Argentine own goal

[bigbadwolf]

In the FT today:

Throughout its history, the government of Argentina has often resorted to expropriating the property of its creditors and citizens. This month, in an ostensible move to protect the savings of workers in the face of a worldwide financial crisis, the administration of Christina Kirchner has proposed doing it again by nationalising private pension funds.

...

But the measure is a sad admission of government failure. Despite the recent boom in commodity prices, Argentina did not put funds aside during the fat years to prepare for the lean. More importantly, the decision's costs over the longer term are likely to be heavy.

The government has used state intervention in the US and Europe as rhetorical justification for the move. But that was governments bailing out the private financial sector. Only in Argentina has the private sector been forced to bail out the government.


The funds, amounting to about $26bn or about 10 per cent of gross domestic product, were often criticised for excessive fees and for mismanagement. But they played a slowly growing role in capital formation and their nationalisation will further damage prospects for private investment in a country already sorely deprived of it.

Confidence in Argentina, already at sub-basement levels, is bound to erode further. Argentines, who nearly 20 years ago woke up to find their bank deposits converted into 10-year government bonds, are already wondering what the government will expropriate next. It will engender a further loss of trust in the sanctity of contracts and increase worries about arbitrary exercise of government power.


The governments of many emerging economies now face a severe economic slowdown, but at least have the cold comfort that this was a crisis manufactured elsewhere. With this decision, Argentina's has made its predicament even worse.

 

[perry]

I could post hundreds of articles saying negative comments about many countries that are considered the bastion of western democracy.

Australia for one is being predicted by many to be the next Iceland. That might suprise many here but the information I have read is compelling reading.

My question is this has Bloomberg or Wall street Times ever wrote a positive article about Argentina in the last 7 years since the Kirchners took over?

Many expats who lived through the 2001 crash will say it was a terrible time in our history and one that 99 percent of these same commentators never predicted .

The chance of a default in the next two years are slim . The fundamentals of Argentina are very good as we are one of the bread baskets of the world.

 

[bigbadwolf]

The fundamentals of Argentina are very good as we are one of the bread baskets of the world.

*Polite cough* Exporting produce does not imply anything about the domestic finances, the structure of the local economy, or the nature of civil society. Indeed, using your argument, one could contend that the fundamentals are sound in every corruption-ridden dictator-ruled banana republic in the world: after all, most third-world countries export some sort of commodity -- agricultural produce, metals, oil, and so on.

 

[jp]

I don't think this is being "down on argentina", its just calling bad decisions for what they are - bad decisions.

There have been plenty of articles about argentina's economic potential in the midst of a global commodities shortage, and plenty more about its overall growth rate and economic recovery.

But its not really newsworthy. "Argentina still has high quality arable land" not going to steal the front cover. "Cristina raids pension fund in attempt to bodge through crisis with stolen loot" is pretty extraordinary.

I get tired of naysayers as well, but this is just calling things as they are.

 

[citygirl]

Pericles - I think the point that the article is trying to make is that huge amounts of Argentina's revenue is based on exports. Now that prices of soybeans, wheat, etc have plummeted - that revenue stream is going to be cut drastically. Where is that shortfall going to be made up?

Agreed that Argentina has a few things going for it - an insulation from the credit crisis internally, land & water.

 

[Moxon]

Yes, its not a bad place to watch the world end, as Chatwin opined.

 

[Stanexpat]

Here is a link to a somewhat humorous and slightly optimistic view of the situation in Argentina from some goldbugs, enjoy.

The Masquerade is Over - GoldSeek.com

 

[perry]

Argentina became one of the wealthiest countries in the world in the early part of this century. I do not remember that soybeans had much to do with it. There are many other cash crops that Argentina supplies that in the future will fetch higher prices as the world population grows.

Tourism is currently bring over 7 million people alone to Buenos Aires and while I believe it will drop substantially in the coming year the long term forecasts are excellent. The benefits of this industry are substantial and account for much more than the recorded GDP on record.

I believe that many countries will be bankrupt and running to the IMF before Argentina will. Looking at Iceland which went from United Nations darling to today it is highly probable.

 

[allegra]

As much as I would be delighted to view the future of my country as Pericles does, I cannot. Although I don't think any gov't here will go as far as to expropriate property owned by foreigners. At least not those of single property owners. In terms of purchasing homes for residence in dollars or euros it is still a good market. Yet I don't see tourism as a growing business in the years to come.

 

[bigbadwolf]

Argentina became one of the wealthiest countries in the world in the early part of this century. I do not remember that soybeans had much to do with it. There are many other cash crops that Argentina supplies that in the future will fetch higher prices as the world population grows.

Tourism is currently bring over 7 million people alone to Buenos Aires and while I believe it will drop substantially in the coming year the long term forecasts are excellent. The benefits of this industry are substantial and account for much more than the recorded GDP on record.

I believe that many countries will be bankrupt and running to the IMF before Argentina will. Looking at Iceland which went from United Nations darling to today it is highly probable.

As in the past, the profits from tourism and cash crops could accrue to a small number of families, who would keep their money to themselves (e.g., send it abroad). The condition of the average Argentine could continue to worsen, and the Argentinean state could go bankrupt. This is the history of Latin American states: private opulence and public squalor. The riches of Latin America have flowed into a few chests, while states have gone broke and masses of people have gone hungry. The legacy of Spain.