King Cash Isn't Easily Dethroned in Macri's New Argentina

(Bloomberg) -- Argentines are hung up on cash. Spend four days in Buenos Aires armed with debit and credit cards, but not a single peso, and that'll become clear.

One nuisance when I was there last week was not being able to add gratuities while taking care of a restaurant bill with plastic; I had to scrounge spare change from friends and colleagues for tips, and also if I wanted to buy a bottle of water or take-out for lunch. Very few of the omnipresent black-and-yellow cabs accept anything other than the physical version of money. Hired cars take MasterCard, Visa and the like, at premiums as much as triple the usual fare. Uber drivers supposedly will let you pay by card if it's issued by a foreign bank, though my American Express wouldn't compute.

To be fair, these are minor inconveniences. And the situation isn't anything like when I lived in Buenos Aires between 2012 and 2016, back during the era of capital controls, which meant three hours shuttling between banks and black-market exchange houses to cover the rent with piles of pesos. President Mauricio Macri has loosened things up.

Still, this is a country where bank deposits equal just 15 percent of gross domestic product and more than 40 percent of economic transactions are what's called “informal.” Distrust of financial institutions (or perhaps a desire to dodge taxes) is so deep that even the wealthy living in gated communities hand over condo fees in thick stacks of bills.

It's all very different from places like Denmark, where banks convert even kids' allowances into digital accounts, or India, where Prime Minister Narendra Modi tried to root out cash transactions by banning 86 percent of the currency in circulation.

A mobile-banking app launched in Argentina Tuesday is the latest private-sector attempt to persuade people to abandon their under-the-mattress attitude. Called Ualá, it's backed by a group including billionaire George Soros and Steve Cohen's Point72 Ventures. About 40 percent of Argentines have smartphones, so maybe the group is on to something.

Many bankers have doubts, though. They told me the formal economy has to expand before banking, conventional or otherwise, will take off. And people have to regain faith in the economy after years of double-digit inflation.

To seek some answers, I polled followers on Twitter asking who to blame for restaurants not allowing tips to be added to the credit card bill. Of the options: “the owners, the waiters, delays to collect the cash and ‘Oh well. That's Argentina for you,”' the latter won with 57 percent of the nearly 900 votes. Jokes aside, most pointed to tax evasion and high card fees as the real culprits.

Macri would say just give him time. His administration got a boost in August when his party's candidates did better than expected in primaries, a good sign for him ahead of Oct. 22 congressional elections. Investors and businesses are beginning to take his growth and policy agenda seriously. Inflation is projected to slow to 16 percent next year from about 40 percent in 2016.

The president, for one, reckons digital transactions will be part of the transformation. “We are very used to the Internet now,” he said in a recent interview, and products like Ualá should help get the economy back on track.

In the meantime, don't pass an ATM without stopping.

--With assistance from Charlie Devereux

To contact the reporter on this story: Daniel Cancel in Sao Paulo at dcancel@bloomberg.net.

To contact the editors responsible for this story: David Gillen at dgillen3@bloomberg.net, Anne Reifenberg, Melinda Grenier