Banking in Argentina

Brad DeLong delong at econ.Berkeley.EDU
Wed Nov 6 13:37:40 PST 2002



> Brad wrote:
>
>>> Michael Mussa says they don't work.
>
>Well he's fucking wrong then, not to put too fine a point on it.
>
>This isn't a question of macro-policy, or whatever. It's a matter of the
>difference between two situations:
>
>1. I walk into a bank in Buenos Aires and say "I'd like to make a deposit
>to my savings account, a withdrawal from my current account and take out a
>loan please". The person behind the counter says "that might be a bit
>difficult, particularly the loan, but basically OK".
>
>2. I walk into a bank in Buenos Aires and say "I'd like to make a deposit
>to my savings account, a withdrawal from my current account and take out a
>loan please". The person behind the counter says "This is a cheese shop;
>all the banks closed down six months ago".
>
>Argentina is much more like 1. than 2. As a matter of observable fact, the
>banks are carrying on banking business. Any analysis of Argentina's
>problems which contains the step "and then the banking system collapsed" is
>based on at least one non-fact. The corralito is coming to an end, and the
>banking system is still there.
>
>dd

"A bit" difficult?

Perhaps a better analogy would be that an Argentinean bank is like a cheese shop where you can *buy* the cheese--you just can't take the cheese out of the store or eat it inside the store...

A 40% inflation rate coupled with a 90% prime lending rate means that your loan comes at a real interest rate of 50% per year: that's not supposed to happen after a devaluation--a big devaluation is supposed to make real interest rates low, not high, that's the point of it...

Real bank deposits today (measured using Argentina's domestic consumer prices) are 2/3 what they were a year ago...

Real bank loans today (measured using Argentina's domestic consumer prices) are 57% of what they were a year ago (and that's making no correction for the value of distressed debt)...

How will the corralito come to an end?

Brad DeLong



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