It is not fear of the unknown, it is deja vu. I write out of experience. My family was affected when in 1985 the newly elected Peruvian government "froze" for six months the savings that individuals had in banks in US$ accounts, money was returned in Peruvian intis (the currency at the time) at the official exchange rate. That was only good enough to buy 30% of the original savings at the "black" or "parallel" market.
What happened next in Peru is a horror story:
In 1986, the government established three different official exchange rates In 1987 the government attempted to nationalise the banks In 1988 the government ordered that all foreign currency coming to the country had to be converted into local currency In 1989 annual inflation was 2000% In 1990 the currency was change to the Nuevo Sol. One Nuevo Sol per 1,000,000 intis
Things have changed since then and the currency is traded now with no controls, been relatively stable for the last 10-15 years
In Argentina during the 90's Mr. Menem pegged the Argentine Peso to the US$, 1 peso for 1 US dollar. Things went well for a few years...until they went pear shaped, high debts, no growth, recession. In 2001 the government froze bank accounts and forbade withdrawals from US$ denominated bank accounts. Months later people were allowed to withdraw this funds if they accepted to convert those funds at the 1:1 exchange rate, whilst the real exchange rate was 4 pesos per US$.
In Venezuela, the government established in 2003 an official exchange rate of 2.15 bolivares fuertes per US$, In 2010 the government created two official exchange rates, One at 2.60 Bolivares fuertes per US$ and another one at 4,30 Bolivares Fuertes, In 2011 the exchange rate at 2.60 Bolivares was eliminated, so today if you sell 1 US$ to the government you will get 4.29 Bolivares fuertes, but if you sell it on the street you will get 8.5 bolivares fuertes. Of course officially you are only allowed to sell US$ to the government. Think about it you sell your US$ for 4.30 bolivares and if you want to buy it back you have to pay 8.5bolivares
One more thing about Venezuela is that gold miners have to sell their production to the government who decides what price it pays (very different to market rates).
Now back to Argentina in 2011, and I will quote the same Bloomberg article that nofish has quoted from:
"In the parallel peso market, the currency weakened 0.1 percent to 4.8437 per dollar at 11:32 a.m. New York time. The difference with the official market rate of 4.2350 is the widest in three years."
More from that article:
“These measures only reaffirm our expectations that the government will continue with the same economic policies after the strong showing in the presidential and legislative election and risks for more interventionism, instead of structural adjustments, to fight capital outflows that are responding to the growing macro imbalances,” RBS’s Hernandez wrote."
Finally remember Argentina defaulted on its debt in 2001 and ten years later those bondholders haven't seen their money back.
I still hold TRY, good company but risk from its exposure from Argentina has increased in my opinion. Being naive about it can hurt your pocket.
Alejandro
TRY Price at posting:
$3.86 Sentiment: None Disclosure: Held
