Thursday, July 24, 2008

Argentina's Uncertain Economic Future

El Presidenta is going to have several problems to deal with moving forwards. Obviously a lack on industrialization in this country is going to continue to plague the country but unfortunately the problems confronting Argentina are far more serious than that.

The government is spending up its foreign reserves at an alarming rate to keep the peso artificially low. They are having a bit of a reprieve currently since the dollar is weak, but they are still spending a fortune to keep it as high as it is here. Looking at this in the long term, internationally the dollar has depreciated by more than 40% since 2001. Here in Argentina an increase of 300% was realized.

La Nacion recently talked about the lack of investor confidence and the necessity to continue this pattern of purchasing dollars to devaluate the peso: "The loss of confidence has been enormous; the loss of banking deposits and the increased purchases of dollars shows the authorities’ limitations, and in any case the odds increase of Argentina selling reserves to make the dollar go down because they cannot do anything else”, according to another businessman.

Then you have to consider Argentina’s decision to limit its food commodity exports on items such as meat, wheat, corn and the like. The intended result was the containment of internal inflation, yet Argentina now has an inflationary problem far worse than they had two years ago. This situation in turn has been exacerbated by the fact that they no longer have the export revenues they once did due to this policy.

Investments have all but dried up in the country and recently it was given the investment grade of a country “not to be trusted”. According to La Nación: “The uncertainty with respect to the evolution of this situation in Argentine has affected businessmen at the highest levels. `Curiously, nobody in the highest levels of government seems to know what will happen in next the 12 hours', says an executive that used to have good rapport with the administration of the Kirchners”.

And to top all of that off, the country actively engages in publishing false statistics regarding the state of the economy and inflation in particular. This in turn has deteriorated investor confidence to the point that virtually no one wants to invest any money here.

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 canceling 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.

Energy is going to be one of the largest issues plaguing Argentine stability. Nestor put a freeze on prices about six years ago in an attempt to level inflation in other areas he could not control. This prize freeze has had two long term effects:

• The industry has pretty much halted research & development and the expansion of facilities and services;
• Investment, particularly foreign, has dried up in that sector.

Next we have issues regarding the petroleum industry. The penguins have been actively controlling internal prices. Why? Again, they are trying to artificially manipulate inflation in the country by putting price caps on items they can control hoping that once the overall cost of living is averaged out inflation will remain at a manageable level. Of course this is not working out as well as hoped.

At the heart of this matter is the fact that the price for a barrel of oil is around U$S40 dollars internally while imported oil is going for nearly U$S 140. The only solution to this situation seems to be either raising the internal price of oil to match that of international rates or to raise taxes so that the government can subsidize the oil industry.

La Nación recently noted: “In Buenos Aires Province the situation has been repeated in several locations. In Bolívar, a town of 30,000 inhabitants 300 kilometers from Capital Federal, there are 12 service stations that have not sold any gasoline or diesel since last Sunday. In La Plata, as much as 90% of the service stations were out of fuel as of yesterday. Meanwhile, Mar del Plata is also experiencing fuel shortages. In San Juan the fuel shortage worsened with gas rising to about 30 pesos. Recently in San Salvador, a municipality of Jujuy, a state of emergency was declared regarding transportation services due to a lack of diesel. In Mendoza diesel is selling at the price of 30 to 50 pesos, and Tucuman is experiencing long lines in stations in the capital to purchase fuel, fuel that many stations no longer have. In many of the interior zones such as Santa Fe, Santiago del Estero and Chaco more than 50 percent of the stations are shut down”.

The interesting thing is that at a time of international food shortages and increasing prices, Argentina is potentially in the best economic situation it has found itself in for decades. Yet the political climate here is such that it is very probable that Argentina could find itself continuing its cycle of “boom or bust”.

I certainly hope not.
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Monday, July 21, 2008

Cocktail Party July 30th

Good Morning Buenos Aires is proud to announce it is hosting a cocktail party to show its appreciation to the International Community of Buenos Aires.

This is no cover charge for this event. Good Morning Buenos Aires does not profit in any way. No kick-backs, no inflated prices, no fuss, no muss, no wrinkles...

There will be drink and food specials until closing time and several items will be raffled for free.

Several organizations and companies are co-hosting this event to include: the BA Insider Magazine, Buenos Aires International Newcomers Downtown Group, CULTOUR turismo con identidad, Democrats Abroad Argentina, EleBaires Spanish Experience Program, Freak Restaurant and Cocktails, InterNations. org, Sugar & Spice, Wynn Woods Solutions, yanquimike. com. ar and more to be announced later....

For more information click here, or go to Good Morning Buenos Aires


- 2 for 1 drink specials all night
- 20% discount on all food items

- BA Insider Magazines
- Democrats Abroad Argentina membership drive
- InterNations.org membership drive

- A special Sugar & Spice raffle
- CulTour Cultural Tour raffle
- Raffle for dinner at Freak Resto*
- Raffling 10 free drinks at Freak*

more to be announced later

DATE: Wednesday, July 30th
TIME: 9 p.m. until closing
PLACE: Freak Restaurant
Fitz Roy 171, Palermo
@Honduras & El Salvador

I hope to see you all there.

regards,

samuel

*to be used on your next visit
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