Argentine Economy

Interesting article in the Wall Street Journal today:

Economic Reckoning Looms.

In Argentina's Election

Here is the link to WSJ.

[url]http://online.wsj.com/article/SB119327033336170614.html?mod=hpp_us_pageone[/url]

Great story.

From Bloomberg:

Argentine Bonds Devastated by Rigged Data Suspicion, Fernandez.

By Lester Pimentel.

Oct. 26 (Bloomberg) -- The widespread suspicion that the government of President Nestor Kirchner has manipulated inflation data and the likelihood that his wife Cristina Fernandez de Kirchner will succeed him are transforming the Argentine bond market into a financial bloodbath.

Argentina's benchmark inflation-linked bonds have tumbled 24 percent this year, making the country's debt market the worst performer in the world, according to data compiled by JPMorgan Chase & Co. And Bloomberg.

Polls show that Fernandez is the front-runner to replace Kirchner in next week's elections. She rebuts claims by government statisticians that Kirchner's administration forced them to tamper with consumer price data to hide the extent of inflation. Merrill Lynch & Co. The world's biggest brokerage, estimates prices may be rising at a 17 percent annual pace, double the official rate.

'Argentine inflation-linked debt is the single worst long- term asset in all of emerging-markets,'' said Paul McNamara, who manages more than $1 billion of fixed-income at London-based Augustus Asset Managers. He sold his holdings of the securities when government workers said in February that they were told to eliminate prices from the index.

About 40 percent of the nation's $136 billion debt is inflation-based securities, whose principal rises and falls with the consumer price index. Bondholders have lost out on $250 million in interest payments this year, Merrill Lynch estimates. By reducing the official rate, the government will save $5 billion in principal payments at maturity, data from the New York-based firm show.

Investor Distrust.

The complaints of tampering by the biggest union representing employees at the National Statistics Institute, known as INDEC, are creating more investor distrust of a country that forced creditors to take a 70 percent loss when it restructured $95 billion of defaulted debt in 2005.

Daniel Fazio, head of the employee union, said in February that a Kirchner political appointee had statisticians eliminate some details from the index and violate secrecy laws that prohibit the release of information during the data-gathering process. The union said federal prosecutor Carlos Stornelli is investigating the allegations. The prosecutor's office has declined to comment.

Yields on the 5.83 percent peso bonds due in 2033, the most traded of the government's inflation-linked debt, have surged almost 2.5 percentage points since February to 8 percent, according to Banco Mariva.

Argentine dollar securities yield 3.79 percentage points more than U. S. Treasuries of similar maturity, almost double the average 2.02 percentage-point gap on emerging-market debt, according to New York-based JPMorgan.

'Perfect' Data.

Kirchner, 57, defends the data. He blamed international investors in a July 26 speech in Buenos Aires for casting doubt on the figures in an attempt to 'get higher profits.'' He called the consumer price index 'perfect'' on Oct. 5, and said opposition parties are trying to erode the government's credibility ahead of the elections.

Three days later, Fernandez, 54, told Buenos Aires business leaders that inflation 'is in no terms'' being manipulated and that bondholders were trying to pressure the government into reporting a higher rate.

'She has not made any direct statements that would lead you to the conclusion that she will do things differently from Nestor,'' said David Bessey, who oversees more than $7 billion of emerging-market debt, including Argentine bonds, at Prudential Financial Inc. In Newark, New Jersey.

Lost Credibility.

Fernandez, a two-term senator, leads presidential candidates with 43 percent of voters saying they support her, according to polling company Ricardo Rouvier & Asociados. Her closest competitor in the Oct. 28 election, former congresswoman Elisa Carrio, is 26 percentage points behind. Rouvier surveyed 1,200 people from Oct. 12-18 for the poll, which has a margin of error of 2.8 percentage points.

Fernandez said last month she will modernize the consumer price index, swapping outdated products for newer ones. That won't be enough to restore confidence, said Tomasz Stadnik, who manages $3.1 billion of emerging-markets debt at London-based ABN Amro Asset Management Services.

'The problem is the credibility of the change,'' Stadnik said. 'INDEC has lost its credibility.''

Inflation is about double the official 8.6 percent rate, the result of a 35 percent jump in government spending this year, according to New York-based Goldman Sachs Group Inc. The rate may climb to 25 percent by year-end, Merrill Lynch says.

Rate Gap.

Investors point to a breakdown in the relationship between price rises in Buenos Aires, the province that the government uses to gauge nationwide consumer prices, and Mendoza province as evidence that Kirchner's numbers are too low.

In the 10 years through 2006, annual inflation in Mendoza, a wine-producing region located in the foothills of the Andes, was on average 0.4 percentage point higher than in Buenos Aires, government data suggest. That gap swelled to 9.2 percentage points in the first seven months of 2007.

Polls show most Argentines say consumer price increases are accelerating, a concern for people who lived through inflation of as high as 20,000 percent in the 1990s. Kirchner pressed grocers this month into cutting some prices by 5 percent through December.

To contact the reporter on this story: Lester Pimentel in New York at [email]lpimentel1@bloomberg. Net[/email]

Last Updated: October 26, 2007 00:01 EDT

[QUOTE=Thomaso276]Here is the link to WSJ.

[url]http://online.wsj.com/article/SB119327033336170614.html?mod=hpp_us_pageone[/url]

Great story.[/QUOTE]

Here is another story with a slightly different perspective:

[url]http://www.ft.com/cms/s/0/10c30666-8327-11dc-b042-0000779fd2ac.html[/url]

Questions, if the peso is allowed to "appreciate" what are the implications for foreigners visiting or living in Argentina? What will happen to real estate prices?

Suerte

[QUOTE=Facundo]Here is another story with a slightly different perspective:

[url]http://www.ft.com/cms/s/0/10c30666-8327-11dc-b042-0000779fd2ac.html[/url]

Questions, if the peso is allowed to "appreciate" what are the implications for foreigners visiting or living in Argentina? What will happen to real estate prices?

Suerte[/QUOTE]I am not an expert in economics but my guess is that what happened in Brasil will be repeated here. That is less visitors. Many europeans are rediscovering Thailand and they are turning their backs to Brasil. It is way much cheaper and safer there.

With regard to real estate, although prices are in $USD, if they eventually are getting less pesos then they will ask for more dollars.

In Brasil prices are in Reais. Prices have gone up and the reais is much stronger so very few foreigners are buying.

Actually both foreigners and locals are trying to get rid of their properties especially the "flats". The ones that are part of an apart hotel but privately owned. The monthly condominium fees of 500-600 reais make them expensive to maintain.

El Greco

The peso has been in a downward trend since 2001 and no end in sight. I think it's not worthwhile to talk about a stronger Peso.

I would think that somewhere in the next 2 years the amount of foreigners that visit Argentina will go down even though the number of Brazilians will continue to increase.

The most foreigners are spending a lot and helping to maintain the consumer spending-boom (buying electronics, clothes, etc) Things are still pretty cheap in Argentina

For your information, when I left France yesterday, as they were speaking of the probable election of president Kirschner's wife as they said, they talked of an yearly inflation scheduled for 2007 of 15 to 20%. So I wonder how strong the peso can be with such inflation.

Actually if prices stay high, this is actually sustainable. If they don't Argentina is in a world of hurt, but not because of the high export taxes.

Cristina is in a difficult situation off course. Everybody wants more cash, the 2001 excuse is not valid anymore and Argentina needs to have a big fiscal trade surplus. Imports are raising, the middle class can't afford higher taxes so that basically jut leaves the export tax to be raised.

It would be better if she made other decisions, but it's understandable

I would like to read this one in it's entirety.

Thanks,

Bob

[QUOTE=Sidney]You could Search BA Herald's editorials or The World Economic Forum.[/QUOTE]I do not currently subscribe to the BA Herald on line.

Thanks,

Bob