Economy

Bang For Bucks, Why Some Countries Prefer A Weak Currency

A foreign exchange office in Buenos Aires, Argentina
A foreign exchange office in Buenos Aires, Argentina
Rodolfo Terragno

-Analysis-

BUENOS AIRES — Argentines are surprised when they hear Europeans are worried the dollar is becoming cheaper. But there's reason for it. Cheaper dollars mean that foreign products will flood the old continent, which, of course, is good for importers.

In Argentina, most people believe that a strong peso is better than a weak peso. It's difficult to explain to them that this is not always good news. Imagine an Argentine bag manufacturer who exports to Brazil. Until 2002, it would have cost him or her $100 to make the bags, which meant that his or her business could not compete with Brazilian manufacturers whose real costs were equal to, say, $50. Not only could the firm not export to Brazil, it could also not compete with Brazilian bags sold in Argentina. But with devaluation, the firm's costs in dollar terms dropped by two-thirds. It was over for Brazilian bags here.

Devaluation is similarly beneficial to all our exporters, industrialists and farmers.

The "dollarization" of the Argentinian economy is something that can occasionally act as a solution in a crisis.

Of course, everything shifted in the internal market. Most people here earn in pesos, and immediately suffered from devaluation, as did all those with dollar savings. And there are a lot of them in Argentina. Argentines have come to distrust the peso thanks to chronic inflation and intermittent monetary crises. The dollar has become an asset people buy to protect themselves from such phenomena.

So many Argentines have dollar savings that the dollar is effectively Argentina's alternate currency. These dollars are used in transactions, to buy a house or a car for example, and to index prices that rise alongside the dollar. When the dollar suddenly lost two-thirds of its value in Argentina in 2002, it was terrible for those with dollars but, in the long term, it was good for the economy.

External trade is an engine of development, and devaluation, alongside the worldwide stampede to buy soy, allowed Argentina to grow by 8 to 9% a year. (This is, admittedly, a simplified analysis.) The economic reality is much more complex. In reality, it is not a weak currency that is so bad as an unstable one. The "dollarization" of the Argentinian economy is something that can occasionally act as a solution in a crisis.

Today, Europe does not have a problem as serious as our bag manufacturer did before devaluation. But even without the same intensity, it is, at its heart, the same problem: a strong euro makes Europe less competitive. It is a horrible term that means a country can sell expensive and buy cheap.

Vincent Deluard, an economist at the research group Ned Davis, says a strong euro will certainly create serious problems for European industry, especially for its exporters. It will also affect tourism. American, Chinese and Japanese tourists will find it more expensive to spend the summer in Europe. A rising euro then means fewer tourists.

Rising euro, fewer tourists — Photo: Omer Messinger/ZUMA

A weak dollar, which is harmful to Europeans, is good for Americans. In fact, U.S. President Donald J. Trump said in April that the dollar was "getting too strong" and that the Federal Reserve was acting to weaken it a little. Trump was worried that a stronger dollar would allow Germans and the Japanese to sell, among other things, cheaper cars to Americans. It is "very, very hard to compete when you have a strong dollar," he warned.

A while back the Peterson Institute in Washington calculated that for every 1% rise in the dollar's value against the euro and other currencies, the United States lost $20 billion a year and 150,000 jobs.

Since Trump's election, the dollar has reached an unprecedented level in the last 13 years. Some presented it in a positive light, saying it was a sign of investor confidence in the new administration and the possibility of U.S. growth exceeding those of European economies and Japan. Trump said it was "partially" his fault — for the trust he inspired — but that he was not welcoming the rise.

A strong currency can hinder economic growth.

This proves that advanced countries intermittently prefer to have weaker currencies, which is what Argentina has achieved by devaluating its currency. Germany did it decades ago, and that helped establish it as Europe's great power, and China is doing it today. The Asian giant devaluates the yuan to dislodge competitors from world markets. While Trump has called China a currency manipulator, he seems to be doing the same thing now.

Obviously, you do not devaluate a currency whenever you want, as that would hinder your country's ability to come out of a recession and grow.

If a country is inefficient, if its industry is backward, if it spends more than it earns and feeds inflation by printing money, then devaluation is worthless. That is not the case with most European countries but the euro could, because of the deficits of southern Europe economies, face more problems. That is what former Federal Reserve chief Alan Greenspan believes. He has said northern European countries cannot keep financing the debtor countries of the bloc's south. Margaret Thatcher realized this problem years ago when she decided Britain could join the European Union but not the euro. Greece, a poor country, she observed, could not have the same currency as Germany.

A strong currency (which is what the euro is to the Greeks) can hinder economic growth or, in this case, even bring down the European Union.

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Green

In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.


It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park

Xinhua/ZUMA

Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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