{"id":112072,"date":"2025-11-02T22:53:13","date_gmt":"2025-11-02T22:53:13","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/112072\/"},"modified":"2025-11-02T22:53:13","modified_gmt":"2025-11-02T22:53:13","slug":"the-enormous-cost-of-argentinas-peg","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/112072\/","title":{"rendered":"The Enormous Cost of Argentina’s Peg"},"content":{"rendered":"

The decision to stick with the Dollar peg helped Milei do well at the polls<\/a> one week ago. But that decision has come at huge cost to Argentina. That\u2019s because the Peso is substantially overvalued<\/a>, which means that the uncertainty created by last weekend\u2019s election inevitably caused massive capital flight as households scrambled to convert savings into hard currency. History shows that this capital flight never reverses. Once these savings leave the country, they\u2019re lost to Argentina. The months leading up to last weekend\u2019s election saw the biggest capital flight in over 20 years.<\/p>\n

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The chart above shows a proxy for monthly capital flight, which was published by Argentina\u2019s central bank on Friday. Capital flight in September 2025 looks to have eclipsed that in August 2019, when an election spelled the end for President Macri. Two points are worth noting. First, when all is done and dusted, this capital flight episode will likely be much worse than 2019. We don\u2019t know this for sure, since we won\u2019t have October data for another month, but it\u2019s highly likely. Second, had the Peso been allowed to float ahead of the election, capital flight would have stopped, because there\u2019d no longer be a devaluation for households to front-run. Capital flight is thus a direct consequence of the decision to stick with the peg for political reasons.<\/p>\n

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There\u2019s an obvious question how well this monthly proxy matches actual data on capital flight from the quarterly balance of payments. In the above chart, the blue line is the quarterly sum of the monthly data in the first chart. The black line is from the quarterly balance of payments and is a more accurate metric for capital flight. It sums residents\u2019 direct investment outflows (excluding reinvested earnings), their portfolio and other investment outflows plus errors and omissions. It\u2019s clear that the monthly capital flight proxy does a good job of capturing what\u2019s going on.<\/p>\n

Argentina\u2019s almost pathological fixation on Dollar pegs is a huge distraction. It also starves the country of capital, which is the opposite of what the country needs.<\/p>\n","protected":false},"excerpt":{"rendered":"The decision to stick with the Dollar peg helped Milei do well at the polls one week ago.…\n","protected":false},"author":2,"featured_media":112073,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":["post-112072","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-il","tag-israel"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/112072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=112072"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/112072\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/112073"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=112072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=112072"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=112072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}