In December, 2001 the currency of Argentina was decoupled from an artificial 1 to 1 peg with the US dollar. Argentina was the biggest sovereign default ever ... some $140B USD. The government tried to set an official rate of 1.4 pesos to the dollar in Argentina and then left the peso float on the international market. This was wishful thinking. The peso immediately began a slide into oblivion.

When I first came to Argentina, the peso was about 3 to 1 with the dollar. Everything felt like a steal because there had been little inflation. The population was in shock. There was little evidence of the riots, but there were long lines at every cambio where the population was trying to convert their rapidly worsening pesos into US dollars.

The escort girls were still quoting prices in dollars trying to get customers to pay what they used to, but with varying success. The club and cafe girls were the first to realize that they had to leave the prices in pesos.

Buenos Aires had been one of the most expensive cities in the world, now it has fallen out of the top 100 on the list from its leadership position.

The big worry has been hyperinflation. The dollar-peso peg was put into place 10 years earlier to stablize the inflation in Argentina that was running at 5000% per year. It stablized the currency, but at a cost of flexibility and made Argentina´s exports very expensive.

The worry now is that hyperinflation will return. The central bank is reportedly spending a substantial part of its remaining hard currency reserves to artificially stablize the exchange rate, which has peaked at about 4 to 1, but usually hovers about 3.55 to 3.65. In reality, a 3.5 to 4.5 rate is probably all that is sustainable without triggering hyperinflation.

Inflation right now is running at about 4% per month, but some items like basic food supplies are much higher. This has forced a huge number of people below the poverty line. It has also started to play out with restaurants beginning to raise prices, though you can still get a huge filet mignon for the price of a happy meal in the USA. Since April, prices for food have risen about 15 to 25%, depending on the restaurant.

Because the government has been periodically declaring ¨banking holidays¨ and shutting down all of the banks, cambios, and atms, getting money has been unpredictable here in Buenos Aires. I have been able to use ATMs successfully every trip, but not every ATM I have tried to use will dispense money.

I recommend that you bring your budget of $200 to $300 US per day in cash and lock it in your hotel safe. Change some on the black market and use ATMs (great rates, low fees) for some needs. Although you can use your credit cards some places, many cannot accept them anymore. This is because the credit card acceptance companies only pay out funds back to the restaurants twice per month and there is a worry that those card processing companies will go out of business without paying out the last two weeks receipts.

Most hotels can still accept credit cards. Hotel Etoile in Recoleta does. So does Art Suites and Design Suites, but there are discounts for cash in USD. Some places have surcharges of 10 or 15% for credit card charges, so ask before using it.

When I first came to Buenos Aires, the black market cambio guys on Florida Avenue downtown were very discreet and secretive. It is a crime to exchange money in Argentina without a receipt. Now you´ll hear cambio cambio called out every 3 meters. The booths are no longer hidden and some even have brands. The tout will show you the rate on a pocket calculator and then lead you in a shopping area to change the money.

When changing money, there are a few things to watch out for:

1 - not every tout has the same rate ... check around and you will save a few pesos, but not enough to warrant more than checking a few

2 - be careful about changing money in public or on the street ... you get marked as a potential target and there are a ton of people around ... same is true when using and ATM machine (be discreet)

3 - watch out for old bills, patacones, and lecops ... one-third of the currency in circulation is printed by the provincial governments to pay its workers, but it is not worth the same amount as the nominal value of the bill. Typically patacones and lecops, if accepted, will be received at a 10 to 30% discount over the value. The first time I tried to change money the guy tried to hand me a stack of patacones ... I refused and he provided banco central notes with no problem.

4 - hoard your smaller bills ... for some reason the bulk of the bills in circulation appear to be 100 peso notes. Frequently even major stores and restaurants can´t break a large or even medium size note. When changing money, request smaller notes. I never seem to have enough 5 and 2 bills, but with a stack of 10s and 20s, I am far better off than with only 50s and 100s.

5 - carefully check your change ... I´ve been seeing places (particularly dark clubs) give customers patacones for one bill in their change. The ink colors and layout are nearly identical to a real note, so at first glance everything looks ok.

There are still plenty of people out shopping, filling the restaurants, and partying to all hours in the clubs. However, there are also a lot more people who pick through the trash looking for cardboard to recycle. You will see a lot more begging too, some of it getting aggresive. I help out those that I can, but I suggest that you should NOT encourage the aggressive behavior. My heart goes out to the kids especially, but all of the locals I have talked to about various aid agencies, have indicated that there is a high level of corruption. Money can be misdirected and goods can be resold. This is apparently true of the local versions of many of the international organizations too.

The roots of these problems in Argentina are political. Until the politicians find the will to fix this, the situation will continue. Sometimes BA feels like a powderkeg with a fuse burning, othertimes like the problems are a world away.

One thing is for sure, the currency issues are affecting every aspect of life in Buenos Aires. Things are changing fast and the economy is not showing any fast signs of dollarization. People are still hoarding every dollar they can get. None appear to be circulating.

The locals I have talked to are expecting the peso to be at 8 to 1 with the dollar by the end of the year. At this point, I think that may be unlikely given the continuing central bank intervention in the free float of the peso.

What could change the whole situation is some dramatic political event. There is an early election next year, but the same old politicians are running for the presidency, including Carlos Menem who´s government policies are probably responsible for much of the immediate problems.

Basically, it is tough to guess where things are, but I would expect that the growth in the exchange rate vs. the dollar will outpace inflation as the dollar becomes a more critical store of value in the Argentine economy.

So, how does Art suites compare to Etoile? should I go ahead and make my reservations for Oct. at Art?

How cold is it right now?

Etoile is a 3 star with a great location (in the heart of Recoleta). Art Suites is a 4 star with a so-so location (about 5 blocks from clubs in Recoleta). Design Suites is a 5 star with an ok location (not far from downtown or Recoleta, but nothing nearby). Etoile has huge rooms, but the decor leaves something to be desired. Some have complained about the beds in Etoile, but I have no problem with them. Prices typically correspond to the level with Etoile being the least expensive and Design Suites being the most expensive. With tax and discounts, you should see prices range from about $50 to 80USD per night. The best prices I have seen lately for Art Suites and Design Suites are with Mayri of ArgentinaGo.com.

Its cold enough to require a jacket during the day and long sleeves, a sweater, and a jacket at night ... mostly because there has been a pretty constant breeze blowing. There have also been a little bit of rain too. Still it never really gets below freezing here. Days are 60s and nights are in the 40s.

Good analysis...You are certainly right about the hassles involved in securing a Visa...Do the link for the details, basically $65USD for a Visa application, plus 26 pesos to set up an interview...requires trips to 2 banks before the applicant arrives...It takes 3-4 weeks to secure an interview and another month after the interview before the person knows if a visa has been granted.
http://usembassy.state.gov/posts/ar1/wwwhvsen.html

On the issue of money, if and when the IMF loans Argentina additional funds I expect the situation to improve...If Menem is elected I don't look for the IMF to pull through...It boggles the mind to think he might be elected...especially after recent evidence that he stashed millions in a Swiss account during his last term....

I have thought about buying an apartment in BA, but given the present uncertainty I think I will rent instead....lots of good apartments can be had for under 1000pesos, about 275usd per month...

Great analysis UWP, my take on Argentina's sit. is that it will be left like that for awhile and it will eventually get worse when centro government is running out of hard currency to keep inflation in check.

Current GLOBAL economic condition has slid Argentina further and further down the priority list. I doubt it if the IMF will shed another dime to the Argentine Centro Bank. The IMF currently has Brazil and its election in October to worry about. Global economic condition depends on the US and if we don't step out of our own recession quickly enough, the rest of the world would be left in the dark for a long time.

Renting is the way to go and if you're comfortable with the monthly payment, sign a 1-yr or 2-yr guarantee contract payable in USD. Any Argentine landlords would take that offer in a heartbeat.

Uw

Nice analysis and good information. Thanks for the update. I will be BA in September for a few short visits.

Very interesting sounding place.I'm wondering if someone could post pics of regular currency and patacones and point out how to tell the difference.
Putanero

I´ll scan a 5 pesos patacones and regular bill and post later. The differences are obvious ... even says patacones on it, but easy to miss if you are not looking.

I have never seen a lecop. I learned last night that most places will accept patacones, but at a 30% discount. Series A patacones are nearly worthless.