Currency Chaos in Argentina (Summer School)

Just about everyone in Argentina is an expert in inflation and whether they like it or not, economic flexibility. Can we learn from them? Over the years, we at Planet Money have checked in on Argentina as it tried to recover from economic collapse in 2001 and 2002, and as inflation shot up and the country defaulted on its debts. This week on our Summer School World Tour, we fly to Buenos Aires, mapping the moves of their economy through the eyes of people who live there – from tango classes and shoe shopping to a Coldplay concert that sparked a special exchange rate. We’ll consider the different attempts from the government to staunch inflation and why they’ve led to so many unintended consequences. But the heart of this week’s trip is the resilience of everyday economic actors, regular people. When the value of your currency is so in flux, average people become monetary contortionists just to navigate work, shopping, saving and to keep small businesses afloat. This adaptability becomes a special kind of skill and wisdom. So, we’re harvesting that everyday economic insight for tips on how we can all face uncertainty a little better. And, to appreciate the high costs of volatility. Featured Episodes: Messi economics (2022) https://www.npr.org/2022/11/30/1139976898/messi-economicsA black market, a currency crisis and a tango competition in Argentina (2023) https://www.npr.org/2023/09/22/1197954122/argentina-peso-inflation-mileiThe high cost of a strong dollar (2022) https://www.npr.org/2022/10/21/1130640816/strong-dollar-us-latin-america-inflation-peso-mexico-argentina-chile Featured Terms: VolatilityInflation expectationsCapital controlsAusteritySupport: NPR+ (sponsor-free listening & bonus episodes) https://n.pr/3HlREPzAnd please click “follow” in your podcast app so you don’t miss an episode. Read: Our book: Planet Money: A Guide to the Economic Forces That Shape Your Life https://lnk.to/i3AukBdD (Audiobook here https://open.spotify.com/show/509P7k1QPcwgzOSCqVCDCZ) Our weekly longform Planet Money newsletter https://n.pr/3zrFvUBOur weekly Indicator link round-up newsletter https://www.npr.org/newsletter/indicator Follow: Instagram https://n.pr/3FqLuwsTikTok https://n.pr/3sGZdrqYouTube https://lnk.to/iCVDaW3CFacebook https://n.pr/3h92GwS This episode of Planet Money Summer School is hosted by Robert Smith. It was produced by Sophia Paliza-Carre and Schuyler Swenson and edited by Planet Money Executive Producer Alex Goldmark. It was fact-checked by Sierra Juarez and engineered by Jimmy Keeley. See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

• 0:00Speaker 00

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• 0:15Speaker 01

  This is Planet Money from NPR.

• 0:30Speaker 02

  Welcome back, everyone, to Planet Money Summer School World Tour, the only international economics degree that studies the flows of capital, goods, and lost luggage. I'm Robert Smith. Every Wednesday this summer, we are visiting a different continent, listening to some classic Planet Money case studies, and figuring out the economic lessons we can bring back home. I hope you packed a sweater today because where we're going, it is winter in August. Argentina, where the tango is smooth, the soccer is aggressive, and the monetary policy is a cautionary tale. Nobel Prize winning economist Simon Kuznets once said,

• 1:12Speaker 02

  there are four sorts of countries: developed, underdeveloped, Japan, and Argentina. The point of the observation is that there's nothing in world history quite like the rise and fall, and rise and fall and fall and rise, of Argentina. In 1910, it was one of the richest countries on earth. The people there had more wealth per person than France or Germany. Argentina had natural resources, a cultural capital to rival Paris, and dreams of being a superpower. But it wasn't going to happen. Argentina became instead a country of lost hopes, as one government after another made economic and political choices that erased much of the wealth over the last 100 years. Entire books have been written about what happened to the Argentinian economy.

• 1:58Speaker 02

  Here's a quick and simplified recap in 35 seconds. The challenges started with a military coup in 1930. That ushered in decades of political instability. There was another coup, and one of the plotters, Juan Peron, was elected in 1946 as a populist. He empowered unions, manufacturing, nationalized the railroads, and started to spend away the money reserves of the country. After another coup, Argentina fell into a cycle, governments that would spend wildly, raising wages, creating inflation. And then came budget cutting, and recessions, and unemployment. The country was yo-yoing between crises, coups, debt defaults. And then, in 2001, the big one: the economy collapsed.

• 2:42Speaker 02

  We'll talk about the economic lessons later in the show, but I wanted you to understand how traumatic this was for the people who lived there, a personal story. NPR reporter Jasmine Garz grew up in Argentina during this time, 2001, and she watched the collapse happen as a young woman. Here are a few minutes of Jasmine's story.

• 3:03Speaker 03

  There's this one memory I have of my country coming apart. To this day, I think about it more often than I like to admit. It's the memory of this young man. I saw him on TV. He was protesting outside the presidential palace, not far from where I used to live. This guy, he's a kid. He must have been like in his early 20s. And he's being dragged away by cops. And as they're taking him, he screams,

• 3:34Speaker 03

  "We're dying of starvation. They're starving us." And then he yells his name.

• 3:43Speaker 03

  It was December 2001, and here, in a nutshell, is how the country reached its breaking point. A brutal dictatorship ruled over Argentina in the 70s and early 80s. During that time, foreign debt increased fivefold. Add to that decades of disastrous economic and monetary policies, rampant corruption in the 90s. That's just a few of the things that led to this totally unsustainable situation. People started going hungry. Hospitals started having shortages. It got so bad, groups of people started busting into supermarkets, grabbing whatever they could eat and running.

• 4:26Speaker 03

  The morning the government declared a state of siege, I was watching the news when the broadcast was interrupted by an official announcement from the president.

• 4:40Speaker 03

  The president was basically saying some of our rights were no longer guaranteed. No moving freely in public spaces, no gathering in groups. You could be arrested without explanation, and militarized police were deployed. And the response from the police was brutal.

• 5:02Speaker 03

  They showed up and whipped people. They shot at them, elderly people, women, minors. It didn't matter. Eventually, protesters ran the president out of office. Over the next month or so, we would get four more presidents.

• 5:21Speaker 02

  That was Jasmine Garz from her Planet Money episode and podcast, The Last Cup. Her family left Argentina soon after that 2001 crisis. The 25 years since have seen much of the same sort of political and economic troubles in Argentina. Today on Summer School, we will focus on how economic turmoil, especially inflation, can affect everyday people, just trying to save money, or work a job, or run a business. And there's a big lesson here to take home. One of the most important things you need in an economy is stability, the ability to plan what your money will buy tomorrow or next month. What are the rules for businesses? Without stability, well, we'll show you the lengths people go to just to survive. Coming up, we'll meet our guest, summer school professor,

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  and see what happens when your currency is so unstable that you have to invent different kinds of money just to get a band like Coldplay to perform a concert, after the break.

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• 7:28Speaker 02

  All right, class, back from the break. Each week on Summer School, we bring in a professor to give us the big picture concepts about the country we're visiting. And today, we have Sebastian Galliani, the weatherhead presidential chair in economics at Tulane University, and a proud Argentine, by the way. Hey, professor.

• 7:45Speaker 05

  Hey, nice to be here.

• 7:47Speaker 02

  I was hoping that we'd have a little bit of good news for our trip to Argentina during this lesson, but I suppose that people in Buenos Aires will still be crying about their loss in the final of the World Cup.

• 7:59Speaker 05

  People will be crying for four years, really, until the next World Cup. I just have more of a view that, you know, at the end of the day, one game, you can win, you can lose. It's what it is.

• 8:12Speaker 02

  It is what it is. That could be the motto of Argentina for this episode. I know that you have studied and lived the economic history of Argentina and written about how there are very different political factions there. You know, one group wants free trade and openness and wants to interact with the world. And the other political faction wants to protect the country, protect labor unions, build up manufacturing, local products, be self-sufficient. We have these same disagreements in the US. But how does this result in these unique economic problems for Argentina?

• 8:47Speaker 05

  Yeah, it's a good question, you know. One group gets to power, goes in one direction. Another groups get to power, goes in another direction. And that creates a highly volatile country. Not only that, one group, the one that tries to make the economy modern and integrated to the world, is appealing to the world. So when they are in power, many people want to invest in Argentina. But unfortunately, the other side, when they get into power, they undo all the reforms, and they expand the state, and they spend a lot. And so, the economy has been bouncing between these two groups and these two styles of political economy over decades now.

• 9:29Speaker 02

  And that creates a constant volatility, I imagine, where it's hard to plan an economy. And that political instability becomes an unstable currency, unstable debt levels, unstable business climate?

• 9:42Speaker 05

  Oh, yeah. Let's get one example. So suppose you are someone in the upper-middle class in Argentina, and you earn the same as someone in the upper-middle class in Chile. But in Chile, that person can buy a house with a mortgage, a 30-year mortgage.

• 9:57Speaker 02

  So a fixed-rate 30-year mortgage, where what you pay every month is relatively predictable?

• 10:04Speaker 05

  Yeah. In Argentina, you can't, because there's not such thing, because of the volatility. And that makes a whole difference. So the statistics may say, yeah, they are equally wealthy, but the people in Chile live much better, much better, right? Because there are many things that are not captured in those statistics.

• 10:22Speaker 02

  And of course, many personal stories that are also not captured in those statistics. We will try to tell you those personal stories today. Our next stop in the timeline of Argentina is 2022, just a few years ago. Severe inflation is starting to rise again. And yeah, we all complain about inflation. But in Argentina at this time, prices were doubling every year. Students, as you listen to this story, think about what it would be like if you had no idea what your paycheck would be able to buy next week. How would you plan a purchase or a vacation? And of course, with all that inflation, exchange rates, the amount of dollars you can get with an Argentinian peso, are also unstable. Would you be able to even leave the country? Planet Money hosts Jeff Guo and Amanda Rancic

• 11:06Speaker 02

  talked to one person trying to plan their life in Argentina in 2022. Just a note, because everything is changing so fast, the numbers you will hear in this story are just for 2022. The economy in Argentina is so chaotic that everyone there has become an amateur economist. You can call up pretty much anyone to find out what they're doing.

• 11:27Speaker 06

  To outrun this chaos.

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  My name is Lucas Babic, B-A-B-I-C.

• 11:34Speaker 03

  Lucas is in his early 40s. He's a freelance video editor. And I'll admit, I just found him through some guy who wrote into Planet Money. Lucas is originally from Brazil, but he's lived in Argentina for 30 years.

• 11:46Speaker 07

  I've been suffering Argentina since 92, okay?

• 11:51Speaker 03

  And why do you stay?

• 11:53Speaker 07

  Because Argentina is awesome, like, for real. But everything is wrong with this place. Like, everything is wrong with Argentina.

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  And one of the biggest things that's wrong, according to Lucas, is that you can't trust the peso. So like a lot of people in the country, he stashes away US dollars.

• 12:15Speaker 07

  If you can, like, hold on, like, a grudge to dollars in Argentina, yes, you're rich. So I'm not rich, but yes, I do have, like, $500 in my shoebox. Like Jay-Z said it. You gotta start with a shoebox.

• 12:35Speaker 03

  So Lucas and I are talking over Zoom. At mid-sentence.

• 12:38Speaker 07

  I'm really, like, standing up and going away. I'm sorry.

• 12:41Speaker 03

  Okay, Lucas has, like, wandered away.

• 12:44Speaker 07

  But, like, for real.

• 12:47Speaker 07

  This is my shoebox.

• 12:49Speaker 03

  Lucas, what are you saving the American dollars for?

• 12:52Speaker 07

  I hold this thing because this is not gonna devalue it. I got $10, it's gonna still be $10. Bro, I can live, like, a week and a half with this. Just this.

• 13:08Speaker 03

  Next, he picks up some Argentine money.

• 13:10Speaker 07

  This is $1,000 pesos.

• 13:12Speaker 03

  Lucas waves it at me and he's kind of like, what can I buy with this?

• 13:17Speaker 07

  I can go to McDonald's and buy, like, a really big combo with, like, bacon and cheese and, like, for real, like, a big combo on McDonald's. If I'm not gonna be able to pay it with $1,000 pesos, I gotta go with two of this.

• 13:38Speaker 03

  He shakes his sad peso. And in a year or two, he might need to take three or four of these $1,000 pesos bills to go get that combo meal.

• 13:48Speaker 06

  Because inflation might hit 100%. And what Lucas wants to buy with his pesos, it's not combo meals. It's more US dollars to stash in his shoebox.

• 13:59Speaker 03

  And this is where the story gets kind of weird, because buying dollars is not straightforward. The Argentine government controls foreign exchange transactions because they don't want US dollars to run off and leave Argentina.

• 14:13Speaker 06

  Okay, so here we go. There is an official rate. So if Lucas wants to play by the rules, he can go to a bank and buy dollars. But the government says there's a limit, no more than $200 a month. And this is gonna cost Lucas a lot because they add on a 75% tax.

• 14:32Speaker 03

  Instead, what most people do is go to one of these, not really legal, but they're kind of everywhere, places known as cuevas, or caves. These have a different exchange rate than the bank. No $200 limit, no 75% tax to get dollars this way.

• 14:49Speaker 07

  That's what we call the blue dollar, okay?

• 14:52Speaker 06

  It's still an American dollar. It's not, like, literally blue. The blue dollar just means you bought it on the black market. Lucas says that if you've got a guy, you might even be able to get a better deal.

• 15:04Speaker 07

  I have a friend, like, uh, like.

• 15:08Speaker 03

  He's giving me a pretty elaborate wink.

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  I have a friend that will give me more money for this bill.

• 15:17Speaker 06

  So there is the official rate, black market rate, you got a friend rate.

• 15:23Speaker 03

  But then on top of that, there are these other rates, which, like the official rate, are set by the government. There's one for buying stocks and bonds. There's another for using a credit card.

• 15:33Speaker 06

  There are more than a dozen of these different rates. Some even have cute names, like the soy dollar or the tech dollar.

• 15:42Speaker 03

  Now, at this point in Lucas's explanation, he's kind of fuming. He's also literally fuming. I'm watching him chain-smoke three cigarettes in a row.

• 15:52Speaker 07

  And you know what? Coldplay, Coldplay is coming to Argentina. They're gonna come to Argentina and play their songs that I hate, like, boring or whatever. But there is a Coldplay dollar. Can you believe it?

• 16:11Speaker 03

  The Coldplay dollar. Coldplay is supposed to play 10 shows in Argentina. Lucas says he will not be there. And Coldplay, well, the band doesn't want to be paid in quickly devaluing pesos. But the show promoters, they need to pay Coldplay, probably in dollars, and a lot more than the 200 that they're officially allowed to get each month. So the government set up a special exchange rate for promoters so they can pay international talent. And I guess that describes Coldplay.

• 16:42Speaker 06

  Basically, the Argentine government is using all these different rules and rates to fix problems, like with the Coldplay dollar. But more importantly, they're doing this as a way to keep scarce dollars from leaving the country and to try to prevent their peso from collapsing.

• 16:57Speaker 03

  Now, for Lucas, he's like a lot of people in Argentina right now, hit by rising inflation, a shrinking peso, a rising dollar.

• 17:06Speaker 07

  You have to really work it out, like, to get to the end of the month. You have to really, really, really work it out to get to pay the rent and the light and the water and your phone.

• 17:24Speaker 06

  Which is also what the government of Argentina is now doing, trying to work it out. Because most of their bills, billions of dollars of debt, need to be paid back in dollars. And with the value of the US dollar so high, it makes it that much harder to pay all those debts back.

• 17:41Speaker 03

  In Argentina's government, their shoebox is looking pretty empty. Just like Lucas, they still need to pay for their phone and their water, and they want to keep the lights on.

• 17:56Speaker 02

  Amanda Rancic and Jeff Guo from 2022. After this story aired, the inflation did get worse. The government tried even harder to control the exchange rates. A lot of these rules and exchange rates changed, and Argentines would elect a new president to try to fix it. But we'll get to that in a moment. First, let's talk about how sometimes trying to make the money more stable can have the opposite effect. I want to invite back in our professor for the day, Sebastian Galliani from Tulane University. Hey, Sebastian.

• 18:25Speaker 05

  Great to be here.

• 18:26Speaker 02

  Sebastian, when I was listening to the story, it just, it just felt like so much work. All those different exchange rates, the shoebox, trying to keep the value of a currency from disappearing. Money is supposed to be boring and stable. This seems exhausting.

• 18:42Speaker 05

  It might look exhausting for someone that, that don't live in such an economy. And I'm not saying it's not a bad thing. I'm just saying that if you are someone my age, you've been through so many of these ups and downs, because then it comes the, the opposite situation, where things stabilize and you want to get rid of the dollars, right? Because the peso is going to appreciate. And somehow, people more or less understand things and know what they have to do. It's not the first time they go through that.

• 19:17Speaker 02

  Of course, it's not just the inflation. It's also what the government is trying to do to control that inflation, to control the value of the peso, control who gets the good exchange rate, control who gets dollars. Economists call this technique capital controls. Now, pesos are printed by the Argentinean government, so they have some influence. But these capital controls never seem to work for a country. Why is that?

• 19:42Speaker 05

  Well, it doesn't work because, obviously, when you put a price that is below the market equilibrium, there's a lot of buyers and soon you get out of what you are selling, which is dollars, right? But at the end, it's gonna collapse, right? So it are very ineffective. But there is a lot of corruption around that, because now you decide Coldplay has a good dollar, Lollapalooza didn't got that dollar. And I know that well, because they hired me to advise them how to preserve the value of the peso in Argentina.

• 20:14Speaker 02

  Lollapalooza, the, the concert tour, is that what you're talking about?

• 20:17Speaker 05

  Yeah, yeah, yeah. They, they didn't have the same dollar as Coldplay, so they, they stayed with pesos. And they didn't know what to do and they didn't want the peso to devalue. And they, they cannot go to the, they are a serious firm. They cannot go to the black market to buy dollars. So they have to keep it in pesos and we're seeing, what's the best investment in pesos? So that's where I, I got to know about this.

• 20:41Speaker 02

  It is so funny to me that in Argentina, it is so complicated that a company who wants to bring a concert tour there has to hire their own economist.

• 20:51Speaker 05

  Yeah, yeah.

• 20:52Speaker 02

  Of course, the outcome of all these currency systems is really to make the government even more powerful, because everyone who wants to do business has to go to the government to beg for their own perfect, great exchange rate.

• 21:08Speaker 05

  Right, right. The government became very powerful, and that's why I say there is a lot of corruption around that, because the government don't decide this just using formula or criteria, some logic. It's all about, I gonna sell you dollars cheap? This is what it costs.

• 21:25Speaker 02

  In other words, what the government says goes. And this is one of the biggest lessons from Argentina's history. You can make your money appear stable by forcing everyone to use all these different exchange rates. But the real way to stability is to run a country that is growing, where people are working, and you're making things the world wants. Stable countries create stable money. We will rejoin our professor in a moment with a third story from Argentina. We talked about how inflation affects people saving money at home in a shoebox. But what happens when you have a business trying to sell the shoes themselves and the box? When all your costs keep changing, what do you do? Let's just say we are gonna need a lot of price tags after the break.

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• 23:34Speaker 02

  Okay, class, we are back with our third case study and a little tango lesson. Not the actual steps, unfortunately. It's hard to teach ballroom on an audio podcast, but a tango lesson about economics. In 2023, a year after our last story, inflation in the country got even worse for the shoebox holders of Argentina. And so Planet Money hosts Amanda Aronchik and Erica Barris flew to the country. This was also the year of a presidential election in Argentina. And one of the candidates, Javier Malley, was promising drastic changes to the economy. More on him in just a moment. We talked earlier about how everyone in Argentina has to act like an economist. And that is what Erica and Amanda found.

• 24:17Speaker 02

  As you listen to this case study, students, think about how much time everyone is wasting trying to deal with inflation. When Erica and Amanda flew to Argentina, it just so happened that there was a tango competition in town. Probably happens a lot in Argentina. And so that is where they start their story.

• 24:37Speaker 01

  When we walk into the competition, there are nine couples on stage, all dressed very formally. Men in dark suits, the women in gold lame, dark red velvet, black satin.

• 24:51Speaker 01

  We are here to meet one dancer in particular. Her name is Saya Dhati. Hi, nice to meet you. Saya works in tech in India, and late last year, she sold a company she founded. She decided she could afford to spend a few months on this thing that she loves, tango. So now she's part of the first couple to ever represent India at this competition. Saya is finished dancing for the day, and she wants to run a few tango-related errands in town. And we decide to tag along with her in her Uber. First thing we're gonna do is go see a shoe seller, tango shoes, of course. We're going to Neo Tango. It's, I guess, one of the more popular ones among my Indian friends.

• 25:37Speaker 01

  And my teacher back home has sent me a list of designs that she wants and asked me to go and buy it for her. So. Like everyone else in this country, Saya has been watching the dramatic drop in value of the peso over the last few weeks. People here watch the exchange rate between the dollar and the peso as you might watch the weather forecast, checking a few times a day, treating it as a barometer of the overall economic health of the country. When Saya first arrived in June, one US dollar was worth about 490 pesos. Two months later, one US dollar is worth more than 700 pesos. Saya planned her shoe shopping, knowing her dollars were only gonna go up in value.

• 26:18Speaker 01

  For me, I bought like two pairs so that I can practice and compete right off the bat, like as soon as I got here. But I saved my shopping for the very end. We're going to go visit the shoe seller because we want to know how a small business deals with a currency in freefall. But we start to see things immediately, even before we get to Neo Tango. Like on our car ride, we get in, start chatting with the driver. His name is Juan Pablo Gaspino Gomez, and I ask him the question we plan to ask pretty much everyone we meet here. When the peso starts to get devalued, what do you have to do differently?

• 26:54Speaker 07

  I have to find another job.

• 26:58Speaker 01

  It will be complicated for Juan Pablo to find another job because he's already got three. He's weekend Uber driving, selling Natura products, which are kind of like Gavon, but from Brazil. And then there is his main job.

• 27:12Speaker 07

  I work with, you probably know these brands that I'm going to tell you. Oreo. Oreo.

• 27:19Speaker 01

  A cookie?

• 27:19Speaker 07

  Milka.

• 27:20Speaker 01

  Oh, yeah, I know Milka. I love Milka bars.

• 27:22Speaker 07

  I work with them.

• 27:23Speaker 01

  Okay, what do you do for them?

• 27:25Speaker 07

  I work with customer service.

• 27:27Speaker 01

  So if I have a complaint about my Oreo, I call you?

• 27:30Speaker 07

  For sure.

• 27:31Speaker 01

  If I'm happy about my Milka bar, I can also call you. Who has complaints about Oreos? Never mind.

• 27:37Speaker 07

  Oreo is always good.

• 27:38Speaker 01

  We all briefly celebrate the Oreo. I mean, come on, what a cookie. Also, turns out, not a bad job.

• 27:45Speaker 07

  Thankfully, I am working in a good company, so like the inflation and stuff is like not so hard for me. There are other people that are like suffering more or having more trouble to get to the end of the month.

• 28:01Speaker 01

  Saya is listening to all this, and she gets stuck on what inflation means if you have a regular job and paycheck. She jumps in with a question. Does Oreo also adjust your salary based on inflation?

• 28:12Speaker 07

  Sure, yes, because inflation is like 10%.

• 28:16Speaker 01

  He's talking about monthly inflation. In August, it was over 12%.

• 28:19Speaker 07

  They increase our salaries at least three times per year.

• 28:25Speaker 01

  This is wild to me. Inflation is so ordinary here, many employers promise regular raises. Otherwise, their worker's standard of living would just drop and drop and drop. Getting a raise two or three times a year is pretty normal. Not just if you work for a big company, it works this way for a lot of government employees, too. Which is unsustainable. The government is essentially printing money to fund those raises. And printing money, yeah, that causes more inflation. We pull up to the address. Does it look open? Yes. It's open. Yay. Amazing. We say goodbye to Juan Pablo, and Saya, Eric, and I walk up to a very shishi boutique. Shoes.

• 29:07Speaker 01

  It's fancy.

• 29:09Speaker 01

  We get buzzed in, and there are shelves and shelves of strappy high heels. And not only are they three inches high, Saya reveals a tango secret. For tango shoes, I have to buy shoes two sizes smaller than what I actually wear. Why? Because it's supposed to be tighter than regular shoes, because it's supposed to be like an extension of your foot. So it was actually really painful in the beginning, and then they kind of open up a little bit. Yeah, wearing shoes that are too small for your feet, it's gonna be painful. Good lord. I still can't get over that. Saya finds what she's looking for and goes up to pay. How much is it gonna cost?

• 29:50Speaker 07

  $1.69.

• 29:52Speaker 01

  $69? Okay, and what would it be in pesos?

• 29:55Speaker 07

  49,000 pesos.

• 29:58Speaker 01

  49,000 pesos. In a country where the largest denomination is 2,000 pesos, people sometimes end up walking around with very, very large stacks of bills just to buy regular things, like a pair of shoes. And businesses sometimes have stashes of different currencies on hand, like Juan Pablo Vigano, the guy selling us the shoes. Would he accept dollars and pesos?

• 30:20Speaker 07

  Yes.

• 30:21Speaker 01

  Okay, euros. Okay, and euros. He has dollars and euros in addition to pesos because the store caters to both a local crowd and an international one. But this business still has a lot to contend with because of the peso. The shoes they sell are assembled in Argentina, but some of the materials they're made with are imported. So if those imported materials stay the same price as the peso falls in value, they become more expensive. And that means Neo Tango has to raise their shoe prices. How often is the price changing?

• 30:54Speaker 07

  Últimamente, por lo menos una vez por mes.

• 30:57Speaker 01

  He says lately, at least once a month.

• 31:00Speaker 07

  Y en dos semanas, tres veces.

• 31:02Speaker 01

  You had to change the price three times in the last two weeks.

• 31:05Speaker 07

  Sí.

• 31:06Speaker 01

  And you were changing it to go up or to go down? Cambiándolo para que el precio va en, viva o para abajo. Para arriba.

• 31:15Speaker 01

  Nunca para abajo.

• 31:17Speaker 04

  Prices here, he says, always go up, never down. Now, inflation has been a problem in Argentina for a long time. So his store is used to raising prices.

• 31:27Speaker 01

  But in August, the peso really took a hit. It happened after this far right presidential candidate Javier Malay unexpectedly came out ahead in a primary election. People freaked out, there was a run on dollars, the peso got devalued, and inflation spiked.

• 31:42Speaker 04

  When that happened, some store owners just stopped selling their stuff. It was too chaotic. They had no idea what price to charge. And that is what led Neo Tango to raise their prices three times in the last two weeks. Si, a veces asusta venir y que salga un valor.

• 32:00Speaker 01

  Talking about how much the peso has fallen recently, Juan Pablo says that sometimes it's scary to have one value come out and then it changes the next week and then the next week. He goes on to say it's surprising, but? Se sorprenden, pero.

• 32:17Speaker 01

  He makes a big gesture like, what are you gonna do, man? This, we've come to learn, is a very Argentinian response. People are sort of like, it's Argentina, we're used to it.

• 32:33Speaker 02

  Amanda Rancheck and Erica Beres from 2023. As they mentioned, their trip to Argentina coincided with the run up to a presidential election there. That far right candidate that they mentioned, Javier Malay, eventually won. Malay had vowed to slash the budget in Argentina. He even appeared on stage with a chainsaw to demonstrate how harsh he would be. He said the peso had become hopeless and talked about replacing the peso with the American dollar, literal American money circulating in Argentina. You've heard how frustrated Argentines were with their economy. They wanted something dramatic and they gave Malay a shot. We'll talk with our professor about how it's working after the break.

• 33:16Speaker 00

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• 33:20Speaker 04

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• 33:45Speaker 00

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• 34:09Speaker 02

  All right, everyone, phones down, pencils ready, the bell is about to ring, so we're gonna hurry up and get our lessons from Argentina. The story we've been telling is not just a sad song like a tango. It's a demonstration about how something that might seem obscure, like exchange rates, can really reach into all of our lives every single day. Here in 2026 in Argentina, President Javier Malay has slowed inflation. Big news. Prices are still going up, sure, but at only around 30% a year. That number would get you booted out of office in the US, but it is relatively low inflation for Argentina. The way Malay did it, though, was divisive.

• 34:52Speaker 02

  He radically cut the government, and that was painful for a lot of people. Massive layoffs, businesses closed. President Malay also got rid of many of the restrictions on buying and selling dollars. Rather than try to keep the peso artificially strong, he let the value go down. The government kept some control over the official exchange rate, a floor and a ceiling, but a lot of the value of the peso is now controlled by supply and demand. Let's welcome back our professor one last time, Sebastian Galliani. Hey, Sebastian.

• 35:21Speaker 05

  Hey, nice to be here.

• 35:23Speaker 02

  So we saw in this story how the shoe store had to keep changing prices. Economists have a term for this. They call it menu costs, which comes from the world of restaurants, I guess, where it'd be a huge pain if you had to print a new menu every time prices change. But this is menu costs for the entire economy. What's the practical effect of having to change your price tags all the time?

• 35:45Speaker 05

  Well, there are many practical effects. I think the one that is really, really bad for the economy is that this destroys competition because think that different stores may want to compete by offering lower prices. But the problem is that for that, customers need to know, okay, this store has a lower price than that store. But if prices change every day, that's true one day, that's not true another day. So, so those incentives to compete through prices are very distorted. And I think that that's very bad.

• 36:24Speaker 02

  And if you're in a business that imports what they sell, like, like shoes, I imagine that sometimes you stop carrying products altogether. It is impossible to buy shoes from China one week if you don't even know if you can make a profit on them the next week.

• 36:38Speaker 05

  One of the things that happen in highly volatile economies is that many, many markets disappear.

• 36:44Speaker 02

  It's interesting, so many of the Argentines we heard from today shrugged their shoulders and said, eh, what are you gonna do about it? But eventually, they did do something about it. They elected this libertarian economist Javier Malay to the presidency, and he promised shock therapy. And the inflation rate did come down. I mentioned how he loosened the restrictions on the exchange rates, but what else did he do that was crucial?

• 37:08Speaker 05

  Cut the fiscal deficit and stopped basically printing money to finance the deficit.

• 37:15Speaker 02

  Stopped printing money. The economic term for what Malay did is austerity. That is, he cut government programs, government employment, government pay, government subsidies. And at first, this had a really dramatic effect. The country slipped deeper into recession, unemployment shot up. But since he started doing it, things have stabilized. I think the unemployment rate in Argentina right now is between 7 and 8%. Not the worst. So the changes were dramatic, but the economy seems better than it has been.

• 37:48Speaker 05

  Yes. And in part, it's because inflation is also a tax, right? There's inflation tax that people pay. And when you cut inflation, you are giving that tax back to society. So it's, it's not as hard as it seems. If you were doing the same fiscal adjustment at an inflation rate that is 5% or 10%, that will be much, much harder hitting the population, yes.

• 38:16Speaker 02

  Ah, so you're saying that because inflation was so high and it so distorted everything in the economy, it also gave Malay room to make these drastic changes? There was one drastic change that Malay has not done yet, and that was to get rid of the peso altogether and use the American dollar as the currency for the whole country, which does solve all those exchange rate problems, if everyone's using the dollar. But he hasn't tried it yet. Like, will he do this? Is this the final thing that can stabilize Argentina?

• 38:49Speaker 05

  No, I, I think that's not a good idea because you lose all the flexibility when you have real shocks. And, and real shocks happen in this war. We are in a period in where, in where the war is reshaping its new war order because of the rise of China and the United States not being anymore the sole superpower. And in that war, the last thing you want to do is to lose real exchange flexibility.

• 39:18Speaker 02

  So the lesson we've learned today is that flexibility is good, volatility is bad.

• 39:24Speaker 05

  Yeah.

• 39:25Speaker 02

  We're asking all of our professors this season to offer some advice from their country that we can use back in the United States. This is hard with Argentina because it is such a unique situation. But Professor, what lesson can we learn from all of this?

• 39:39Speaker 05

  I think cutting the fiscal deficit is key in the United States. The United States is running very large fiscal deficit. And this is something that is very bad for a superpower. Because a superpower has to have, again, fiscal flexibility, fiscal space. If you have to solve a crisis in Iran or in Taiwan, it can be just, oh, we don't, we, we can't be the superpower because we cannot sell our bonds. That's, that, that, that's where you stop being for sure a superpower.

• 40:13Speaker 02

  So Argentina waited until it was a real crisis before they cut their deficit.

• 40:17Speaker 05

  Yeah.

• 40:17Speaker 02

  What you're saying to me is don't wait. Don't wait until your inflation is 30% a year, 40% a year, 100% a year before you do the right thing.

• 40:27Speaker 05

  Right. You say I have these two principles, right? Volatility is bad, flexibility is good. And, and the third one is don't wait the market to make the adjustment.

• 40:37Speaker 02

  So do it, do it while you could do it in an orderly way.

• 40:40Speaker 05

  Yeah.

• 40:42Speaker 02

  Okay, students, we have covered a lot of ground today. We're just gonna remind you of the concepts that might be on the test at the end of the semester. Yes, we have a test. Yes, you can get a diploma. We talked about the impacts of volatility, how hard it is to run a business when you can't predict even basic things about what will happen next month, like the value of the money in your savings account. We also discussed capital controls, which is when a country just passes laws to restrict money going into and out of the country, trying to stabilize things, and usually it doesn't work. Another way to try to combat inflation is austerity, when a government dramatically cuts its spending. Still remains to be seen if this is the answer for Argentina.

• 41:24Speaker 02

  I want to thank our professor today, Sebastian Galliani, who teaches economics at Tulane University, and, as we learned, advised Lollapalooza. Thanks so much for our Argentinian lesson.

• 41:34Speaker 05

  It was a pleasure.

• 41:37Speaker 02

  Every time I hear a story about Argentina, it always makes me think about the big questions in economics, like, what is money, anyway? Is it a collective delusion? We did write a book with the answers to that question. It's called Planet Money: A Guide to the Economic Forces That Shake Your Life. And hey, if you live somewhere that is trying out a new economic idea or habit the rest of the world should know about, perhaps your country uses many different currencies. Maybe you had a government that actually fixed inflation. Get in touch with us and tell us about an idea the world should know about. Our email address is [email protected]. And put summer school in the subject. We might use your idea on our final episode. Summer School was produced by Sophia Paliza Carr and Skylar Swenson.

• 42:21Speaker 02

  It's edited by Alex Goldmark and fact checked by Sierra Wiles. The show is engineered by Jimmy Keighley. I'm Robert Smith, also the host of the new podcast called Business History. Guess what it's about? Look it up. This is NPR. Thanks for listening.

• 42:42Speaker 01

  Phew, we've been around the world and back. I hope you haven't lost any of your luggage. Next up, we're heading over to South Korea on our Planet Money World Tour. Our question of our stop there will be, how do countries move up the value chain? Next up on Planet Money Summer School World Tour. Episodes come out every Wednesday.

• 43:04Speaker 00

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