Don't Cry For Argentina - Have A Big Mac Instead

by Mike Godfrey, Tax-News.com, New York

21 August 2001

While Argentinian officials are locked in desperate talks with the IMF seeking further loans to help the country avoid default on its $130bn debt, back at home Buenos Aires province is playing its part by paying its employees partly in vouchers that can be used to pay off taxes and for other types of domestic consumption . . . such . . . as . . . . Big Macs.

The one-year bonds, which can be redeemed for real money (if it's worth anything) in a year's time have been christened "Patacones" by the province's governor after a long-defunct national currency. Electronic cash machines belonging to the provincial bank are being filled with $90m in the freshly-minted bonds and 150,000 state employees will start receiving Patacones later this week.

Provincial governments, like the national government, are not allowed to print pesos unless they're backed by dollars under the country's currency board system. The federal government has got around that problem by issuing international bonds which now account for a quarter of all outstanding emerging market sovereign debt, but no-one will lend any more to the provinces, which have $25bn in debt outstanding, and there is concern that a default by a big province such as Buenos Aires could force the federal government to step in, putting its shaky finances further at risk. Markets have not forgotten that a similar scenario provided the catalyst for Brazil's crisis nearly two years ago, ending in a devaluation in January 1999. So Buenos Aires is doing the only thing left to it - borrowing from its employees.

In theory, the Patacone bonds have a 7% coupon, but the reality is that their value depends on their acceptance as a kind of local currency, so Carlos Ruckauf, the governor of Buenos Aires province, has leant on utilities such as Azurix and Aguas Argentinas to take Patacones; foreign-owned telephone companies Telefónica and Telecom Argentina have also climbed (been dragged?) on board.

The big surprise though is that McDonald's, the fast-food chain, will accept the currency in exchange for its new "Patacombo" - two cheeseburgers, fries and a drink. Obviously its management has been reading the Economist magazine, which introduced its 'burgernomics' comparison of world economies some years ago - once a year, the magazine ranks the purchasing power of world economies by comparing the prices of Big Macs around the globe.

Emerging market debt traders on Wall Street laughed at the news, but the Patacombo provides what is perhaps the first estimate of the real value of a Patacone, at about 70 cents in the dollar. Poor old Argentina: who wouldn't shed a tear at the thought of teachers, bureaucrats, policemen and ambulance drivers subsisting on a diet of hamburgers instead of their usual 2-kilo steaks?

Recommended