Unintended Consequences

Argentina suffered unintended consequences of foreign exchange controls

Talk about unintended consequences! The latest attempt by Argentina to reduce currency flight made the situation worst.

USD vs Argentine Peso 2014 January 18 to 24

USD vs Argentine Peso January 18-24, 2014. Peso value dived on January 23.

Above is the currency exchange rate of United States Dollar (USD) vs. Argentine Peso (ARS) last week. See the huge spike? What happened?

January 22, 2014, BBC reported:

“Argentina has introduced new restrictions on online shopping as part of efforts to stop foreign currency reserves from falling any further.

Anyone buying items through international websites will now need to sign a declaration and produce it at a customs office, where the packages have to be collected.

But they didn’t think about the unintended consequences of workers losing productivity as a result:

“The real problem is that the item is received in customs now instead of at your home. Each time you go to customs, you need to spend three or four hours.

‘I lose half a day’s work, which is unacceptable.'”

Next day, January 23, Argentine Peso fell 11% against USD. The day after that, the country reversed its decision. BBC, January 24:

“Argentina is to relax its strict foreign exchange controls, a day after the peso suffered its steepest daily decline in 12 years.”

But the damage is done. System Dynamics practitioners are familiar with testing policies to determine and minimize unintended consequences of an action. Perhaps Argentina needs someone with SD knowledge to help them solve their exponential currency devaluation problem, before this continues:

five year trend of Argentina currency vs. United States dollar

five year trend of Argentina currency vs. United States dollar