Saturday, June 20, 2009

Credit and Financial Situation in Argentina

Aloha Ferfal,

Thank you for your blog. I cannot tell you how terribly helpful and reassuring it is to hear your take on what a real economic collapse is like first hand. I have all but ignored anyone else, because how would they know? Most are just trying to sell their newsletters or survival supplies.

My questions are

1) What happened to people's bank accounts during the 2001 crisis (checking, savings, credit cards) and thereafter? You mention the bank holiday, restrictions on cash withdrawals, and termination of credit in several of your posts. So, I sort of get the picture. You can't get the majority of your money out and you can't use credit cards anymore, but what about having to pay bills, like the mortgage, electricity, etc. Certainly, you can still write checks and use debit cards; yes?

2) After everyone lost faith in banks, do people who have money to save, just keep it in foreign currencies & metal, or what?

3) How are banks surviving today as opposed to pre-collapse. If there is no credit, how do they make money and survive?

I am in the banking industry and see a need for my bank to have to change our business model. I am just not sure what the new model will become. Anything you can share would be most helpful.

Thank you again!

Honolulu, Hawai

Thanks Kevin,

1) Things are pretty much normal these days in terms of credit cards and debit cards. Checks are a bit more tricky since there’s a check tax, another insane move to steal money form people. Also, checks in dollars are not allowed in Argentina any more.
Most places in the capital district where the most activity takes place and tourist do their shopping readily accept credit cards just like anywhere else in the world, same for regional down town areas. But the smaller you get the less chance of shops accepting credit , debit or anything other than cash.
The time we spend with no money plastic at all lasted most of 2002 but now it’s been getting back to normal.
Still, there are many places that don’t accept credit, debit is more commonly accepted.
It took a long time for people to trust plastic money again.
Most gas station for example, most want cash and some accept debit.
Bill can be assigned to be paid with your credit card, but its not a smart idea since these companies sometimes over charge, or invent extra charges out of thin air and you later have to fight to get your money back. For example now with the insane tax to natural gas and power (about 600% in some cases) they’d just charge you while if you have it set to pay with cash instead, you can fight it a bit more, just pay for the usual service and present a complain for the rest, claiming there’s no way to can pay the outrageous tax (almost ½ of what the minimum wage person earns. Imagine paying 600 USD each month on either gas or power)
2) Depends on how much money you have. Most people don’t have a lot so they keep cash home. If you have more you buy a car or better yet some real estate. We never had the huge bubble USA and Europe used to have (now gone) so prices didn’t vary that much before and after 2001. As we say around here, the land and brick on top of it are going no where.
Gold has a value like anywhere else in the world, but its something older people used to do, every month saving some and putting it into gold coins.
For example right now in Argentina, people are buying dollars like crazy. It’s expected to go up like crazy after the elections for senators next week. Euros and dollars are preferred currencies instead of our much weaker peso.

3)According to the way things are today, a more conservative attitude is in order I believe. They are very careful about how much money they lend (credit is something we’re simply not used to here, at least none that has reasonable interest rate). The local joke is, you need to be right to qualify for the loans banks in our country provide.
How do they survive? Many didn’t. They got sold, closed, etc.
Being honest the financial activity in Argentina is minimal. Few trust banks any more, the richer the person the lest he trusts it, they mostly work with small loans and deals they make with the government, house loans that usually get used to gain political favors.
Then there’s the typical small time client, gets his salary deposit on his account, maybe gets a small loan to buy a TV or help pay a car (which cost a small fortune in Argentina, even used ones, MUCH more expensive than in USA, about 5-10 times as much)
A bank in Argentina isn’t doing money after 2001, at least not in any honest way.
The best bet is to be a bank with a small scale attitude (cut down expenses to a minimum, very conservative spending and lending) , micro loans for clients starting their small business, maybe buying machinery for whatever they do, but always doing so very conservately and following the client up close, a tight bank/client relationship. Stick to safe investments and aovid the medium and high risk ones.
Other financial companies make money with micro -loans, most often lest than 1000-2000 pesos (less than 600 USD). The interest rates in these cases are terrible, but poor people will usually fall for this maybe to buy a cell phone or some other shiny object.



Anonymous said...

I have been reading your blog for weeks now. I know my country (USA) is in danger of soon becoming a third world country from our outlandish spending and wasteful practices of both our citizens and our government. There are a couple of differences in my country and Argentina that I would like to hear from you about. I think it could change the way things turn out here. I don't know if it would be for the better or for the worse but I don't feel it will be the same.

First, in Argentina, there was massive debt created by both the government and the people as your economy began its' stronger growth period. This debt was issued in Euros or American dollars instead of the Peso. From what I understand, many people mortgaged their homes and banked in these currency. Here, we borrowed and bank in our own currency since we are fortunate enough to have convinced the rest of the world that our currency is the one that they can secure assets with worldwide. In almost any country, prior to this debacle, people would accept US currency as if it were even more valuable than their own. Almost as if the US dollar replaced gold as a standard to base other forms of money on. (A stretch I know, but hopefully you get my point)

Second, there were many government businesses Argentina had that the government was able to privatize to generate revenue. I realize the corrupt government stole most of the money received but they were there to sell nonetheless. My government has no such assets. The airlines, water companies, electrical companies, oil companies, railroads, etc. are already private corporations and most are already heavily subsidized by the government. The government still controls the lower education schools (prior to college), the military, the police, and, strangely enough to me, the mail delivery system, and the libraries. What does my government have that it could sell to use to repay debt? I think in place of selling assets, my government will just create higher taxes, both directly to the citizens and indirectly through taxing imports and purchases.

Third and finally, I think the people in Argentina were less greedy and selfish even during the growth period than they are here in the United States. I have never been to Argentina but from the things I have read and heard, it seems that people have/had a higher respect for family and experience. Here it has become a game of kill or be killed (figuratively speaking). It is common to hear of children suing their parents in court, mothers killing their children so she could run away with a lover, fathers killing the entire family and then commit suicide. This has extended from the cruel society where it is applauded to frame a co worker so he is fired, steal from the rich, etc. We have TV shows that exploit spouses that cheat on each other and people that try to humiliate each other for the watchers' entertainment. It seems like we are the Romans sending the Christians out to be eaten by the lions!

Anonymous said...

Ferfal, what about the aspect of question no. 1 relating to things like paying the mortgage during 2002? How did that work? I.e., could somebody write a check for the mortgage in excess of the cash withdrawal limits?


Pompompom said...

Out of topic, but if you read french, a small article in Le Monde (most prestigious french newspaper) is about La Salada.

Very soft as usual in Le Monde, it just says that illegal markets become popular among middle class in Argentina because of the crisis.

Hmmm, not long before it comes in 1st-world countries, with very heavy bureaucrataxation (who said France?)