I've had some friends ask about how people down here are reacting to the ongoing financial crisis. Well, firstly, they're not exactly giddy. In a country that's still considered "developing", overall financial health of other countries is crucial for financial health here. So everyone here is extremely concerned. For starters, so much of what happens in the US is out of their control. Yes, I realize most "U.S. Americans" would probably say the same thing. But secondly, and more important, they have been through scary and difficult economic times here before. For now, life is pretty stable for Argentines. They don't want to go back to how things were in 2002-03. But their history is relevant and certainly worth looking at in comparison to what's happening in the US right now. My friend Nico and I have been talking about these issues at length. He knows a lot more than I do about the subject, but I throw in my perspective when I can. He recently gave me the rundown of everything that happened back in those days. It was pretty crazy. What follows here are largely his words:
Let me tell you what happened in Argentina during the huge economic crisis in my country (I say huge for us.. not in relative comparison with the rest of the world).
- 1- Some banks went into bankruptcy.
- 2- People started doubting about the health of their banks, so many people rushed to their banks and tried to take their money out of their banks.
- 3- Government said that our money was secure, we didn’t have to do that.
- 4- People continued aggressively withdrawing their money and changing it into dollars.
- 5- Our money started depreciating so the situation got worse.
- 6- The government implemented el corralito, which meant taking money out of the banks was forbidden. You could use your money with your credit card or with checks but no cash from the banks.
- 7- People managed to keep some of their money apart from the banks. For example many supermarkets or retailers did business in a way that someone could transfer money electronically to them but sold the cash with a % increase.
- 8- Nobody had money to pay their employees, and middle class and lower class that had no money in their banks weren’t able to work. There was no cash on the street so they started organizing open markets where no real money existed. They invented a currency whereby if you made a cake you could sell that cake for 2 credits and use those credits to buy a service from another unemployed worker.
- 9- The government didn’t have money either, therefore each province invented some kind of bond that was used as parallel money. They started paying salaries partially with real money and partially with “that money.”
- 10- So you could find in the street: real money, different bonds from different provinces, and also “credits.” Since nobody had jobs and money, many formal buseness started accepting “credits” from that artificial market. For example my father, a doctor, was offered credits so he could receive patients and at least get paid partially . Then he had to go to that market and hire employees to fix some things around the house for example.
- 11- Suddenly, someone saw the opportunity to “print fake credits” so those markets were suffering inflation since the “ticket or credits” were being printed for many people so they had to stop using them.
- 12- Then the country finally run into a huge default and huge devaluation. Our peso had been 1 peso = 1 dollar. Now is 1 dollar = 3 pesos.
- 13- We started exporting products.
- 14- Money started to come.
- 15- So those bonds were eliminated.. and here we are.