Thursday, June 19, 2008

A "Country in Crisis" or a bunch of "Twits on the Loose"?

I think that the current farm crisis is a complex issue and one that has politics at its origins and not economics. So, I think to truly understand this conflict one has to look beyond the mere numbers.

However, if one does want to look at the numbers and the economics there are two clearly valid arguments. And I am not particularly taking a side in this matter either way. I see weaknesses not only regarding the positions of each side, but also in their methodology.

Going back a few years, Menem's government slashed farm taxes. In 2002 Nestor reinstated them starting them at 10%, and then quickly raised them to 24%, then 35% and now they sit at about 44%. So, certainly one can understand the frustration of the farmers.

The initial reason the government gave for the imposition of the new taxes was to avoid the "soyization" of the economy, meaning they were hoping that by increasing the level of taxes on soy, this would in turn compel farmers to turn to increased production of other commodities such as wheat, corn, dairy and meat. Now, the problem with this thinking has to do with timing. With Argentina as the number one supplier in the world of soy meal and soy oil, and number three in soybeans behind the United States and Brazil AND with international prices for soy on the rise, the question has to be asked: is this really the time to seek to limit soy production?

A couple of weeks ago, the government then changed its story and said the taxes were created to more fairly "redistribute the wealth" in the nation through Cristina's announcement a week ago last Monday of her "Plan for Social Redistribution". In an obvious ploy to manipulate public sentiment she announced the new taxes would be used to fund 30 new hospitals, erect public housing and make roadway improvements.

Now this raises several questions and Alfredo de Angeli, president of the Agrarian Federation in the Province of Entre Rios (and recent detainee) put it best when he raised the question: why was the government so determined to change things on March 11th through increasing the farm tax so dramatically if things were going as well as the government maintains. “Low unemployment, a multi-year cycle of economic growth, commercial and fiscal surpluses” seems to be the mantra of this administration.

The simple truth is that in this scenario, the only possible answer could be that this new "redistribution of the wealth" program is nothing more than an apparent need to have access to more funding to maintain political stability. The government itself has admitted that its claimed fears of "soyization" were not true. Will it step up and admit that this new "Plan for Social Redistribution" is a joke as well?

Okay, so let's take a look at the other side of the fence. And luckily this one is much easier to explain (or at least I am going to do so more briefly).

The government has been artificially setting the rate of exchange of the peso low (deliberately devaluing it) to increase the desirability of purchasing Argentine commodities on the international market. I believe it was January of this year that the government purchased a billion US dollars to achieve that goal. I know last year they were purchasing dollars by the hundreds of millions to achieve this aim. Speaking metaphorically, dinner has been served and the bill has arrived. As the farmers have been eating at this table of plenty, the government (and with good cause) wants them to chip in on the tab. After all it is they, who have been benefiting the most from the demand for Argentine commodities stimulated by a deliberately weakened peso. Can they really cry foul in the face of high demand for their products, created by government spending to devalue the currency? If the farmers are not going to ante up, who then is expected to refill the coffers of Argentina’s foreign reserves?

Second point: Argentina is an agricultural based economy. There really isn't much other industry developed in the country at the present moment. Sure it seems unfair that historically the farmers have had to fund infrastructure. However, if they don't - who else is there that can pay that bill? There is a lack of any other viable sector in the economy that the government can turn to in regards to such costs. That is unless, GASP PANT PANT PANT, one wants to ask presidents and former presidents to open their foreign bank accounts. LOL

So is there a point to all of this? Probably not. LOL But if there is it is this: as with most arguments, debates, standoffs and crises there are at least two sides to consider. And more often than not, both merit serious consideration. That is why in the end "COMPROMISE" is the key to "saving the day". Hopefully “the forces that be” will come together and get something worked out... In the meantime I am grateful that they produce a lot of malbec wine here.
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Sunday, June 15, 2008

Argentina's Farm Crisis: I say “Basta”, meaning “Enough”

Mahatma Gandhi once noted that “an eye for an eye makes the whole world blind”. In the United States we say “two wrongs do not make a right”. The grueling, 3-month-long fight between President Cristina Fernandez de Kirchner and Argentina’s powerful farmers is a prime example of what happens when these principles are ignored.

And the most interesting thing is that Argentina is undergoing its best economic situation in decades, yet because of this stalemate the mood in the streets is one of gloom and doom. "This is the most gratuitous crisis in Argentine history," political analyst Rosendo Fraga noted. "We've never seen a crisis during such favorable world conditions. ... What the president needs to do is resolve this dispute with the farmers today and immediately start rebuilding her support."

So what has the recent stalemate between the government and the farmers created so far?

Well there are over 200 routes cut off in the country, no commercialization of grain, food and fuel shortages, increasing inflation, a rise in interest rates, the Central Bank’s foreign reserves have depleted more than U$S 1.5 billion the last few weeks.

Consumer confidence has decreased by 24% over that of last year. Domestic consumption has lowered by 20%. Real wages are now stagnant at best, and poverty and income inequality are on the rise. A recent poll, take last month by the University of Belgrano found that 69 percent of people in the capital, Buenos Aires, thought another crash was "very probable". Public services costs are on the rise; the national debt is a larger percentage of the country’s GDP than that of 2001, the year of Argentina’s last sovereign default.

This situation has, in turn, led to financial, economic and political uncertainty.

So what does the government intend to do? The Economist noted that rather than moving to correct the problems, the Kirchners have simply “whitewashed the effects of inflation” by cancelling the publication of official poverty statistics. The Economist’s Intelligence Unit has also observed that Cristina has continued her husband’s “commitment to a weak currency policy... and to heterodox measures such as price caps, cross-subsidies and export taxes”. On June 10th Argentina updated the method by which it determines its Consumer Price Index. According to this new system every time a product’s price rises too sharply, it will simply be removed from the index on the theory that consumers will switch to other goods after being deterred by the new cost. Yesterday, after months of blocked highways and food shipments coupled with peaceful demonstrations the Kirchner government responded with police brutality and arrests.

So what is going to happen? Your guess is probably as good as my own. One thing remains certain in Argentina: anything is possible. I personally say: “basta”, meaning “enough”. Instead of continuing its policies of handing out wasteful welfare state handouts and redistributing the wealth, Argentina should look to a combination of real and meaningful economic reform, better monetary policy and limiting the role of government. Until that day, Argentina’s former days of glory will remain ever out of reach.

But that is just my opinion. What do you think?
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Thursday, June 12, 2008

Thoughts on crime in the USA

We talk a lot about violent crime here in Buenos Aires; and I think rightly so. Problems with the economy are increasing everyday and so are crime statistics. I was thinking about crime back at home (the USA) after reading a post on a forum here about McDonalds in shady areas. And I wanted to share some of my thoughts about life for me back at home.

Bob Dylan wrote a song on his first album entitled "Talkin' New York" in which he wrote the following line as an observation of the crime there:

A lot of people don't have much food on their table,
But they got a lot of forks n' knives, and they gotta cut somethin'.


I traveled for nearly ten years as project manager for Autozone, a "do-it-yourself" autoparts store. And guess where we put them all: in the worst part of the city. I have worked in South Central L.A., Harlem, Watts, on 8-mile in Detroit, etc.

In parts of Los Angeles you cannot go inside any of the fast food restaurants, convenience stores or service stations. They have armed guards on the premises and they hand you your food, etc. using either a bullet-proof glass turnstyle or something like a bank drawer.

In inner-city Chicago, you can go inside most restaurants and fast food places but they have bullet proof glass seperating the employees from the customers and a similar turnstyle.

In inner-city Detroit the McDonalds have razor wire around them and armed guards on the premise that time your visit there to about ten minutes and then throw you out.

There are other parts of the country that are similar, but these three cities seem the worst from my experience.

I have an interesting footnote to the above. I mentioned working for Autozone as a project manager. Like many companies, Autozone has a color scheme for their employees' uniforms. I worked out of the corporate office and wore white shirts to denote management, blue shirts for new store development, and black shirts for acquisitions and remodels.

In the regular Autozone stores the management also wore white and the hourly employees wore red shirts with black trim.

Well, in South Central L.A., as many of you know, there are major issues with street gangs and they also had colors: blue or black (or a combination of the two) for crips, red for bloods, etc.

So Autozone had to create an alternative scheme for their hourly store employees and they ended up with the same uniforms but in orange. And as a matter of corporate policy, I never wore my blue or black shirts. And believe it or not, they adopted this policy not as an overreaction to fear but as the direct result of so many employees being shot or killed while on the way to work.

I do not know if there is a point to this story, however it is something to consider when contrasting life in the States to life down here.

"Strength does not come from physical capacity. It comes from an indomitable will." Mahatma Gandhi
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