Argentine Economy

[Hunt99]

Thats a good point which I was going to bring up Andres. I do not use the US as a "universal reference standard", especially for a country like Argentina which I believe is more oriented toward a more socialistic system that is more common in W Europe. But how a country like Italy, apparently having many similar issues as Argentina (corruption, Latins, instability, etc) is able to maintain a relatively expensive social system yet still be a 1st-world G7 country is something I don't fully understand. Why can't Argentina do the same?

Perhaps because Italian politicians only steal with one hand, but not both?

Perhaps because Italian politicians only steal for themselves, instead of inviting their wives, brothers, sisters, in-laws, and cousins to join them in looting the treasury, robbing the taxpayers, shaking down the businessmen, and requiring government workers to kick back portions of their salaries (oops, I mean make "contributions" to the union)?

Perhaps because Italian politicians occasionally go to jail for corruption?

Perhaps because Italian politicians understand that when they take a bribe it doesn't mean they're entitled to seize the bribegiver's entire business?

Some of our other posters could offer a few more examples.

[Moore]

What I point out is that, as Moore mentions in his last post, people here is trying to FIGURE IT OUT how Argentina works. Using the US as the "universal reference standard" doesn't help to do so. However, some countries such as Italy were able to grow despite of a highly corrupted system

Thats a good point which I was going to bring up Andres. I do not use the US as a "universal reference standard", especially for a country like Argentina which I believe is more oriented toward a more socialistic system that is more common in W Europe. But how a country like Italy, apparently having many similar issues as Argentina (corruption, Latins, instability, etc) is able to maintain a relatively expensive social system yet still be a 1st-world G7 country is something I don't fully understand. Why can't Argentina do the same?

[El Aleman]

Andres,

Argentina did not get out of the "pit left by the peso peg" without the IMF, but against the IMF - by defaulting on her international debts. In fact, Argentina declared bankruptcy. As far as I know, an unprecedented act of a country.

While this is seen as a heroic act by many Argentineans (in fact, all I know) it is seen quite differently by Argentina's creditors, public as well as private. Anybody who invested money in Argentinean tresury bonds is certainly not amused.

The main impact this may have is towards the credibility of countries in general. Up to now, any country's government bonds in hard currency - Dollars, Euros, Swiss Francs, Sterling etc - where considered trustworthy, the perception was that nation states could not go bankrupt. This has changed, and may result in far bigger difficulties for some countries to get credit on the finacial markets. Which, btw. Is not necessarily bad.

Please don't consider this as "ranting and reving". I am not looking at the world from an U.S. Point of view, but from an European. Personally, I am torn between appreciating and condemning Kirchner's policy, tending a bit more to the latter. Declaring bankruptcy, in the usual sense within a working legal system, may rid you of your debts, but also puts you under strict rules. Argentina, so it seems, wants the best of 2 worlds.

Just my 2 centavos.

El Alemán

[Andres]

Andres-

I think the irony of most of the Monger-Economist arguments on this board is that they argue that essentially Argentina should be more like the USA in terms of politics, economics and business practices. What I think they are missing is that if Argentina operated exactly like the USA, they would not want to come here. You cannot have the cheap steak, the cheap pussy, and cheap living when a country has an efficient, low-corruption, socioeconomic and political system. Think about it.

Suerte,

Dirk Diggler

Dirk,

Absolutely. You cannot have ALL the advantages of a Third World country if it becomes a developed one.

What I point out is that, as Moore mentions in his last post, people here is trying to FIGURE IT OUT how Argentina works. Using the US as the "universal reference standard" doesn't help to do so. If the fundamentals were so clear, a politician such as Menem would have solved it with a handful of rules, but the fact is that these rules aren't suitable or applicable. The issue is more complex than it looks like.

For instance, I agree with Moore, Hunt and others that corruption isn't the best ingredient for a business to thrive. However, some countries such as Italy were able to grow despite of a highly corrupted system (that political structure called lotisazzione between 1950 and 1990) In fact, lotisazzione was necessary to encourage old money (Fiat, for instance) to invest in some areas without worrying about competition from others. After all, the Italian financial system differs significantly from the American one, so if you as the government want to encourage investments, you have to deal with the system in place.

Andres

[Moore]

What I think they are missing is that if Argentina operated exactly like the USA, they would not want to come here. You cannot have the cheap steak, the cheap pussy, and cheap living when a country has an efficient, low-corruption, socioeconomic and political system.

The "smart money" is acutely aware of this Dirk, exploiting the situation and r.e.a.p.ing the rewards.:D

Figuring out Argentina's issues is sort of like figuring out women - it is a journey that has no end. The fundamental problems are static and quite easy to diagnose, but their recurring manifestations never cease to amaze.

[Rock Harders]

Andres-

I think the irony of most of the Monger-Economist arguments on this board is that they argue that essentially Argentina should be more like the USA in terms of politics, economics and business practices. What I think they are missing is that if Argentina operated exactly like the USA, they would not want to come here. You cannot have the cheap steak, the cheap pussy, and cheap living when a country has an efficient, low-corruption, socioeconomic and political system. Think about it.

Suerte,

Dirk Diggler

[Andres]

My answer would be to reverse all the policies that defy the laws of econmics. Then, support the export sector, allow freer trade, prosecute and persecute the mafia, restore the order of law, clean up the judiciary, support contractural law, improve the banking sector, create a Fannie Mae, encourage capital investment, stop the populist rhetoric (your mills) which discourages all foreign investment, reduce the growth rate of the money supply, pay-off the hold outs from the repudiation, improve tax collection, clean-up the police force, stop the control of prices, improve the infrastructure utilizing the unemployed, improve relations with the IMF, reduce Socialism, listen to knowledgeble men like Hunt99, and Moore, mas, mas, mas!

I wonder how you would fight mafias, clean the police and "restore" any order (when there wasn't any before) when the very elites support and / or encourage these issues. That's what I call wishful thinking.

If you want to change a country, you need to understand that its constitutive society has strong mechanisms and official and unofficial checking structures, that are there for a reason. For instance, populist rethoric (understanding that as saying what people want to hear) is part of the package. You cannot go against it within a democratic system, and you cannot trigger a sustainable dictatorship. Those are the rules you have to play with, not the ideal measures that you would like to take.

Anyway, guys, if you want to rant and rave, that's your call. I just try to make you see things from a different perspective so that you can stop beating the same horse and getting nowhere, but I'm afraid that I'm losing my time trying to explain something to people obsessed with Socialist fanthoms.

Andres

[Andres]

It's not sustainable when you fail to reduce the public sector's 60%+ claim on the economy and inflate the currency by printing ever greater amounts of pesos and artifically restrict price fluctuations (export restrictions, price controls, etc)

The IMF was looked to by the markets as a source of stability and a restraining influence on Argentine policy makers. There is now free rein for Mr. Kirchner to do what he wants, for good or ill. I'm guessing ill. But then I am a student of history, not a wishful thinker.

As far as I know, the public sector was always oversized and poorly managed, which provided easy-to-get contracts to many lobbies. There's no interest to the elites to reform that, since an efficient public sector goes against many of their interests.

By the way, I cannot get the rational of inflating the currency by PRINTING. Usually, that's the opposite (the more you print, the less your currency is worth)

If I were to choose, I would prefere a less controlled price scheme and a more stringent taxation system. The problem is that many sectors are against of building the latter, and free prices along with no social protection measures would bring Argentina to the levels of violence seen in Mexico, Colombia or Brazil. 2002-2003 were so nasty in terms of crime that Argentinos prefer to control it by implementing "progressive" policies.

The IMF is clearly one of the most important lobbies for the "markets"', and very far from its intended role, to the point that its recommendations and policies are now VERY far away from the Bretton Woods agreements. What the financial markets regret is that the IMF isn't listened as much as before.

Argentina could get out of the pit left by the peso peg without the IMF and against their recommendations. No wonder why many people lost confidence in such institution.

Andres

[Hemin]

Papa Benito and Hunt99, are spot on the issues and show remarkable understanding of macroeconomic issues. I fully agree with them both, but lets not forget that the whole growth story in Argentina is sustained by strong international fundamentals. In that context, the party could go on for longer than expected and macro indicators are very positive (other than inflation, which is the result of excess money, too much agregate demad, and why not relative price adjustements) The main problem is that the microfoundations of this recovery are poor and deteriorating. This eventually will come to hunt the country as international conditions worsen. In particular, a fall in commodity prices and higher international K markets risk aversion could be very damaging to the country.

[Hunt99]

IMO, the advantage of Kirchner's agenda it's that it restored the economy to a more "real" base, rather than the artificially-inflated, financially-based economy of the 90s. Whether it will remain sustainable or not is another issue.

It's not sustainable when you fail to reduce the public sector's 60%+ claim on the economy and inflate the currency by printing ever greater amounts of pesos and artifically restrict price fluctuations (export restrictions, price controls, etc).

A fact is that there's growth somewhat independently from the financial markets. That "independency" (sustained by a dependency to a high soy value) is what pisses off many people in this board, since that clearly means that such sector hasn't the influence that it used to have. Otherwise, I cannot understand why people complain about cancelling the debt to the IMF.

The IMF was looked to by the markets as a source of stability and a restraining influence on Argentine policy makers. There is now free rein for Mr. Kirchner to do what he wants, for good or ill. I'm guessing ill. But then I am a student of history, not a wishful thinker.

[Andres]

So, is there any correct policy since nothing ever works?

It depends on what do you mean by "works".

To me, policies work when they fit a desirable agenda (or "political program" or "project of society") FDR's New Deal worked for a given scenario at a given time, but it wasn't sustainable forever. We cannot say though that FDR policies never worked.

IMO, the advantage of Kirchner's agenda it's that it restored the economy to a more "real" base, rather than the artificially-inflated, financially-based economy of the 90s. Whether it will remain sustainable or not is another issue.

A fact is that there's growth somewhat independently from the financial markets. That "independency" (sustained by a dependency to a high soy value) is what pisses off many people in this board, since that clearly means that such sector hasn't the influence that it used to have. Otherwise, I cannot understand why people complain about cancelling the debt to the IMF.

Andres

[Monger514]

I would describe the recovery as ''a dead cat bounce''! It is not likely to be sustainable. The current inflation (much higher than reported) wage cost inflation, and price controls make a sustained recovery less likely. This is in addition to Kirchner's incredibly stupid economic policies, an undervaled peso, protectionist policies, anti-investment policies, no credit available, contracts are suspect, crooked courts, mafia, bureaucracy, difficulties to return capital to AR, high export taxes, anti-agrarian policies, coveting socialist countries and not capitalist countries, etc. Have I left out anything? Although the fall election seem like a sure thing for Kirchner, it all could fall apart with a rapid rise in inflation. Or rapid inflation after the election. Then what? Kirchner will become a ''lame duck''. And political and economic chaos could ensue.

Excellent post.

Here's more: http://www.mises.org/story/1472

Anybody get any good pussy lately? I'm in sex prison. That's the dead zone that stretches across the globe from Pakistan to Morroco and then jumps over and includes the entire fucking United States.

[Moore]

What is the correct policy then?

Of course, eventually, the current econmic policies will become outdated and a new crisis will emerge. But that happened to EVERY economic policies applied to Argentina, including those that involved "an overvalued peso, free-trade policies, low export taxes, pro-agrarian policies", etc.

So, is there any correct policy since nothing ever works?

[Andres]

Of course I should have included the debt repudiation, the minority hold-outs, other huge debt, the dwindling surplus, sour relations with the IMF, and continuous new public works projects to ''buy'' votes. Plus a real rate of unemployment of 15 per cent, 14 million poor people, and 47 per cent of the labor force working in illegal conditions (Buenos Aires Herald)

Interesting point: If Argentina cancels all its commitments to the IMF, it is deemed "sour relations". If it repudiated the debt to the IMF, it would be called an "irresponsible country".

What is the correct policy then, from your perspective?

Andres

[Andres]

I would describe the recovery as ''a dead cat bounce''! It is not likely to be sustainable. The current inflation (much higher than reported) wage cost inflation, and price controls make a sustained recovery less likely. This is in addition to Kirchner's incredibly stupid economic policies, an undervaled peso, protectionist policies, anti-investment policies, no credit available, contracts are suspect, crooked courts, mafia, bureaucracy, difficulties to return capital to AR, high export taxes, anti-agrarian policies, coveting socialist countries and not capitalist countries, etc. Have I left out anything? Although the fall election seem like a sure thing for Kirchner, it all could fall apart with a rapid rise in inflation. Or rapid inflation after the election. Then what? Kirchner will become a ''lame duck''. And political and economic chaos could ensue.

Papa Benito:

All gurues from the City have been predicting the same aftermath scenario as yours since 2002. I'm still waiting for that to happen.

Of course, eventually, the current econmic policies will become outdated and a new crisis will emerge. But that happened to EVERY economic policies applied to Argentina, including those that involved "an overvalued peso, free-trade policies, low export taxes, pro-agrarian policies", etc.

Andres