Milei's Argentina
Dominated by Carry Trade Caputo-nomics, Turns Back to the IMF
After all, if you can't enjoy a filet mignon and a glass of red in the land of beef without paying more for it than in Paris, isn't it time to tell the gringos about this? Even if some folks might not wish to hear it? Dismiss the Parisian vs BA cocktail napkin meal math as an anecdote if you like, but it comes from an impeccable source: our friendly acquaintance the Southern California millionaire real estate investor Mr. K, who's been investing here since the early 2000s. He's better known to you all by his X handle @BuySellBA. Mr. K points out Argentina is now ranked 2nd on the Big Mac Index, just behind the big Alpine country club called Switzerland. Here's the tweet from @BuySellBA:
Big Mac Index: Argentina 2nd most overvalued behind Switzerland The Economist Magazine does a survey every 6 months comparing the price of the a Big Mac of countries around the world.
According to their calculations the Swiss franc is the most overvalued [currency] in the world with 38% overvaluation, giving them the most expensive Big Mac in the world. But followed behind is the Argentine peso which they calculate is 20.1% over valued. The Big Mac Index (IBM) is based on the theory of "Purchasing Power Parity" developed in the 19th century by the Swedish economist Gustav Casel, according to which a currency is "aligned" with another if it allows you to buy the same basket of goods at the same value, expressed in either of the two currencies. The IBM, by taking a simple good, identical in any country in the world, allows the theory to be tested more simply, without resorting to price indices based on different consumption baskets. Such is the most "raw" version of the index, of which The Economist also publishes a "gourmet" version, taking into account the level of GDP per inhabitant of each country.
In the gourmet version, the Argentine peso becomes not the second, but directly the most overvalued currency in the world, with 56.7% overvaluation, leaving behind the overvaluation of the Swiss franc, which becomes 48.3% and that of the Uruguayan peso (42%). Using the "raw" version Argentina's peso is overvalued 56.7% against the US dollar, which matches many economists estimates.
Argentina is losing competitiveness with other countries. Tourism is dropping off tremendously as international tourists are going to other destinations and domestic tourism is flowing to other neighboring countries like Brazil. Sooner or later this has to correct.
@BuySellBA
12:48 PM · Mar 6, 2025
J.P @Maestro_Mozart
One of the cheapest places not too long ago, how quickly things change
12:52 PM · Mar 6, 2025 126 Views
@BuySellBA
Yes, things can change quickly in Argentina. Very few countries in the world like Argentina. As the old saying goes, "There are only four types of countries: developed, underdeveloped, Japan and Argentina". Very true. Just as it was too cheap in 2023 it is going the other way which will have negative effects. I don't doubt that one day Argentina will deserve it's place to be one of the most expensive spots in the world, it will need to be when things are healthy and GDP is higher and salaries are higher. Prices in both pesos and USD terms are too expensive for the salaries that people are making.
1:03 PM · Mar 6, 2025 124 Views
There are of course, still some silver linings amid the inflation here: my relatively low rent, still-cheap electricity, and decent Internet speeds at reasonable rates.
Caputo-nomics of course, is named for President Javier Milei's finance minister, Luis Caputo. At the risk of quoting ourselves, we wrote: The fact that Argentina is under carry trade-pumping Caputo-ismo rather than Milei-ismo is the basic point everyone contemplating long-term relocation of their families and capital to Argentina needs to understand.
This means Mr. Caputo is setting the economic and especially monetary policy of the country. Whether or not a certain old European family banking dynasty's founder actually said, "give me control of a nation's money, and I care not who writes the laws", Mr. Caputo and the faction he represents is firmly in control of the Argentine peso supply. It's not that we are displeased with Milei's evangelism for Argentina--no one besides the Perons and Diego Maradona arguably has done more to push this country into the imaginations of people around the world. But we must be true to the facts. Before Milei was elected with a strong mandate, nobody moved here for good governance or sound money, regardless of the steaks being cheap for digital nomads during the Pandemic. People moved here for the culture and lifestyle in much the same sense that affluent Americans and foreigners have continued to make California their home, despite the disfunctionality in Sacramento and San Francisco.
We observe that the government is about to go back to the IMF House of the Rising Sun for another $20 billion in debt, which will be a disaster that will haunt Argentina for another 30 years. We say this acknowledging the very good things President Javier Milei has done thus far. And as @BuySellBA has said, Milei inherited an Augean Stables of waste, fraud and bureaucratic red tape from the Peronistas, who for decades entrenched themselves in Buenos Aires as well as the provinces own 'deep state'.
Before the Milei bros come down too hard on me, I must present one more indisputable fact, beyond Milei's immense talent for political showmanship: Argentina remains significantly more free than its much more populous neighbor Brazil these days (more on that in our next article). Unlike in Brazil, there are not so many traffic surveillance and red light cameras, which we cannot stand. And as long as they're not collecting a taxpayer-subsidized paycheck, in which case it's been afuera!, Milei's government leaves its political opponents alone. Unlike in Northwest Europe, Argentines can speak their minds on the Internet without any knocks on their door by the British Bobbies or the German thought police (with the Stasi wannabe prosecutors receiving sympathetic interviews from CBS News). There are no out-of-control dictatorial judges here seeking warrants for their critics' arrest--even if those critics happen to be Brazilian journalists residing in Spain! And nobody in Argentina would ever have the juevos for waging lawfare on one of the Trump Administration's favorite video social media platforms.
In 12-Step Programs, they used to say the first step to recovery was acknowledging you have a substance abuse problem. Another way they used to say it in the Baby Boomer seminars was, "You cannot change or heal what you do not acknowledge." The Argentine people by electing Milei confronted that with their out-of-control government spending on the political and bureaucratic side. Now they have to confront la bicicleta and beat the carry trade devil on the monetary side.
To give the Argentines some grace, my fellow gringos are still fighting over whether Elon Musk's DOGE has too much power, which is itself a deflection from the main question of whether any real deep cuts to reduce much less eliminate our nearly $2 trillion dollar annual deficit is politically feasible. That is, without the type of civil unrest or government breakdown we attributed to less blessed ex-Soviet and Latin American nations. But now even Caputo is starting to acknowledge the economic pain business owners and consumers are feeling from his monetary policy:
Progress: Argentina's Minister of the Economy admits that Prices are expensive in US dollars in Argentina Everyone knows that Argentina is expensive in Dollar terms now. At least Caputo is admitting it now. He maintains that devaluating isn't the solution. He is correct to point out that prices will go down once the taxes are reduced/eliminated and there is more competition. He acknowledges it's crazy for Argentines to pay 5 times what a shirt is worth in Argentina vs. other countries. He also correctly claims there will be "winners and losers". That is putting it mildly. The local companies that have been subsidized and still never reduced prices are going to get killed by imports.
Regarding profitability, he pointed out that entrepreneurs "cannot ask Argentina for the same returns as in the past. With an orderly economy, the way to achieve profitability is with greater production, you have to think more about Q and less about P." Regarding the agreement with the IMF, Caputo reaffirmed that the new program will be closed before the end of the first quarter of the year. Without giving concrete figures, he said that there will be "fresh funds" to recapitalize the balance sheet of the BCRA by canceling its debt with the Treasury, and insisted that it will not imply an increase in gross debt.
12:11 PM · Mar 6, 2025 229 Views
Despite all of this, we remain bullish on the Southern Cone, including Argentina. It's just that more Europeans who will flee the WorldWarWoke ist (to borrow a term from my ESW Editor-in-Chief) insanity of the Old World will discover that they cannot afford the sweet Buenos Aires lifestyle they wanted. To sum up, we leave you with a quote from the economist Carlos Maslaton, a former supporter of Milei back in 2023, when Javier said Argentina didn't need the IMF dope needle injected into its national veins:
How Javier USED to talk before he got infected by Caputoism, the Pro and the Macri cabal.
Quote
Carlos Maslatón
@CarlosMaslaton
Pleno apoyo a Javier Milei. Hay que proceder tal cual él lo indicó. Minga al FMI.
5:27 PM · Mar 6, 2025 97 views
A happy weekend to all ESW readers from my beloved BA! Don't worry about us, we're not going anywhere!
David Segal is an American Jewish Russophile residing in Buenos Aires and a classically trained concert pianist. You can find him on X @DavidS_Liberdad.