Anxious Argentines Catch Green Fever
The Washington Post, April 1, 2002
Buenos Aires, March 31 -- The long lines of Argentines outside currency exchanges in this city's chaotic financial district exhibit the telltale symptoms of a nationwide epidemic. They clutch their money belts, dart their eyes in search of thieves and constantly whip out their pocket calculators to tabulate fast-changing exchange rates.
The Argentine media have dubbed the ailment La Fiebre Verde (Green Fever). Its causes are desperation and a mistrust of the peso, and the only known cure is a fistful of dollars.
Indeed, in Argentina, where the peso was devalued in January and has fallen precipitously ever since, the dollar has become a national obsession.
Television stations broadcast rate fluctuations like weather reports during a hurricane. Web sites have been set up to reflect real-time exchange rates. Shadowy figures called arbolitos -- little trees -- whisper offers of black-market dollars to passersby. Unemployed workers have formed a cottage industry, charging about $5 to wait in line outside exchange houses and banks for those too frail, busy or lazy to do it themselves.
But the lust for the greenback has thrown Argentina into a potentially calamitous new phase in its roiling financial crisis. The rush to sell pesos for dollars has caused a dangerous drop in the value of the Argentine currency that risks sending it into free fall, an event that could rapidly destabilize Argentina's third government in four months. Green fever has also revived talk that Argentina may be forced to adopt the dollar as its official currency, becoming the largest foreign country to do so.
The desire for dollars highlights the psychological aspect of Argentina's economic crisis that has made it so difficult for economists and local leaders to devise an escape route for what was once Latin America's wealthiest country. Argentines have lost confidence in their politicians, policymakers and even society itself, which has led to a loss of faith in the currency.
"Argentines used to be known as arrogant in Latin America, but now we are suffering from a serious problem of low self-esteem in everything that has to do with our nation," said Manuel Mora y Araujo, a political analyst. "We have lost faith in our politicians, our business class and ourselves -- and that has an impact on the Argentines who are running out to sell the peso and buy the dollar, no matter what the exchange rate is."
The peso fell to a record low of 3.9 to the dollar last Monday, and is now trading at about 3 to the dollar. That marks a 67 percent loss in its value since January, when the government abandoned the peso's decade-long peg to the dollar. With the prices of everything from meat to medicine soaring as a result of the peso's sharp drops, desperation is growing. Last week, a mob ransacked an overturned cattle truck, slaughtering the animals and dragging off body parts.
"I don't know what I'm going to do," cried Isabel Nieto Geronima, 67, the well-dressed wife of an unemployed shop clerk who was begging for money outside a pharmacy. The price of her husband's blood pressure medicine went up 30 percent last week because of the peso's sudden drop. "We spent our money for this month on food for Easter. We didn't expect the prices for medicine to go so high."
The currency crisis has rekindled fears of a return to the late 1980s, when Argentina suffered from 5,000 percent annual inflation, the highest rate in the world. Prices rose so fast that people would run down supermarket aisles to snatch up goods before they could be relabeled with higher prices.
Analysts say the effects of hyperinflation would be far worse now. In the late 1980s, Argentina had a single-digit unemployment rate and salaries were adjusted to keep pace with prices. But a four-year recession has left 25 percent of Argentines without work, an estimated 75 percent with reduced salaries and half living on less than $2 a day.
In economic theory, recession is supposed to inhibit inflation, but that has never been true in Argentina, where the population is said to think in dollars rather than in pesos. In contrast to countries such as neighboring Brazil, which devalued its currency in 1999, in Argentina the dollar has been considered the only real legal tender by most people since the 1970s, when runaway government spending, bad monetary policy and widespread corruption led to a series of peso destabilizations.
Many argue that the peso held firm during the 1990s only because the government pegged it to the dollar. Although the peg has been abandoned, Argentines still tend to view their earning power in proportion to the peso's value against the dollar. "Each time I see the peso drop against the dollar, I see myself becoming poorer and poorer," said Raimundo Hadad, 47, a construction foreman who waited for four hours to buy dollars with his 150-peso weekly salary. In January, he would have gotten $150; last week he got less than $50.
There is a strong link in Argentina, perhaps more than in most other Latin American countries, between the buying power of the average person and the value of the dollar. Wealthy Argentines, who are estimated to hold more than $100 billion in offshore bank accounts, still do much of their shopping in dollars, distorting the economy. Some stores in Buenos Aires -- including antique shops and art galleries -- kept their prices in dollars even after the currency was devalued. Car dealerships announced last week that they may do the same.
Imported goods have been marked up constantly since the devaluation. Even the prices of many locally made products, especially those that could fetch higher prices if exported, have gone up 30 percent or more.
Now, many argue that the only thing that can spare Argentina from a new bout of hyperinflation is a shot of confidence in the currency. Leading economists are divided on how that could happen.
For the first time in months, some are again floating the idea that Argentina should adopt the dollar as the local currency.
Proponents say this process, known as dollarization, could be largely accomplished by liquidating the central bank's $12 billion reserves. But additional dollars, as well as support for the idea from a skeptical International Monetary Fund, would be key.
"It should be clear now that the idea of devaluing the currency instead of dollarizing the economy was an unmitigated disaster," said Steven H. Hanke, a professor of applied economics at Johns Hopkins University and an adviser to former president Carlos Menem, who toyed with adopting the dollar before he left office in 1999. "To stage an economic recovery, you need to first stabilize the monetary system, and the only way to do that is with dollarization."
Opinion polls show that while support for dollarization is growing, a majority of Argentines remain opposed to it. Publicly, President Eduardo Duhalde and his economic advisers have ruled out dollarization. Sources close to the government say that privately, Duhalde has expressed a willingness to reconsider it, or to adopt a new type of currency board system requiring that each peso be backed by a dollar, if the peso continues to slide.
For now his economic team is pinning its hopes on winning a new loan deal with the IMF that would rearm Argentina's central bank with enough dollars to defend the peso. Coupled with that, they insist, will be a stricter policy on printing pesos aimed at giving the currency a jolt of confidence.
"You can't change a culture overnight, but our goal is to have people here finally thinking in pesos," said Economy Minister Jorge Remes Lenicov. "Of course it's not easy, but we're counting on the fact that it can be done."
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