat and other farm goods.
But things changed in the 1930s because of the Great Depression in the United States and political instability. And since then, Argentina has defaulted on its sovereign debt several times, and inflation has almost always been in the double digits.
This museum shows how the Argentine currency has depreciated over the years, and in a way, it explains why Argentines prefer to save in US dollars. The word “crisis” and “devaluation” appears repeatedly in the coin museum of Buenos Aires.
Over the years, Argentina has not been able to solve its main problem. The economy needs dollars to grow, but the country spends more than it produces, so it needs to borrow abroad.
That’s what President Macri did since taking office in 2015.
Esteban Medrano, Economist: “The Macri Administration, when they took over, the expectation as to generate capital inflows and generate growth through investment.
And what happened was that you had a lot of portfolio inflows, but not as much investment. Macri was a bit too optimistic, but took too long to adjust the fiscal issues. You had to keep interest rates too high for too long, and people already now mistrust the value of the pesos.”
And that’s why people have been going to the banks, either to buy dollars or get their money out.
Mariana Luzzi, Writer: “The US dollar is not only used by the elite in Argentina, but by all sectors that run to buy dollars as soon as they have some cash. It’s how people try to preserve their cash.”
Calls to dollarize the economy are common in Argentina. But people like Mariana Luzzi say it will not work out well.
Mariana Luzzi, Writer: “In 1991 and 2001, there was an attempt to tie the peso to the dollar. It was a convertibility at that time. It was not a dollarization, but the state did not have a monetary policy. It controlled inflation, but it devastated the economy too.”
It ended in the massive crisis in 2001.
The next few months will be difficult ones for Argentina that is unable to amend an economic pattern that repeats itself over and over again.
Questions
1. In Argentina, the main concern is the weather. True or false?
2. Is the financial situation in Argentina unprecedented or is it a recurring feature?
3. Has the country always had a weak economy? Was its wealth based on manufacturing?
4. Argentinians have faith and confidence in the peso, their national currency. Is this right or wrong? Why do they feel this way? What do they do as a result?
5. What is the fundamental cause of its financial situation?
6. Has Marci’s government tried to resolve the crisis? What have they done? What have been the results?
7. Did the government do something similar twenty to thirty years ago?
A. Is there inflation in your country? Describe the situation.
B. Have things always been like this? How were things in the past? Is there a cycle?
C. Are there many exchange offices in your city? Do prefer dollars, euros or other currencies?
D. What is the cause of inflation and financial instability?
E. Are there solutions? Are compromises necessary?
F. What might happen in the future?
