The Central Bank increased the reference interest rate (it had not been done for two years and it is one of the conditions of the agreement with the IMF), which went to 49% per year for a term of 28 days (equivalent to an effective rate of 61, 8%), and still does not hedge investors against accelerating inflation. In this way, saving and investment continue to deteriorate.
Faced with this reality, the Economic Research Institute (IIE) of the Córdoba Stock Exchange analyzed the performance of different savings alternatives in the last 20 years and incorporated a food option to the more traditional ones of the financial system. The study reached the conclusion that having bought asado in 2002 was the most profitable option for Argentines, above a traditional fixed term, one in UVA, buying dollars or stocks.
traditional fixed terml: It is one of the most widespread savings instruments in the country. An initial deposit of $100 in April 2002 equals $3,800 in interest payments. The key is that to have the same purchasing power that $100 had 20 years ago, today you need almost $12,000. Inflation deteriorated the savings of an investor who opted for the fixed term, who lost 68% in real terms.
Fixed term in UVA: This tool was implemented in 2016. The initial $100 is $4,750 today. Despite exceeding the performance of the traditional fixed term, it lost 60% of its value due to inflation. If the investment in UVA had existed 20 years ago -the Institute considered the Reference Stabilization Coefficient (CER)-, the return would have been $4,362, even less than the combination of fixed term and UVA described above. This situation occurs because the CER replicated the inflation reported by INDEC during its intervention between 2007 and 2015, which was underestimated. In other words, an indicator that was originally created to follow the advance of prices ended up losing 63% compared to real inflation (reestimated based on that of the Provinces and the City of Buenos Aires for the period) of the last 20 years.
Dollar: A saver who bought $100 in dollars in April 2002 would now have almost $3,900 valued at the official exchange rate. Measured at free market value, the amount jumps to $6,700. The calculations show that dollarization won out over traditional savings instruments in pesos, but it also lost out against inflation: in real terms, the free dollar lost 44% of its purchasing power since April 2002. Beyond the distortions of the Argentine economic policy, this situation is explained because the dollar also had inflation in the last 20 years, which was 60.8% accumulated. That is why its purchasing power also deteriorated, although to a lesser extent than the peso.
Shares of stock: These are instruments used by savers willing to assume a higher level of risk. The $100 invested in April 2002 would be equivalent to $22,500 today, based on the evolution of the Merval index that summarizes the behavior of the Argentine stock market. The figure is 90% above inflation. Due to the low level of financial education in Argentina, investment in the capital market is not a very widespread alternative. According to the Central Bank of the Argentine Republic (BCRA) and the Development Bank of Latin America (CAF), according to a study carried out in 2017, while 73% of Argentines recognize fixed-term deposits as a savings alternative, only 33% do it with shares.
Roast: In the hypothetical case of having bought and frozen $100 worth of roast 20 years ago, equivalent to 23 kilos of meat, today they would be worth $24,000. Despite the fact that the bone-in roast strip is one of the most consumed cuts at the local level and is not exported, the evolution of its price exceeded the performance of the most used savings alternatives in the country.
Consequences of the deterioration of savings
In practice, 12% of Argentines save in foreign currency, 5% do so in fixed terms and less than 1% do so in the capital market. On the other hand, half of Argentines do not save by choice or because their income is not enough.
The loss of purchasing power, the low level of financial education and financial repression policies in conjunction with interest rates below inflation lead to the deterioration of the population’s savings.
In turn, this situation results in fewer financing possibilities, both for consumption and for investment, which has a negative impact on the economy and further limits the potential for growth and development in the future.