More Economic Alarm Bells In Dollar-Hungry Argentina

In Buenos Aires on May 15
In Buenos Aires on May 15
Ricardo Arriazu


BUENOS AIRES — As then President Juan Domingo Perón made clear in a 1951 speech, concerns in Argentina over the price of the U.S. dollar are nothing new. "I ask you this," he said. "Why do you want dollars? Who's ever seen a dollar?"

Perón posed the question to political opponents who were complaining about a shortage of dollars in one of the country's recurring currency crises, because even then, the U.S. dollar was something Argentines wanted and paid attention to. Since then, the interest has only grown.

Official statistics indicate that more than a million people in Argentina buy dollars intermittently on the official exchange market. And Argentines are thought to be holding at least $300 billion worth of foreign currencies, a staggering amount given that our peso-denominated financial assets are less than $90 billion.

Who's ever seen a dollar?

How did we get here? The answer is simple: Inflation, which destroys the purchasing power of the Argentine peso by reducing the amount of pesos people hold, and by eliminating its ability to act as a unit of account in the system. Why are big economic transactions priced in dollars? Because uncertainty over the peso's purchasing power makes it difficult to use to settle future transactions. We use a unit of account, therefore, that shows greater long-term stability.

As mentioned above, more than 75% of people's financial assets in Argentina are denominated in dollars. And so it's only natural that they worry about fluctuations in the exchange rate, which can also impact monetary policy.

Backing off LEBACs

Investors much prefer an interest rate in dollar terms than in terms of (real) purchasing power, so changing interest rates have more of an impact on the composition of portfolios than on demand for goods and services. The recent exchange-financial crisis was a clear example of this.

For tax reasons, and because of currency devaluations in neighboring countries, foreign investors became concerned about peso returns on Central Bank-issued, short-term securities known as LEBACs (Letras del Banco Central). Those worries prompted a selloff, with people buying dollars instead.

Uncertainty over the peso's purchasing power makes it difficult to use to settle future transactions.

This action does not have significant economic effects per se, as it simultaneous reduces a Central Bank asset and liability (reserves and LEBACs respectively). Essentially it reverses an operation that should never have happened in the first place, namely the entry of foreign capital to buy LEBACs, in response to rising interest rates in Argentina.

But it could have had grave economic effects if Argentines also decided to dollarize their portfolios. Fortunately that didn't happen. Between April 20 and May 11, the total stock of Lebacs remained nearly constant, but with a great increase in holdings by financial entities and a somewhat greater drop in holdings by foreign investors and funds.

The entities financed their purchases by selling other financial holdings, and sellers used the funds to buy currencies. At the same time, if we observe the private sector's total holdings of peso-denominated financial assets, we notice an increase of more than 80 billion pesos ($3.3 billion). In short: this was a crisis for Lebacs where foreigners reduced their holdings without, fortunately, affecting the portfolios of Argentines.

Trouble ahead?

The economy will inevitably be impacted by the recent fluctuations, though it is too early to say how much. As Nicolás Dujovne, the government's chief economic coordinator, stated, inflation will be greater than forecast due to the direct and indirect effects of a rising dollar.

Economic activity will also increase less than expected, given the need to reduce the current account deficit (with more restricted credit), deteriorating public confidence and spending decisions.

Ultimately, what holds the economy together is confidence. With confidence, I spend, invest and take risks. Without confidence, I stop spending and try and keep what I have, helping generate an economic implosion.

Inflation will be greater than forecast due to the direct and indirect effects of a rising dollar.

Figures from recent weeks showed very positive growth data, allowing forecasts of 4% GDP growth in the first quarter of 2018. Those of the second quarter will clearly be inferior, because of drought, tighter credit and falling confidence. But as I've pointed out before, the real cause of this and previous crises is the tendency to overspend, using credit facilities and ignoring the fact that sooner or later, creditors will start doubting our ability to repay.

That is when they will stop financing us and make us abruptly reduce our spending. And that is exactly what is starting to happen, independently of the recent crisis.

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The Food Truck, A Sign That The White And Wealthy Are Moving In

In San Diego, California, a researcher tracked how in the city's low-income neighborhoods that have traditionally lacked dining options, when interesting eateries arrive the gentrification of white, affluent and college-educated people has begun.

Balboa Park Spring Fling Food Truck festival

San Diego Food Trucks via Facebook
Pascale Joassart-Marcelli

SAN DIEGO — Everybody, it seems, welcomes the arrival of new restaurants, cafés, food trucks and farmers markets.

What could be the downside of fresh veggies, homemade empanadas and a pop-up restaurant specializing in banh mis?

But when they appear in unexpected places – think inner-city areas populated by immigrants – they're often the first salvo in a broader effort to rebrand and remake the community. As a result, these neighborhoods can quickly become unaffordable and unrecognizable to longtime residents.

An appetite for gentrification

I live in San Diego, where I teach courses on urban and food geographies and conduct research on the relationship between food and ethnicity in urban contexts.

In recent years, I started to notice a pattern playing out in the city's low-income neighborhoods that have traditionally lacked food options. More ethnic restaurants, street vendors, community gardens and farmers markets were cropping up. These, in turn, spurred growing numbers of white, affluent and college-educated people to venture into areas they had long avoided.

This observation inspired me to write a book, titled The $16 Taco, about how food – including what's seen as "ethnic," "authentic" or "alternative" – often serves as a spearhead for gentrification.

Take City Heights, a large multi-ethnic San Diego neighborhood where successive waves of refugees from places as far away as Vietnam and Somalia have resettled. In 2016, a dusty vacant lot on the busiest boulevard was converted into an outdoor international marketplace called Fair@44. There, food vendors gather in semi-permanent stalls to sell pupusas, lechon (roasted pig), single-sourced cold-brewed coffee, cupcakes and tamarind raspado (crushed ice) to neighborhood residents, along with tourists and visitors from other parts of the city.

Informal street vendors are casualties.

A public-private partnership called the City Heights Community Development Corporation, together with several nonprofits, launched the initiative to increase "access to healthy and culturally appropriate food" and serve as "a business incubator for local micro-entrepreneurs," including immigrants and refugees who live in the neighborhood.

On paper, this all sounds great.

But just a few blocks outside the gates, informal street vendors – who have long sold goods such as fruit, tamales and ice cream to residents who can't easily access supermarkets – now face heightened harassment. They've become causalities in a citywide crackdown on sidewalk vending spurred by complaints from business owners and residents in more affluent areas.

This isn't just happening in San Diego. The same tensions have been playing out in rapidly gentrifying areas like Los Angeles' Boyle Heights neighborhood, Chicago's Pilsen neighborhood, New York's Queens borough and East Austin, Texas.

In all of these places, because "ethnic," "authentic" and "exotic" foods are seen as cultural assets, they've become magnets for development.

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

A call for food justice

Cities and neighborhoods have long sought to attract educated and affluent residents – people whom sociologist Richard Florida dubbed "the creative class." The thinking goes that these newcomers will spend their dollars and presumably contribute to economic growth and job creation.

Food, it seems, has become the perfect lure.

It's uncontroversial and has broad appeal. It taps into the American Dream and appeals to the multicultural values of many educated, wealthy foodies. Small food businesses, with their relatively low cost of entry, have been a cornerstone of ethnic entrepreneurship in American cities. And initiatives like farmers markets and street fairs don't require much in the way of public investment; instead, they rely on entrepreneurs and community-based organizations to do the heavy lifting.

In City Heights, the Community Development Corporation hosted its first annual City Heights Street Food Festival in 2019 to "get people together around table and food stalls to celebrate another year of community building." Other recent events have included African Restaurant Week, Dia de Los Muertos, New Year Lunar Festival, Soul Food Fest and Brazilian Carnival, all of which rely on food and drink to attract visitors and support local businesses.

Meanwhile, initiatives such as the New Roots Community Farm and the City Heights Farmers' Market have been launched by nonprofits with philanthropic support in the name of "food justice," with the goal of reducing racial disparities in access to healthy food and empowering residents – projects that are particularly appealing to highly educated people who value diversity and democracy.

Upending an existing foodscape

In media coverage of changing foodscapes in low-income neighborhoods like City Heights, you'll rarely find any complaints.

San Diego Magazine's neighborhood guide for City Heights, for example, emphasizes its "claim to authentic international eats, along with live music venues, craft beer, coffee, and outdoor fun." It recommends several ethnic restaurants and warns readers not to be fooled by appearances.

Longtime residents find themselves forced to compete against the "urban food machine"

But that doesn't mean objections don't exist.

Many longtime residents and small-business owners – mostly people of color and immigrants – have, for decades, lived, worked and struggled to feed their families in these neighborhoods. To do so, they've run convenience stores, opened ethnic restaurants, sold food in parks and alleys and created spaces to grow their own food.

All represent strategies to meet community needs in a place mostly ignored by mainstream retailers.

So what happens when new competitors come to town?

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

Starting at a disadvantage

As I document in my book, these ethnic food businesses, because of a lack of financial and technical support, often struggle to compete with new enterprises that feature fresh façades, celebrity chefs, flashy marketing, bogus claims of authenticity and disproportionate media attention. Furthermore, following the arrival of more-affluent residents, existing ones find it increasingly difficult to stay.

My analysis of real estate ads for properties listed in City Heights and other gentrifying San Diego neighborhoods found that access to restaurants, cafés, farmers markets and outdoor dining is a common selling point. The listings I studied from 2019 often enticed potential buyers with lines like "shop at the local farmers' market," "join food truck festivals" and "participate in community food drives!"

San Diego Magazine's home buyer guide for the same year identified City Heights as an "up-and-coming neighborhood," attributing its appeal to its diverse population and eclectic "culinary landscape," including several restaurants and Fair@44.

When I see that City Heights' home prices rose 58% over the past three years, I'm not surprised.

Going up against the urban food machine

Longtime residents find themselves forced to compete against what I call the "urban food machine," a play on sociologist Harvey Molotch's "urban growth machine" – a term he coined more than 50 years ago to explain how cities were being shaped by a loose coalition of powerful elites who sought to profit off urban growth.

I argue that investors and developers use food as a tool for achieving the same ends.

When their work is done, what's left is a rather insipid and tasteless neighborhood, where foodscapes become more of a marketable mishmash of cultures than an ethnic enclave that's evolved organically to meet the needs of residents. The distinctions of time and place start to blur: An "ethnic food district" in San Diego looks no different than one in Chicago or Austin.

Meanwhile, the routines and rhythms of everyday life have changed so much that longtime residents no longer feel like they belong. Their stories and culture reduced to a selling point, they're forced to either recede to the shadows or leave altogether.

It's hard to see how that's a form of inclusion or empowerment.The Conversation


Pascale Joassart-Marcelli is a Professor of Geography and Director, Urban Studies and Food Studies Programs at San Diego State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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