Argentine Economy

[Damman]

There's something very serious going on behind the scene or Christina would not have canceled her trip to China.

The Chinese are very important to the Argies. The Argies have resources the Chinese want and they have money, something the Argies don't.

Exon

Canceling the China trip was indeed a surprise. She is afraid to leave the country. Also cancelled trip to Uruguay for the inauguration of their new President. Sounds like the old girl is afraid of a Honduran coup.

[Exon123]

There's something very serious going on behind the scene or Christina would not have canceled her trip to China.

The Chinese are very important to the Argies. The Argies have resources the Chinese want and they have money, something the Argies don't.

Exon

[Damman]

It sure does seem something is going on. See where Congress is going to evaluate the legitimacy of the country's debt / bonds.

WSJ:

Such an investigation would be reminiscent of a study carried out in Ecuador, which determined much of the country's debt was illegitimate and was used by President Rafael Correa as the evidence to default on much of the country's debts in late 2008.

http://online.wsj.com/article/BT-CO-...?mod=rss_Bonds

[Norman Stormin]

The money grab from banks seems to recycle here roughly every ten years. I've been here twice when it happened (wouldn't put a nickle in anything here). They've reached the end of their rope and must now hang. Begged, borrowed and stolen everything available. The confiscation of private pension funds got them through last year. This "borrowing" (of course never to be paid back) of reserves was a sign of despiration.

My guess is the banks will be closed before another default, money seized, and replaced with more future worthless bonds. It's also time to issue a new currency. It will be called the Austral and will be exchaged at a rate of one Austral for every 100 pesos. For the purpose of paying foreign creditors it will be pegged to the dollar one for one.

Another sign of a desperate nation looking to divert the proletariate's attention from the forthcoming money grab, Argentina is again rattling sabers in Queen Elizabeth's court http://www.dailymail.co.uk/news/arti....html?ITO=1490

This could be the last hurrah. My friends at the Circulo Militaire have been patiently waiting for their opportunity.

[Member #1164]

I have heard from a couple clients of mine and a couple friends of a rumor that started in December. Well people are saying that the government might close the doors to the banks again in within the next month or 2. That means if you got cash in the banks you will NOT be able to get any of it.

[Damman]

Got drilled today about how "Obama" froze the Argentine funds. Gave it my best shot trying too explain that Obama really did not have anything to do with the judgment. Do not think I got my point across. Gringos will probably be vilified and become Cristina's scapegoat. Know 20 billion is not chump change, but paying the bond holders off would probably be a more cost effective route than the one they are taking now: higher interest rates. Would 20 billion really break the bank? As long as this dark cloud hangs over their head, Argentina will continue to pay high interest rates and probably end up costing them more than the 20 billion that has not been settled. "As the World Turns" in Argentina.

[Member #4112]

Great idea, but IMHO it is right up there with "if frogs had wings they wouldn't bump their butts" so long as self serving politicians keep getting elected both here and in the US.

[El Queso]

This could actually cause some of us ex-pats a problem - I just don't know how big it could get.

There is already a "commonly known fact" here in South America that the US and the other first and second world countries of the West are directly responsible for sucking every bit of wealth out of South America, and here in Argentina specifically to the Argentinos.

Right or wrong on that, add to it the wordings of the "angry" finance minister talking about a conspiracy and the world (the US and its "allies") trying to "scuttle the Bicentenial Fund".

People at times here can have quite a bad opinion of foreigners to begin with, and US citizens can be a prime target here as things are. I've posted before about an incident that a few of us expats experienced one night at Iberia - not a great big deal but a local telling us to go home and get out of their country.

I've not run into a lot of sentiment that stong here and certainly the above is the worst encounter I've had in my three years of living here. Not bad so far, but if Argentina starts going downhill faster toward (maybe not as bad as? Another crash like 2002 because of actions like those taken (again, rightly or wrongly, I'm not arguing that) by the court - well, perceptions of culpability here are seen through SA's and Argentina's own version of rose-colored glasses.

Perma-tourists from the States might have a lot more problems staying here over more than a couple of expirations / trips to Colonia for example. Some hassle from migraciones on entry possibly.

Who knows. Could it get worse in more social situations if things get really ugly?

I actually think that the "world" just wants to see Argentina take responsiblity for its debt, cut the huge problem of graft, cut spending it can't maintain and then turn into a strong trading partner. I think everyone would think that is really cool.

[Madmax69]

It seems that the world is going to freeze a few more of the Argentine assets. Do you think that they have decided to make it look a little uglier for Argentina?

This way Iceland and the rest of the non pay countries will comply with what the IMF wants.

[Damman]

Cristina may have got her old tit in the ringer by trying to get her hands on the Central Bank's reserves: opened the door for creditors.

Normally, central-bank reserves are exempt from claims by sovereign bondholders, who technically contract debt with a nation's treasury department. But by unveiling the plan in December to use Argentine bank reserves to pay the treasury's debt, Kirchner unwittingly left the reserves vulnerable to attachment by creditors, analysts say.

WSJ:

BUENOS AIRES (Dow Jones)--A U.S. judge froze some Argentine central-bank assets in New York, throwing a new hurdle in the government's plan to use reserves to pay debt and contributing to the biggest selloff in weeks on Argentine bond markets.

The central bank will appeal the decision, a bank official said. Central Bank Governor Martin Redrado has instructed its lawyers to present the appeal Wednesday, the official said.

U.S. District Judge Thomas Griesa, ruling on behalf of creditors seeking relief from Argentina's massive 2002 default, embargoed $1.7 million in Argentine bank reserves deposited in New York. While the amount of money covered by the ruling is small, the ruling spooked investors and sparked new concerns about Argentina's prospects to return to financial markets after being frozen out for years.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

The embargo was an unintended consequence of a proposal by President Cristina Kirchner in December to place $6.57 billion of reserves in a "Bicentennial Fund" to service the national debt.

Normally, central-bank reserves are exempt from claims by sovereign bondholders, who technically contract debt with a nation's treasury department. But by unveiling the plan in December to use Argentine bank reserves to pay the treasury's debt, Kirchner unwittingly left the reserves vulnerable to attachment by creditors, analysts say.

Markets swooned at the latest blow to the Bicentennial Fund, which has run into resistance in Argentina from courts, the legislature and the central-bank president. The Argentine sovereign Discount bond due 2033, denominated in pesos, closed down 4.1%, while the stock market index was off 2%.

"This ruling signals that the scope of the conflict has now extended beyond Argentine borders," said Casey Reckman, sovereign-wealth analyst at Fitch Ratings. "Investors who perceived the establishment of the fund as a positive sign of Argentina's willingness to pay could be getting scared off."

Ever since Argentina declared the largest sovereign default in history eight years ago, Argentine creditors and the government have played a game of cat-and-mouse, with creditors trying to seize any assets they could. In 2002, German creditors even tried seizing an Argentine naval training vessel that was due to dock at the port of Bremerhaven.

Argentina's central bank has sought to protect its foreign-currency reserves by depositing about 80% of them in the Bank for International Settlements in Basel, Switzerland, says Robert Shapiro, co-chairman of American Task Force Argentina, a group representing creditors from the default.

In an angry news conference following the ruling, Argentine Economy Minister Amado Boudou said the embargo could affect up to $15 million in reserves deposited in the U.S. Argentina's reserves total $48 billion. The minister said previous embargoes have been overturned on appeal.

Boudou said "it seems there's a conspiracy," to scuttle the Bicentennial Fund and prevent Argentina from returning to markets. But he insisted Argentina intended to go ahead with the plan.

But the ruling could strengthen the hand of domestic critics of the Bicentennial Fund. Bank President Redrado had raised concerns about a potential embargo in opposing the Bicentennial Fund, according to local press reports, but Kirchner had disregarded his warnings and fired him last week. A judge subsequently reinstated Redrado.

Goldman Sachs economist Alberto Ramos wrote that the injunction is "likely to empower the central bank and Congress, likely pushing them into taking an even more assertive view on this issue."

[JuanCaminante]

She wants the country's reserves. So much for returning to World credit markets.

Argentina's President Cristina Fernandez de Kirchner fired the central bank president after he failed to back the government's economic policies.

http://www.businessweek.com/news/201...-update2-.html

It is crazy - he refuses to resign and apparently the new guy doesnt want the job.

Could only happen here.

[Damman]

She wants the country's reserves. So much for returning to World credit markets.

Argentina's President Cristina Fernandez de Kirchner fired the central bank president after he failed to back the government's economic policies.

http://www.businessweek.com/news/201...-update2-.html

[El Alamo]

There is a lot of truth in what Black Shirt posted. The economic mess that is California is a precursor to the economic mess that will be the United States.

Governments are assuming sovereign debt they cannot service. For example, United States sovereign debt is projected to reach $15 trillion dollars in a few years. The United States can service this debt with 1% interest rates but not with 5% to 10% interest rates.

The core issue, as Black Shirt pointed out, is that this calamity in the natural evolution of governments promising too much to too many. This coupled with a complete lack of fiscal responsibility is a recipe for disaster.

How to prepare for the day when the sky falls. Who knows? Gold, commodities, property or move to a cabin in the mountains with canned goods, bottled water, cases of Jack Daniels and ammunition.

[Rev BS]

Cry For Me, America.

In the early 20th century, Argentina was one of the richest countries in the world. While Great Britain 's maritime power and its far-flung empire had propelled it to a dominant position among the world's industrialized nations, only the United Stateschallenged Argentina for the position of the world's second-most powerful economy.

It was blessed with abundant agriculture, vast swaths of rich farmland laced with navigable rivers and an accessible port system. Its level of industrialization was higher than many European countries: railroads, automobiles and telephones were commonplace.

In 1916, a new president was elected. Hipólito Irigoyen had formed a party called The Radicals under the banner of "fundamental change" with an appeal to the middle class.

Among Irigoyen's changes: mandatory pension insurance, mandatory health insurance, and support for low-income housing construction to stimulate the economy. Put simply, the state assumed economic control of a vast swath of the country's operations and began assessing new payroll taxes to fund its efforts.

With an increasing flow of funds into these entitlement programs, the government's payouts soon became overly generous. Before long its outlays surpassed the value of the taxpayers' contributions. Put simply, it quickly became under-funded, much like theUnited States' Social Security and Medicare programs.

The death knell for the Argentine economy, however, came with the election of Juan Perón. Perón had a fascist and corporatist upbringing; he and his charismatic wife aimed their populist rhetoric at the nation's rich.

This targeted group "swiftly expanded to cover most of the propertied middle classes, who became an enemy to be defeated and humiliated.

Under Perón, the size of government bureaucracies exploded through massive programs of social spending and by encouraging the growth of labor unions.

High taxes and economic mismanagement took their inevitable toll even after Perón had been driven from office. But his populist rhetoric and "contempt for economic realities" lived on. Argentina 's federal government continued to spend far beyond its means.

Hyperinflation exploded in 1989, the final stage of a process characterized by "industrial protectionism, redistribution of income based on increased wages, and growing state intervention in the economy."

The Argentinean government's practice of printing money to pay off its public debts had crushed the economy. Inflation hit 3000% , reminiscent of the Weimar Republic. Food riots were rampant; stores were looted; the country descended into chaos.

And by 1994, Argentina 's public pensions - the equivalent of Social Security - had imploded. The payroll tax had increased from 5% to 26% , but it wasn't enough. In addition, Argentina had implemented a value-added tax (VAT) new income taxes, a personal tax on wealth, and additional revenues based upon the sale of public enterprises. These crushed the private sector, further damaging the economy.

A government-controlled "privatization" effort to rescue seniors' pensions was attempted. But, by 2001, those funds had also been raided by the government, the monies replaced by Argentina 's defaulted government bonds.

By 2002, ". Government fiscal irresponsibility. Induced a national economic crisis as severe as America 's Great Depression."

In 1902 Argentina was one of the world's richest countries. Little more than a hundred years later, it is poverty-stricken, struggling to meet its debt obligations amidst a drought.

We've seen this movie before. The Democrats' populist plans can't possibly work, because government bankrupts everything it touches. History teaches us that ObamaCare and unfunded entitlement programs will be utter, complete disasters.

Today's Democrats are guilty of more than stupidity; they are enslaving future generations to poverty and misery. And they will be long gone when it all implodes. They will be as cold and dead as Juan Perón when the piper must ultimately be paid.

References: A tear for Argentina's pension funds; Inflation in Argentina; The United States of Argentina. Cross-posted at: Doug Ross @ Journal.

These days, does it matter whether it is Republican or Democrat? I think it's more a natural evolution, just look at California. The wealth of America spawned generations that took their wealth for granted, destroyed the family structure, and took consumption to levels of decadence. In a country where individuality and privacy is sacred, and money is God, all you can do, is just hang on to something solid until the storm is over. By the way, that is what Tiger Woods is doing right now.

[Stan Da Man]

Not a whole lot of substance here, but this is a top 10 list of countries most likely to default as measured, at least in part, by the risk tied to their credit default swaps:

http://www.businessinsider.com/the-w...2#10-lebanon-1

Argentina is #3

California is #9 (I realize it's not a country but I think that's why they included 11 on the list)

Who's #1?

According to CDS spreads, it's Venezuela. Couldn't happen to a nicer knucklehead. Next, he's nationalizing the banks. What an idiot. Wait, we've nationalized the banks, too, right?