Cryptocurrency to Argentina’s rescue? How to invest in a country on the brink of hyperinflation

RIO DE JANEIRO, BRAZIL – In February, concern grew among the mangers of Argentina’s main gas station chains. A sharp rise in fuel prices was looming, the liter of super gasoline was going to exceed 99 Argentine pesos (0.91 euros) in much of the country, and both the pumps and the electronic signage were not prepared to accommodate three-digit numbers with two decimal places. They only have four spaces.

The Axion oil company took the lead and sent the gas stations a communiqué that was released to the media. The message contained an assistance number so that its partners could reconfigure the instruments. When the increase occurred this week, the price of fuel had lost one decimal place in Argentina. The story is anecdotal, but it reflects the level of inflation with which the southern country started the year.

In the same week of the 7% increase in fuel prices (the first of a series that in two more months will reach 18%), the Government is preparing a new tax on companies that invoice more than 13 thousand euros and is once again threatening food companies with fines and sanctions for those who raise prices or withhold merchandise.

Measures that, at least for local market investors, have a whiff of Nicolás Maduro’s Venezuela. According to the Minister of Economy, Martín Guzmán, his portfolio “chose to concentrate the depreciation in the first months of the year” in order to reach an annual inflation of 29%. Private consulting firms already calculate almost double this figure. In addition to the scourge of inflation, there are other endemic problems in Argentina, such as bureaucracy.

According to the World Bank’s Doing Business report, the country is not among the easiest to start a business: it ranks 126th out of the 190 registered. Spain, for example, ranks 30th in the same ranking. For this and other reasons, the country was one of the worst economic performers in Latin America in 2020: GDP fell to 10.4% and for 2021 the IMF expects a rebound of only 4.5%, far below Chile (5.8%) or Peru (9%).

In the middle, the legislative elections

Economist Esteban Domecq assures that there are four major conditioning factors to consolidate Argentina’s economic recovery in 2021: “On the one hand, we will have to see the magnitude of the second wave of coronavirus that we will have in the coming months, and what this implies in terms of restrictions, the negotiation with the IMF, the dollar that pushes inflation and the behavior of the Government in view of the elections.”

According to the consultant “the economic program was modified with a clear electoral objective.” That is to say, Fernandez expects to reach the October elections with social aid plans sustained on the basis of monetary emission and deficit instead of applying measures to curb inflation.

At the same time, he will seek to keep energy tariffs, particularly domestic light and gas, behind the exchange rate. “I don’t see room for new investments until the political horizon clears and macroeconomic problems are solved,” Domecq summarizes.

The real estate sector: tempting, but not tempting enough

Brick and mortar, in this country. is a form of investment: cornered by inflation and dollar restrictions, a good part of the middle class invests in real estate  as long-term investments. Some even get a small income through rentals. However, property prices in Buenos Aires plummeted in 2020, mainly due to the pandemic restrictions on circulation.

In ‘top’ neighborhoods of the capital such as Puerto Madero, the square meter fell more than 10% in dollars and on average in the conurbation of Buenos Aires the drop was 20%. In January 2021 there were only 1,619 sales contracts in the whole city, a lower number than in January 2002, after the great crisis in the country. Construction values in 2020 also reached historic lows. However, experts say it is not a profitable investment from abroad.

José Rozados from Reporte Inmobiliario consulting firm: “What a foreign investor is looking for is a long-term investment and in that sense, the country’s outlook does not support it.” Rozados tells a personal anecdote: “The Spanish businessmen I have worked with have observed the local market and usually decided to invest in Punta del Este (Uruguay) because they find a more stable macroeconomic situation, more legal certainty and a higher degree of legal security. The values in Argentina today are not low enough as to attract them,” he comments.

Not all is lost for financial investors

At this point it could be said that the Argentine economy is plunged into Dante’s seventh hell, but the banking sector announces that all is not lost. Financial experts look favorably on some variables. “The mutual funds industry (FCI) in Argentina has been very dynamic in recent times. Fifty-five local and international fund managers participate in it.”

Assets under management have experienced a 130% growth in 2020 and this year they show an evolution of more than 15%”, explains Daniela Castaldo, CEO of Santander Asset Management, to El Confidencial. The executive clarifies that “money market, balance sheet, equity and fixed income products are offered.”

Given the macro context, the latter linked to inflation are the most attractive due to the market’s expectations regarding the evolution of this variable. “On the other hand, to diversify risk, alternatives linked to the evolution of the exchange rate are also offered,” Castaldo assures.

On the other hand, the rising price of soybean, which went from $375 per ton in February 2020 to $574.80 in February 2021, makes us think that the Government of Alberto Fernández could have some tailwind from now on. So much so that there are entrepreneurs thinking about a new sector: crypto-soybeans.

One of the inventors of the crypto-loop is Ariel Scaliter, a telecommunications engineer from the University of Buenos Aires and MBA from UCEMA. Consulted by El Confidencial, he explained that the system he promotes through the company Agrotoken, converts a ton of soybeans into a cryptocurrency, a ‘stablecoin’.

“The price of the currency is linked to the international price of soybeans and its value is backed by the ‘blockchain’ and by the oracles (large exporters) that grant the proof of grain reserve,” Scaliter adds. The difference of this cryptocurrency with investment in the futures market is accessibility. According to Scaliter “it is democratizing access to commodities.”

The field is optimistic, but with caution

According to the ICEX report, the sectors that export the most to Argentina are chemical products and waste from the agri-food industry. Together they accumulate a commercial exchange of more than 455 million euros. This is good news, since despite tax restrictions, withholding taxes and an unfavorable exchange rate for the countryside, the rising price of soybeans excites many.

Jorge Chemes, president of Confederaciones Rurales Argentinas (CRA), spoke to El Confidencial on the subject: “International grain prices are very good and are in high demand, but be careful because this bonanza does not reach the producer due to the enormous tax pressure and low profitability in Argentina.”

Chemes anticipated that “the consumption of inputs will not go down, but the uncertainty and the lack of a government plan may lead many producers to use a lower investment technological package and go on the defensive,” that is to say, to use less quantity or lower quality in their products. The agrarian representative regretted that there are no medium-term measures because neighboring countries such as Brazil or Paraguay are capitalizing on the good moment of grains.

Source: El Confidencial