Argentine Economy

[Redondo]

Pick your article.

http://search.yahoo.com/search?p=arg...8&vc=&fp_ip=AR

[Redondo]

I wonder where did you get the idea that "there is plenty of oil and gas". During the early 90s, there was a strong belief that the "deregulation" of the oil sector would get lots of investments in prospective search. It didn't happen.

I share your guess about the measures that Cristina will take after being elected, but the debt may be paid before. Otherwise, the government wouldn't have made a move to appear on the papers.

Andres

There are still reserves, but it doesn't matter anyhow because they will never be used.

The facts remain that Argentina in 2008 is a hydro carbon net importer instead of an exporter and that in 2006 about 20% of all exports were hydrocarbons

[Andres]

Search goolgle for 'Argentina oil importing country 2008 ' That will get you some info you are looking for. If I have some time Ill try to find it.

Agentina needs to pay the paris depth and 7b is a lot for Argentina. They need to pay it out of the Central bank reserve and that's about 20% of the current reserve. The last time they took out that kind of money, the peso suffered and it will suffer again probally.

It's not that hard to predict that if Argentina does have to import more oil then they export and / or Chile buys directly from Bolivia the prices have to be raised or the fiscal surplus will be eaten up.

My guess will be that after Kristina gets elected most taxes, utility, gas and public transport rates will be raised and the Paris club will be paid.

Everything to let Kristina start with a clean sleet.

I wonder where did you get the idea that "there is plenty of oil and gas". During the early 90s, there was a strong belief that the "deregulation" of the oil sector would get lots of investments in prospective search. It didn't happen.

I share your guess about the measures that Cristina will take after being elected, but the debt may be paid before. Otherwise, the government wouldn't have made a move to appear on the papers.

Andres

[Redondo]

Oil reserve is not worth a lot by the way as there is no investment and an Argentine version of Petrobras.

[Redondo]

As far as I know, known oil reserves were good 10-15 years and about 50 years for natural gas. There may be more, but that's just an speculation. However, if you have reliable and verifiable info on that matter, I would be glad to hear about that.

The energy sector in Argentina is way much more complex that the relations among the current regional presidents. In fact, the whole subsidy frame touches several interests and factors (bus company owners, agricultural sector, middle-class, etc) not easy to disentangle. I agree that eventually domestic oil prices will match internaitonal ones.

As for the Paris club debt, I wouldn't worry very much. It's just USD 7B, and the government already paid USD 9B to cancel its debt to the IMF. It seems just firework smokes to me, something for the press to talk about.

Andres

Search google for 'Argentina oil importing country 2008 ' That will get you some info you are looking for. If I have some time Ill try to find it.

Agentina needs to pay the Paris debt and 7b is a lot for Argentina. They need to pay it out of the Central bank reserve and that's about 20% of the current reserve. The last time they took out that kind of money, the peso suffered and it will suffer again probally.

It's not that hard to predict that if Argentina does have to import more oil then they export and / or Chile buys directly from Bolivia the prices have to be raised or the fiscal surplus will be eaten up.

My guess will be that after Kristina gets elected most taxes, utility, gas and public transport rates will be raised and the Paris club will be paid.

Everything to let Kristina start with a clean sleet.

[Andres]

There is still plenty of oil and gas, there just is no investment. The investment is the real bottle neck.

It was obvious that internal comsumtion would boom as GNC / utilities is so cheap (even for Argentine standards) that it's not worthwhile to save.

Brasil faced the same problem around 2002 (after a 1999 devaluation) and they faced the problem with broad plan backed by all sectors in the country to save energy.

That will never happen in Argentina. K hides the problem and hopes Evo and Chile helps him out of this mess.

PS.

1: Chile and Bolivia are talking about a land for gas deal, if they get this worked out, Argentina gets cut out.

2: The Argentine state currently pays around 1% of GDP for subsidies (bus, train, gas, utilities, etc) and it was about 0,5% in 2005. This is no longer sustainable and prices have to be raised.

3: If Argentine indeed will be an hydrocarbon importing country prices will have to be raised or it will eat up the financial surplus.

4: Debt service will be higher in 2008 and Argentina have to strike a deal with the Paris club as well.

As far as I know, known oil reserves were good 10-15 years and about 50 years for natural gas. There may be more, but that's just an speculation. However, if you have reliable and verifiable info on that matter, I would be glad to hear about that.

The energy sector in Argentina is way much more complex that the relations among the current regional presidents. In fact, the whole subsidy frame touches several interests and factors (bus company owners, agricultural sector, middle-class, etc) not easy to disentangle. I agree that eventually domestic oil prices will match internaitonal ones.

As for the Paris club debt, I wouldn't worry very much. It's just USD 7B, and the government already paid USD 9B to cancel its debt to the IMF. It seems just firework smokes to me, something for the press to talk about.

Andres

[Redondo]

It doesn't surprise me, for 2 reasons:

1) Argentina was never a high-volume oil producer. In fact, by the mid 90s it was estimated that the by-then current reserves would last for 10-15 years.

2) Internal consumption boomed.

So, depending on your point of view, that reality may be seen as a positive or negative sign.

Andres

There is still plenty of oil and gas, there just is no investment. The investment is the real bottle neck.

It was obvious that internal comsumtion would boom as GNC / utilities is so cheap (even for Argentine standards) that it's not worthwhile to save.

Brasil faced the same problem around 2002 (after a 1999 devaluation) and they faced the problem with broad plan backed by all sectors in the country to save energy.

That will never happen in Argentina. K hides the problem and hopes Evo and Chile helps him out of this mess.

PS.

1: Chile and Bolivia are talking about a land for gas deal, if they get this worked out, Argentina gets cut out.

2: The Argentine state currently pays around 1% of GDP for subsidies (bus, train, gas, utilities, etc) and it was about 0,5% in 2005. This is no longer sustainable and prices have to be raised.

3: If Argentine indeed will be an hydrocarbon importing country prices will have to be raised or it will eat up the financial surplus.

4: Debt service will be higher in 2008 and Argentina have to strike a deal with the Paris club as well.

[Hunt99]

Andres-

I keep hearing this "Argentine gov't keeps peso at 3/1" argument and at one time I did believe it to be true. In early-mid 2005 the peso had appreciated against the dollar as far as 2.79 I believe and the Lavagna-led economic team made it a policy to buy dollars in the marketplace in order to keep the exchange around close to 3/1 in order to maintain the export led economic recovery. Some kooks even argue that now the "real value" of the peso is around 2.4/ dollar.

However, the reality in my mind is that as inflation has taken off in the past two and a half years, salaries have risen dramatically WITHOUT any increase in productivity, and the government prints more and more money to pay for their welfare state programs, the government is now actually doing all it can to keep the peso south of 3.2/ dollar. All the futures are betting that the peso will slide further than 3.2/ dollar and possibly significantly further. The way things are going the peso almost HAS to collapse to at least 4/1 and possibly 5/1. Big-time inflation, no increase in productivity, non-stop printing of currency leads to depreciated peso.

Essentially Lavagna was the architect behind the export-led economic recovery and since Kirchner scuttled him, there has been no sound economic mind guiding things, only currupt Kirchner cronies with dirty hands. Its sad really but the fact is that with Kirchner (either one) or any other Peronist in power, the economy and governmental instituitions of Argentina are so disfunctionally corrupt that there is no chance for long term improvement, just a continuous cycle of boom and bust.

Suerte,

Dirk Diggler

Yikes! With his evolution, it now seems that Dirk and I now agree about politics and economics. It warms my heart to see what happens to a guy's views when he stops being a student studying abstract theories and heads out into the real work-a-day world. Congratulations, amigo. :D

[Andres]

In 2008 Argentina will be hydrocarbon importing country instead of an exporting country.

In 2006 about 20% of all exports were hydrocarbons.

Good luck to Kristina, she will definitly need it

It doesn't surprise me, for 2 reasons:

1) Argentina was never a high-volume oil producer. In fact, by the mid 90s it was estimated that the by-then current reserves would last for 10-15 years.

2) Internal consumption boomed.

So, depending on your point of view, that reality may be seen as a positive or negative sign.

Andres

[Redondo]

In 2008 Argentina will be hydrocarbon importing country instead of an exporting country.

In 2006 about 20% of all exports were hydrocarbons.

Good luck to Kristina, she will definitly need it

[Hunt99]

About 3 million children will benefit, plus 110,000 pesioners.

Why doesn't he just order each of the three million to get 100,000 pesos a year, each from the government? Print the pesos and give them the money! An economic genius in the traditional Latin American mold!

It's been almost 10 months since my last trip to Buenos Aires, hopefully the next crisis will begin soon (and from the looks of things it will), so I can again get my unlimited supply of tight willing pussy for 20 dollars an hour and a big ribeye steak dinner for 5 bucks.

I tell you, 40 bucks an hour for pussy and 10 bucks for a ribeye like it is right now is just too damn high!;)

[Argento]

Argento,

Can you explain the 2 mutually incompatible things you stated above? If one 'loses' on average 4% per year by building how is it the only real profit? Are you saying that the hotel owners and retails owners are not profitting now?

My comments were soley in relation to the capital costs of domestic accomodation. Replacement cost returns about 5% or less on current rentals. Easy to work out. An apartment you can buy for U$75000, rents for less than a 5% yield. Ie. Arg$1200 per month plus expenses.

What I said was that the return on new accomodation is in the profit made in construction. No construction or developement profit, no new housing. There is simply no return in property to beat the interest people receive on cash on deposit. Most rental accomodation is held by people who inherited the property and prefer the income over holding other assets. The local stock market is not a real option and the money in the bank can be pinched by:

A The Government.

B The Bank.

C Circumstances such as the 'corralito' incident.

Hence property holding or off-shore accounts are the only options.

This explains why most of the rental properties are so antiquated and have not been renovated since they were built.

Commercial property is, as always, dependent apon demand and did not form any part of my post.

[BundaLover]

Return on capital for domestic housing (5%) is about half the current interest rate for deposits (9%) The only real profit available is in construction. Very few Argentinians build to rent, hence the escalating rentals now a feature of this forum, due to the shortage of rental properties.

So economic chaos is some time off!

Argento,

Can you explain the 2 mutually incompatible things you stated above? If one 'loses' on average 4% per year by building how is it the only real profit? Are you saying that the hotel owners and retails owners are not profitting now?

[Argento]

Despite all the hype by the government, the Argentine economy is not great. Many of the forum members have lived here from before the Menem era or during it. The economy is based on taxing rural exports and distributing that revenue according to whatever policy on spending is in vogue at the time. The current boom in retail sales is based on the available credit and the confidence the population has in borrowing and using this money. Argentine economists are as well trained as any western economists and they certainly understand that the current economic policies are unsustainable. And I am sure they have told the politicians. But Argentinians as a group, there are exceptions, lack a realistic economic sense, and the politicians do what is expedient at the time.

Since domestic accommodation prices (purchases) have plateaued, the current boom in construction of domestic housing will ensue that the builders will not profit. Costs are escalating and by the time the properties enter the market, they will be more expensive to build than the market will bear, and for those apartments sold off the plan. And then you will see the half completed apartment blocks that have been and still are a feature of the city skyline. Return on capital for domestic housing (5%) is about half the current interest rate for deposits (9%) The only real profit available is in construction. Very few Argentinians build to rent, hence the escalating rentals now a feature of this forum, due to the shortage of rental properties.

Of course economic reality will eventually come into play. But as long as Argentina can get money, either by grace of Chavez or any other source, they will take it and damm the consequences. When it becomes impossible to repay, they will blame the lenders for their lack of propriety.

So all forum members who think that the peso will fall to 4 or 5 to the U$, my experience in the past is that it just doesn't happen that way. Since the devaluation of 2002, the change is only 1% per annum. Internal inflation seems to run counter to all commonsense. I have no explanation but I do offer the following opinion. There is a long way to go before the currency will collapse based apon past observations.

So economic chaos is some time off!

[Andres]

Andres-

I keep hearing this "Argentine gov't keeps peso at 3/1" argument and at one time I did believe it to be true. In early-mid 2005 the peso had appreciated against the dollar as far as 2.79 I believe and the Lavagna-led economic team made it a policy to buy dollars in the marketplace in order to keep the exchange around close to 3/1 in order to maintain the export led economic recovery. Some kooks even argue that now the "real value" of the peso is around 2.4/ dollar.

However, the reality in my mind is that as inflation has taken off in the past two and a half years, salaries have risen dramatically WITHOUT any increase in productivity, and the government prints more and more money to pay for their welfare state programs, the government is now actually doing all it can to keep the peso south of 3.2/ dollar. All the futures are betting that the peso will slide further than 3.2/ dollar and possibly significantly further. The way things are going the peso almost HAS to collapse to at least 4/1 and possibly 5/1. Big-time inflation, no increase in productivity, non-stop printing of currency leads to depreciated peso.

Essentially Lavagna was the architect behind the export-led economic recovery and since Kirchner scuttled him, there has been no sound economic mind guiding things, only currupt Kirchner cronies with dirty hands. Its sad really but the fact is that with Kirchner (either one) or any other Peronist in power, the economy and governmental instituitions of Argentina are so disfunctionally corrupt that there is no chance for long term improvement, just a continuous cycle of boom and bust.

Suerte,

Dirk Diggler

Dirk,

I don't think that there is a single cause for the peso-dollar exchange rate, but a number of factors. Inflation impacts, for sure, but increased domestic consumption too, which is significant in a country where people keep their savings in USD.

In any case, Argentineans understand that a weaker peso doesn't necessarily mean that things go awry. Many of us remember the Menem era, when the peso seemed to be solid but the whole economic structure was actually falling apart (with the exception of financial speculation)

As of the "futures", take them with a grain of salt. I remember all the gurues from the City (M. A. Broda, for instance) reassuring on early 2002 that "the peso will depreciate by December 2002 up to 5 to 1 or even 20 to 1 if Argentina doesn't come to terms with the IMF". Needless to say, that didn't happen and those who bought futures by then didn't make much profit.

Eventually, this system will get outdated and will be replaced, but for a complex bunch of reasons (many of them of social stability, let's name them "political") The "Adam Smith's cookbook of how to manage an economic system" doesn't cut it anymore.

Andres