Sue and I spent a pleasant week last month tasting our way through a group of very interesting wines provided by  Wines of Argentina (see the wine menu below). We scheduled the last of the wines, the Achaval Ferrer Quimera to taste with a meal of smoked brisket and roast vegetables on December 13. We were looking forward to the wine because of our great memories of visiting the winery on our first trip to Mendoza.

We awoke on December 13 to find that the Quimera tasting had taken on a broader meeting. After the markets closed the previous night, Argentina’s new president, Javier Milei, had taken a dramatic first step in his “shock therapy” treatment of the Argentine economy, cutting the official value of the peso in half over-night and doubling, in effect, the cost of any imported goods priced in dollars.

The Chimera Effect

Chimera (or Quimera in Spanish) has more than one meeting. Chimera can be a mythical creature that combines parts of several different animals in unexpected ways  (Americans might think jackalope, I suppose). Or it can refer to a mystical illusion of some sort, which hides a different reality. Mythical? Or mystical? That’s the Chimera effect.

Achaval Ferrer’s Quimera wine was inspired by mythical beasts. It’s a blend of wines from three very different vineyard places. Terroir, we learned on that trip, is very important in Argentina wine, especially the difference between higher- and lower-elevation sites. It is probably just my imagination, but seem to believe that this effect is magnified when older vines are involved. Probably a Chimera!

First, we tasted the barrel samples of the wines from each of the three different vineyards and they were very different indeed! And then we re-created the final blend and finally the finished bottled wine. It was quite an experience to have the Quimera wine come together in our glasses.

Economic Illusion

The economic policies of the new President, the  “anarcho-capitalist” economist Javier Milei, seem to be a combination of the two ideas of chimera, mythical and mystical. The terrible state of the Argentine economy is neither, however. Inflation is out of control, poverty is high and rising, and social tensions are even higher. The fact of the outsider Milei’s election is evidence of the political divisions that overwhelm the nation. Or at least this is how it looks from my long-distance vantage point.

Desperate measures have been employed in the past to try to hold things together. The most obvious symptom of this, to someone familiar with international finance, is the existence of multiple exchange rates. High inflation tends to push down a country’s currency value, which protects exports but increases the cost of imports. To try to avoid the higher import costs, which further fuel domestic inflation, Argentina’s previous government artificially propped up the peso (at high cost), creating a multiple exchange rate system. There was the official rate and then the unofficial rate, which was nearly half the dollar amount,

Exchange Rate Illusions

Then the government resorted to special limited-condition exchange rates to encourage specific activities or to  please particular interest groups. An exchange rate for agricultural goods, to encourage exports, for example. Another exchange rate for foreign tourists is to keep that industry going.  A very special exchange rate, I am told, for Argentines who traveled to see their national team win the FIFA World Cup last year! And finally, of course, a special exchange rate for wine exports, the Malbec peso. What was the peso worth? The answer was all of these exchange rates and none of them. What a chimera!

Multiple exchange rates, which are a Chimera in the mythical beat sense, give the illusion of competitiveness (the other kind of Chimera), but in general, they tend to create inefficiencies and uncertainty. No one who can avoid it is likely to use the peso under these circumstances. So Milei’s “radical” devaluation as noted in the headline above is more conventional than it might seem, lifting the veil and revealing reality.

When Sue and I first visited Argentina a dozen years ago, 100 pesos would buy about 5 U.S. dollars. Now 100 pesos buys about 12 U.S. cents at the official rate, and even less on the unofficial market even after the “shock therapy” evaluation.

Elementary, My Dear Watson

So what should we think about Argentina’s prospects? I am reminded of a comment from the fictional detective Sherlock Holmes. In solving a problem, he said, test each logical theory and eliminate them one by one. When you are done whatever answer you have left, no matter how unlikely, is the solution. Logic and illogic combined — a chimera theory, don’t you think?

It seems to me that Argentina has explored all the possible solutions to its problems and opted, at this point, for the illogical remaining possibility. President Milei combines radical rhetoric and outrageous behavior (he wielded a chainsaw at rallies) with remarkably conventional economic policies (the basic outline of his radical economic plan can be found in the IMF playbook).

It is not clear what will happen now. Milei wone the election, so he was a popular candidate, but his political base as president is questionable and there is strong resistance and opposition. A general strike to protest his programs is planned for later this month.

I am not a fan of President Milei, but perhaps this is the only remaining way forward. Fingers crossed that the short-term pain and disruption lead to longer-term stability and growth.

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