Argentine Economy

[Facundo]

I would never buy a car or a house or apt. In argentina.

As I have stated time and time again, one day you will wake up and.

The "state now own your property" it is only a matter of time.

The country is getting worst fianacially each day.

It is only a matter of time before there is another meltdown.

If the USA sneezes these third world country catch severe pneumonia.

I predict a meltdown much worse than 2000. By late 2009, early 2010

Geo, I agree with you, the inevitable will happen; there will be a crisis in Argentina. I bought a car so I can live the life style I want. At the beginning of the new year I will be embarking on a one year (plus) tour of South America. If after a year or two I don't need the car I'll sell it. I have all the paperwork, incluiding the paperwork done at the AFIP office, so I can sell the auto without questions or hassles. Geo, you gotta spend a little money to have some fun.

[Geo Eye]

I would never buy a car or a house or apt. In argentina as I have stated time and time again, one day you will wake up and the "state now own your property" it is only a matter of time.

The country is getting worst fianacially each day.

It is only a matter of time before there is another meltdown.

If the USA sneezes these third world country catch severe pneumonia.

I predict a meltdown much worse than 2000. By late 2009, early 2010

[Facundo]

A slide to $4 or so seems inevitable, doesn't it? So many things seem to be pointing in that direction: (a) the country's primary trading partners have devalued more; (be) the economies of the country's primary trading partners appear to be in better shape than Argentina; (c) The Central Bank will slowly exhaust its dollar reserves over the coming years; (d) commodities prices are still low while government commitments / subsidies remain high; and (e) there has been a general flight to the dollar across all of Latin America. I'm sure Sid could come up with many more reasons, but in income statement terms, it seems pretty self-evident. I don't see Christina Kirchner doing anything to mollify the international investing community. If that doesn't happen, the only thing that can save this government is a rebound of commodities prices, and she even managed to shoot the country in the foot on that score the last couple of years.

Today, the AR$ Peso is at $3.46:1 in after hours trading and this is the 15th or 16th consecutive daily decline? At some point, we're going to see a larger move, but it's already declined 15% since this summer. If it only declines by another 50 cents vs. The dollar over the next six months, I'll be mildly surprised. Then again, if I was that good at predicting these sorts of things, I'd be sipping umbrella drinks on my own island instead of taking ten minutes out of work to post this.

Today the AR$ peso is at 3.47:1 and the Brazilian Real is 2.61:1. If we pick the first week of July of this year we will see the Real was devaluaded 50% and the AR$ peso 16% to date. It appears to me, to compete on an equal economic footing with Brazil, Argentina will have to devalue the peso around 4.40:1.

About three weeks ago I purchased a new automobile in Buenos Aires for US$32,121 (AR$106,000) However, if I had waited until today I would have paid US$30,547.

Stan Da Man, I think it's inevitable we will see a AR$4:1 exchange rate.

Suerte

[Stan Da Man]

It appears the Central Bank is spending little in letting the peso float up (down against the dollar and other Latin American currencies) Yesterday the Central Bank spent only US$25 million and the peso floated up 2 centavos. It appears, according to the pundits, the plan is to get to an exchange rate by the end of this year of AR$3.70 (+-10 centavos) to US$1.00.

The problem for the Central Bank and the Argentine Government is if the Brazilian Real and Chilean peso (Argentina's trading partners) continue to weaken against the dollar, then the Central Bank will have to continue letting the Argentine peso float upwards and we can easily see an exchange rate of AR$4+ to US$1 early next year.

A slide to $4 or so seems inevitable, doesn't it? So many things seem to be pointing in that direction: (a) the country's primary trading partners have devalued more; (be) the economies of the country's primary trading partners appear to be in better shape than Argentina; (c) The Central Bank will slowly exhaust its dollar reserves over the coming years; (d) commodities prices are still low while government commitments / subsidies remain high; and (e) there has been a general flight to the dollar across all of Latin America. I'm sure Sid could come up with many more reasons, but in income statement terms, it seems pretty self-evident. I don't see Christina Kirchner doing anything to mollify the international investing community. If that doesn't happen, the only thing that can save this government is a rebound of commodities prices, and she even managed to shoot the country in the foot on that score the last couple of years.

Today, the AR$ Peso is at $3.46:1 in after hours trading and this is the 15th or 16th consecutive daily decline? At some point, we're going to see a larger move, but it's already declined 15% since this summer. If it only declines by another 50 cents vs. The dollar over the next six months, I'll be mildly surprised. Then again, if I was that good at predicting these sorts of things, I'd be sipping umbrella drinks on my own island instead of taking ten minutes out of work to post this.

[Facundo]

Well, I'll give the Argie Central Bank credit. If you wanted to slowly walk the peso down, you couldn't do a much better job than this. I'll be curious to see how much of their billions they've spent doing it:

It appears the Central Bank is spending little in letting the peso float up (down against the dollar and other Latin American currencies) Yesterday the Central Bank spent only US$25 million and the peso floated up 2 centavos. It appears, according to the pundits, the plan is to get to an exchange rate by the end of this year of AR$3.70 (+-10 centavos) to US$1.00.

The problem for the Central Bank and the Argentine Government is if the Brazilian Real and Chilean peso (Argentina's trading partners) continue to weaken against the dollar, then the Central Bank will have to continue letting the Argentine peso float upwards and we can easily see an exchange rate of AR$4+ to US$1 early next year.

[Stan Da Man]

Well, I'll give the Argie Central Bank credit. If you wanted to slowly walk the peso down, you couldn't do a much better job than this. I'll be curious to see how much of their billions they've spent doing it:

"Latin America Currencies: Argentina's Peso Falls for 15th Day.

By Drew Benson and Andrea Jaramillo.

Dec. 2 (Bloomberg) -- Argentina's peso fell for a 15th day, its longest losing streak since the government abandoned a one- to-one peg with the dollar in 2002, as the central bank seeks to smooth out a slide sparked by a tumble in commodity exports.

The peso dropped 0.4 percent to 3.3950 per dollar at 1:28 P. M. In New York, from 3.3825 yesterday. The currency is down 2.9 percent since it began to drop on Nov. 12 and has dropped no more than 0.7 percent in a day over that time. The central bank aims to avoid "sharp fluctuations" in the peso without setting target rates, bank spokesman Fernando Meanos said Nov. 28.

"The central bank is letting the peso devalue in a gradual and controlled manner," said Daniel Bou Kahir, a currency trader with Buenos Aires-based Banco de la Pampa. The central bank is managing the slide in an effort to avoid further eroding investor confidence in the peso, he said. The extent of the slide "leads us to believe that this plan is here to stay," he said.

Commodities such as soybeans and wheat account for more than half of Argentina's exports. Commodities have slumped 49 percent since July 2 as the global financial crisis has throttled economic growth, according to the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials.

The yield on the country's inflation-linked peso bonds due in December 2033 fell 1 percentage point to 19.77 percent, according to Citigroup Inc.'s local unit.

Latin American currencies will outperform other developing- nation currencies in 2009 as "economic fundamentals" in countries such as Brazil and Chile remain strong, Merrill Lynch & Co. Currency strategists led by Daniel Tenengauzer said in a research note today.

'Gradual Recovery'

Chile's peso will post a "gradual recovery" next year, ending at 580 per dollar, while Colombia's peso will underperform other Latin American currencies and the Argentine peso will weaken, according to the report.

The Chilean currency dropped 0.7 percent to 670.77 per U. S. Dollar, from 666.05 yesterday. The peso has plunged 26 percent this year.

The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, fell four basis points, or 0.04 percentage point, to 3.47 percent, according to Bloomberg composite prices.

Colombia's peso declined 0.1 percent to 2,318.1 per dollar from 2,316 yesterday. The yield on the nation's benchmark 11 percent bonds due in July 2020 fell the most in more than a week, dropping 22 basis points to 12.10 percent, according to Colombia's stock exchange.

In Peru, the sol fell 0.2 percent to 3.1115 per dollar, from 3.1040 yesterday. The yield on Peru's 8.6 percent sol-denominated bond due in August 2017 was little changed at 8 percent, according to the local unit of Citigroup Inc.

Venezuela's bolivar was little changed at 5.1 per dollar in the unregulated market, traders said. Venezuela pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. People turn to the unregulated market when they can't get dollars at the official rate. "

Source: http://www.bloomberg.com/apps/news?p...rld_currencies

[Sham Bo]

I agree. Brazil has devalued by 40% in the past 3 months. How long can they support the Peso here. That would be great for U. S. Travelers;) It appears the govt is trying more desperate measures like the pension grab to keep afloat. This will only delay the inevitable. If ag price come back some that should buy them more time but the fall in Soybean and other ag prices has really hurt them right now.

Apparently the peso started falling just after you said that! Quick, predict my horse will win the Kentucky derby, won't you?

[Bartonsky]

Argentina unveils 21 billion USD in infrastructure megaplan.

Nov. 25 08:32 PM US / Eastern.

President Cristina Kirchner on Tuesday unveiled a massive public spending plan to pump more than 21 billion dollars into Argentina's infrastructure and counter effects of the global cash crunch.

"On December 15 we will launch the most ambitious public works programs in memory," said Kirchner, making the announcement at the closing ceremony of the trade association representing builders.

Argentina expects economic growth to slow to four percent in 2009, down from 6.5 percent expected for 2008. This follows years of growth nearing nine percent following the 2002 crisis.

"There are public works that call for (intensive) manual labor. Works that will mean hiring more than the 362,000 workers currently in the building sector, increasing the number to nearly 770,000 jobs," Kirchner said.

Construction has been one of the engines of Argentina's economic growth.

Argentina's Gross Domestic Product (GDP) increased 8.8 percent in 2003; 9 percent in 2004; 9.2 percent in 2005; 8.5 percent in 2006, and 8.7 percent in 2007.

Earlier in the day Kirchner announced proposed tax and investment incentives aimed at encouraging the repatriation of capital.

The measure would allow Argentines who bring back their funds stashed abroad and pay taxes of between one and eight percent, depending on where the funds are directed.

The bill also includes tax incentives and debt relief for small businesses and for firms that encourage employment.

The Kirchner administration has been moving aggressively to counter the effects of the global crisis.

On November 20 it nationalized 26 billion dollars worth of private pension funds run by 10 banks, a move opponents believe is really aimed at preventing a loan default on Argentina's national debt of some 150 billion dollars.

The next day it took steps toward nationalizing Aerolineas Argentinas (AA) and Austral, the country's largest airlines both owned by the Spanish group Marsans.

The government is seen as pursuing the nationalization trend begun under Kirchner's predecessor and husband, Nestor Kirchner, who in his 2003-2007 mandate nationalized the railroads, waterworks and communications companies.

[Bartonsky]

I agree. Brazil has devalued by 40% in the past 3 months. How long can they support the Peso here. That would be great for U. S. Travelers;) It appears the govt is trying more desperate measures like the pension grab to keep afloat. This will only delay the inevitable. If ag price come back some that should buy them more time but the fall in Soybean and other ag prices has really hurt them right now.

[El Perro]

Front page story in today's La Nación, Industrial Chiefs plead for an exchange rate of AR$ 4 Pesos to US$ 1 dollar.

I think we are going see more stories like this one. The current exchange rate of AR$ 3.35 to US$1 can't be maintained economically while Argentinas neighbors like Chile and Brazil have seen the value of their currency drop about 50% against the U. S. Dollar. The Argentine peso in comparison has only lost about 10% of it's value in the same period. Argentinas neighbors are not buying it's products.

http://www.lanacion.com.ar/nota.asp?...24904&toi=6256

I think the government is kinda between a rock and a hard place. It makes sense to let the peso devalue some, but at the same time, if they allow it to happen, they run the risk of a run by the populace. The idea of a controlled devaluation is probably the way to go to avoid a "run" risk. You also have to wonder how much "vanity" is getting in the way of allowing the peso to approach 4 to 1.

[Facundo]

Front page story in today's La Nación, Industrial Chiefs plead for an exchange rate of AR$ 4 Pesos to US$ 1 dollar.

I think we are going see more stories like this one. The current exchange rate of AR$ 3.35 to US$1 can't be maintained economically while Argentinas neighbors like Chile and Brazil have seen the value of their currency drop about 50% against the U. S. Dollar. The Argentine peso in comparison has only lost about 10% of it's value in the same period. Argentinas neighbors are not buying it's products.

http://www.lanacion.com.ar/nota.asp?...24904&toi=6256

[El Alamo]

There is an old joke about 2 friends, both keen race-goers and inveterate gamblers, who would bet on 2 flies climbing a window pane. One day at the races, there is a fairly tight finish and Fernando says to his friend, "$100 on the brown horse to win". His friend takes Fernando's bet and the brown horse comes in second. Fernando pays his friend the $100. Later that night they are watching the video replay of the race. Fernando shouts out to his friend, "Did he want to bet again at double the previous wager". Naturally his friend agreed and the horse of course, once again comes in second. Fernando rather forlornly paid his friend the $200 wager and made the passing remark that he thought after the fairly good run earlier in the day, the brown horse would improve and win next time.

Sort of like Nestor / Christina Kirschner and the Argentine economy. I have seen them repeating the same mistakes of the past and in my naivity, still thought that they expected the economy to be successful. During my nineteen years of exposure here, I have seen it collapse twice and now expect it to collapse again. And for basically the same set of reasons. Rampant internal inflation, wage increases not based on increased production, manipulated exchange rates and the absolute pig-headedness of refusing to change the way they run the economy.

But I think we are missing the point. Since Peron's time, the cycle has been repeated 5 times and each time it has collapsed causing misery and chaos. One has had to wonder if there exists here a complete inability to learn from experience and to adjust policies for the future. Or, as I now believe, it is a cynical sprat to catch a very big mackerel.

Perhaps a little history would not go astray. The incumbent goverment is the remains of the party popularised by Juan Peron and based on Mussollini's Fascist theory. Now reviled and synonomous with the Black Shirt thugs, the Second World War and social upheaval, the Fascist political theory at one stage was quite an acceptable alternative to Communism and capitalism. Basically it put the various economic groups together as a bundle. Antique English used to refer to a tied bundle of sticks as faggots and this word shares the same Latin root as Fascist. (No, not the faggots of Exon circa Las Heras. I have no idea of the antecedent of that use, except that faggot also meant bundles of steel ready to be welded; ie 2 men welded together, pillow-biters and cock-suckers take note)

Following on, each of these groups, (a good example would be the car industry) contained the various trade unions, the capitalists, the bankers, the retailers, component suppliers etc. The theory was that they would come to a consensus and speak with a common voice. And all the Fascists / groups would then take part in a socially co-hesive government, led of course in Italy by il Duce himself and here in Argentina, by those prize pieces of shit, Juan Peron and his populist Evita. Well of course it didn't work, but most times and untill they lost political power, they harnessed the theory and became strong, personally very rich, populist leaders. And in Argentina, left a lasting legacy that has impoverished and will continue to impoverish, a country that has the essential physical assets to be one of the richest in the world.

And essentially the Peronist Party here keeps that Fascist torch burning, only of course to appease the working and poverty-stricken classes of Argentina, who have the insane belief that the party is acting in their interest. The shrinking middle-class are not fooled, but since they don't count politically, the Peronists don't even factor them into their equation. The farmer's revolt is about the only time the Peronists played a ordinary hand, badly. They certainly didn't make the same mistakes grabbing the middle-classes superannuation funds. This hand they played masterfully. And since the media here are government sycophants in the main, they toe the Peronist Party line and any other opposing voices are lost in the background.

The real object of the leaders of the Peronist Party is maintaining raw power so that they can continue to rape and pillage the economy and enrich themselves. Menen came to the Presidency as a millionaire due soley to the corrupt income received when he was governor of La Rioja. When his presidency finished after 2 terms, he acknowledged he was a billionaire. Due of course, as he says, to generous friends who appreciated him. I am quite certain the Chilean Miss Universe who he married and is now divorced from, reamed his bank account out well and truly, but that is another story. Nestor and Christina pinched half a billion dollars from the coffers of the Province of Santa Cruz when he was the governor, as well as strong-arming their way into property deals that have made them millions. Who would know how much they have pinched during their respective Presidencies. If the orgy of public roadworks is any indication, (it is generally reckoned that a minimum of a third of the contract price for public works is allowed for coimas or bribes) they are continuing to rake the money in. Almost certainly by now, well in front of Carlos Menem.

So don't fall for the Peronist 3 card trick. They repeat the mistakes of the past because that is the way to political power and obscene wealth in this country. And they have been particularly successful. Everybody that is interested enough to observe, thinks they are stupid for their economic policies. But that is not the aim. They couldn't give a damm what you think, they are in it for the money and their economic policies work very well, thank you very much! Don't be deceived by the sound and light show. Follow the dough.

Argento

The above explains the situation in Argentina pretty well.

However, I have always thought there is another, possibly more sinister, explanation for the actions of the government.

About 100 years ago 50 or 100 families controlled the wealth of Argentina. With massive immigration and the growth of the labour movement these families developed a plan to keep the wealth of Argentina in their hands.

A part of the plan seems to be.

1) prevent the development of competition. If your family owns the condom factory the last thing you want is a price war with more efficient competitors.

A good way to eliminate competition and keep your condom monopoly is to.

1) place outrageous taxes on imported goods. Consequently, the condoms manufactured more efficiently elsewhere cost more than the inefficiently manufactured condoms in Argentina.

2) discourage foreign investment. Having foreign companies build condom factories in Argentina is not a good idea if you want to keep your condom monopoly. Therefore, ridiculous labor laws, worthless unions, a predatory tax structure, rampant corruption and a government that interferes with private business all serve a purpose. They discourage foreign investment.

3) destroy the capital markets. Letting your competitors have access to investment capital is the last thing you want. Following this plan the Argentina stock market, which had some 700 listed companies 40 years ago now has about 80 listed companies.

If you follow these steps you will continue your condom monopoly.

The fact that these steps inhibit economic growth, promote one economic crisis after another, prevent the creation of new wealth, prevent the creation of a middle class, ensure the population is unemployed or underemployed and sends the misery index is to the moon is of no concern if you want to keep your condom monopoly.

How do politicians fit into this? Often politicians are connected with the original wealthy famililies and are in complete agreement with the above policies. Politicians bent on reform usually succumb to stealing public funds and lose interest in meaningful reform or these politicians promote populist policies which have the unintended effect of concentrating the wealth of Argentina in a few hands.

P.S. I am not implying that labor unions or populist politicians supporting the ridiculous labor laws of Argentina want Argentina's wealth to remain in the hands of only a few Argentinean famililies. Rather, labor unions and populists are unwitting pawns in this game.

Another possibility is that the wealthy families of Argentina never orchestrated the above policies. Rather, the wealthy families of Argentina were merely the recipients of half-baked policies that had the unintended effect of concentrating the wealth of Argentina in their hands.

In any event I am in complete agreement with Argento. The economic trainwreck known as Argentina is no accident. There is a method behind the madness. Entities in Argentina are benefiting from bizarre economic policies that have caused untold misery and choas for the vast majority of the citizens.

[Argento]

Will there be anything other than new bums to fill the void?

No!

Argento

[Stan Da Man]

Great post, Argento. Chavez is doing much the same thing in Venezuela. He uses slightly different rhetoric, but he undoubtedly will be a wealthy man once he is ushered out of office. I would venture that the same is true of most of the Senators in the U. S. Senate, although perhaps on a smaller and less gaudy scale. Most come to office as millionaires and leave as multi-millionaires despite agreeing to do the public's bidding at $200K or so per year. It's amazing how they all manage to pick up a few extra multiple millions in their spare time.

I think the frustration with Argentina's economic policies is more directed to the fact that they are allowed to exist -- with virtual apathy from the public. Populism explains some of that. A complacent (or cooperative) media explains some of that. Still, one would think that the old adage "fool me once, shame on you; fool me twice, shame on me" would come into play at some point. Or, to put it another way, when does the voting public decide to "throw the bums out" -- populism and the co-opted media be damned?

Eventually, the economy collapses and someone has to pick up the pieces and start over again, even if its not totally from scratch. That would seem to be a logical inflection point. If so, Argentina probably has a two-year window or less until they get another shot at throwing the bums out. Will there be anything other than new bums to fill the void?

[Argento]

There is an old joke about 2 friends, both keen race-goers and inveterate gamblers, who would bet on 2 flies climbing a window pane. One day at the races, there is a fairly tight finish and Fernando says to his friend, "$100 on the brown horse to win". His friend takes Fernando's bet and the brown horse comes in second. Fernando pays his friend the $100. Later that night they are watching the video replay of the race. Fernando shouts out to his friend, "Did he want to bet again at double the previous wager". Naturally his friend agreed and the horse of course, once again comes in second. Fernando rather forlornly paid his friend the $200 wager and made the passing remark that he thought after the fairly good run earlier in the day, the brown horse would improve and win next time.

Sort of like Nestor / Christina Kirschner and the Argentine economy. I have seen them repeating the same mistakes of the past and in my naivity, still thought that they expected the economy to be successful. During my nineteen years of exposure here, I have seen it collapse twice and now expect it to collapse again. And for basically the same set of reasons. Rampant internal inflation, wage increases not based on increased production, manipulated exchange rates and the absolute pig-headedness of refusing to change the way they run the economy.

But I think we are missing the point. Since Peron's time, the cycle has been repeated 5 times and each time it has collapsed causing misery and chaos. One has had to wonder if there exists here a complete inability to learn from experience and to adjust policies for the future. Or, as I now believe, it is a cynical sprat to catch a very big mackerel.

Perhaps a little history would not go astray. The incumbent goverment is the remains of the party popularised by Juan Peron and based on Mussollini's Fascist theory. Now reviled and synonomous with the Black Shirt thugs, the Second World War and social upheaval, the Fascist political theory at one stage was quite an acceptable alternative to Communism and capitalism. Basically it put the various economic groups together as a bundle. Antique English used to refer to a tied bundle of sticks as faggots and this word shares the same Latin root as Fascist. (No, not the faggots of Exon circa Las Heras. I have no idea of the antecedent of that use, except that faggot also meant bundles of steel ready to be welded; ie 2 men welded together, pillow-biters and cock-suckers take note).

Following on, each of these groups, (a good example would be the car industry), contained the various trade unions, the capitalists, the bankers, the retailers, component suppliers etc. The theory was that they would come to a consensus and speak with a common voice. And all the Fascists/groups would then take part in a socially co-hesive government, led of course in Italy by il Duce himself and here in Argentina, by those prize pieces of shit, Juan Peron and his populist Evita. Well of course it didn't work, but most times and untill they lost political power, they harnessed the theory and became strong, personally very rich, populist leaders. And in Argentina, left a lasting legacy that has impoverished and will continue to impoverish, a country that has the essential physical assets to be one of the richest in the world.

And essentially the Peronist Party here keeps that Fascist torch burning, only of course to appease the working and poverty-stricken classes of Argentina, who have the insane belief that the party is acting in their interest. The shrinking middle-class are not fooled, but since they don't count politically, the Peronists don't even factor them into their equation. The farmer's revolt is about the only time the Peronists played a ordinary hand, badly. They certainly didn't make the same mistakes grabbing the middle-classes superannuation funds. This hand they played masterfully. And since the media here are government sycophants in the main, they toe the Peronist Party line and any other opposing voices are lost in the background.

The real object of the leaders of the Peronist Party is maintaining raw power so that they can continue to rape and pillage the economy and enrich themselves. Menen came to the Presidency as a millionaire due soley to the corrupt income received when he was governor of La Rioja. When his presidency finished after 2 terms, he acknowledged he was a billionaire. Due of course, as he says, to generous friends who appreciated him. I am quite certain the Chilean Miss Universe who he married and is now divorced from, reamed his bank account out well and truly, but that is another story. Nestor and Christina pinched half a billion dollars from the coffers of the Province of Santa Cruz when he was the governor, as well as strong-arming their way into property deals that have made them millions. Who would know how much they have pinched during their respective Presidencies. If the orgy of public roadworks is any indication, (it is generally reckoned that a minimum of a third of the contract price for public works is allowed for coimas or bribes) they are continuing to rake the money in. Almost certainly by now, well in front of Carlos Menem.

So don't fall for the Peronist 3 card trick. They repeat the mistakes of the past because that is the way to political power and obscene wealth in this country. And they have been particularly successful. Everybody that is interested enough to observe, thinks they are stupid for their economic policies. But that is not the aim. They couldn't give a damm what you think, they are in it for the money and their economic policies work very well, thank you very much! Don't be deceived by the sound and light show. Follow the dough.

Argento