Argentine strange poltics summerised in comment to boat seizure article

[jago25_98]

I saw this reply in the comment thread to an article on the hedge fund seiznig the Argentine military boat in Ghana and though you might find it an useful way to summerise to people asking you why Argentina is so mad:

molmalo 10 hours ago | link

Not exactly, it's long, but here I go...Malvinas/Falklands has always been a national claim, that has been brought to every possible international forum, for decades before the war in 1982, and of course, also after the war... So, that's not news.
The current overall economic situation is not as terrible as it may seem from outside. The main problem is that because of the high inflation, people try to have their savings in other currencies, but the government put restrictions on the amount of foreign money that can be bought. Sadly, tax evasion is commonplace here, so, it's hard to prove the origin of the money, and thus making it an impediment to buy US dollars.
But the overall situation is very complex. I have always said that the main problem in Argentina is that culturally, Argentine businessmen always try to make money selling a few products at a high price, instead of selling a lot of products at smaller prices (scale economy). And there's no focus on trying to change that mentality. That makes the local industry totally noncompetitive, and thus, the government has to rely in protectionist policies to prevent importers from flooding the local market with chinese products, that would simply destroy the local jobs (it has happened before, in the '80s, then again in the '90s).
As an example, you have some plain stupid policies, like having the electronics factories in the furthest possible place (Tierra del Fuego, the island just at the end of the continent!), far away from the consumption centers, making the prices go up as they have to move the manufacturing parts from Buenos Aires, to Tierra del Fuego, and then, the manufactured goods back to Tierra del Fuego/Cordoba. That's 3100 miles by road!
This kind of policies render the commendable idea of helping the local industry develop, totally useless because those industries will never be competitive.
On the other hand, historically, the main source of wealth in this country has always being agriculture. But sadly, since the 1800's, almost 80% of the country has been in the hands of a few families. Currently, 2000 families own almost all of the fields. And sadly, in the last 10 years, they stopped producing a lot of products (wheat, fruits, livestock), replacing most of the production with soybeans. That resulted in a huge increase in prices, something unthinkable in a food-producing country like this.
That, added to the fact that historically those families operate usually operate this way: They sell the products through a shell company in some tax heaven country, thus declaring much lower earnings here (evading local taxes). Of course, this kind of behavior is possible because of the ever-existing corruption. Anyways, the money that they do bring here, is usually moved anyway to offshore bank accounts (generally luxemburg, switzerland or uruguay). Capital flight then becomes a common practice.
A few years ago, the government paid its debt to the IMF, and because it would have to eventually pay most of the debt to the remaining creditors, and its debt is adjusted by the inflation index they declare, they started forging that index. They did it by printing money, used to internal payments to government employees. Internally, as salaries were raised anually at the same level of inflation, it didn't change much to the average people. But in the long run, it affects business, as companies stop trusting the country, so they stop investing here.
As the government had to afford some payments this year to finally complete payments from the 2001 crisis (Boden 2012), they tried to stop this capital flight, but instead of doing it gradually, they did it in a shockingly fast way.
That generated a lot of social discontent in the middle classes. And of course, people are just sick high levels of the corruption and impunity. Some judges, just act as lackeys of the government, absolving government employees involved in public corruption scandals, even when there's a lot of evidence to make them go to prison.
And finally, Media conglomerates that have an enormous amount of power are fighting its own war against the government, that again, even when they are trying to implement an understandable law to replace one from the time of the last dictatorship, the small amount of time given to split the "monopolies", escalated everything.
Interestingly, even with all of this, the overall economic situation is not that bad, people still have their jobs, there are not massive layouts as seen in Europe, salaries grow at the same rate as inflation, compensating it. People is still consuming and is expected that in 2013 the economy is growing more, as Brazil gets better.
But the manner of this government is what makes people sick. They have a very authoritarian way of imposing their agenda. It's like if for them, the end justifies the means. Other parties, even when they could share some of the objectives, prefer other ways to do things, but the opposition is totally fragmented, so the officialism has all the way clear to act as they please.
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To summarize:
- Noncompetitive industry.
- Wrong way of thinking about business (gain by product instead of by scale).
- Unpatriotic landowners, masters in tax evasion
- Widespread corruption.
- Plain Stupid Policies
- Flawed legal system, with corrupted judges
Makes a once-great country, a languishing country that every time it seems to be about to stand again, it falls to the floor and ignites... just to start from scratch again, like a recurring fenix.
Hope it helps to understand us a little bit more
As an anecdote, after the 2001 crisis, this country was literally broke, there were no reserves, no money left, while, at the same time, the IMF was trying to prove some 'new theories' and Argentina became the perfect experiment. After rejecting a debt-exchange, default was the only option.
That's where this kind of vulture funds get in the picture. Their modus operandi is simple: buy debt for cents (in this case, defaulted bonds), knowing that a large country like Argentina, very rich in natural resources would eventually recover, and then try to get paid the full price. Good luck with that.

from here: http://news.ycombinator.com/item?id=4611825

 

[ElQueso]

Damn - I just posted a thread on this, a few minutes after you Dind't see yours

 

[ItsyBits]

This person should be president. But on the other hand if he/she were you could probably do denuncias against him/her at the rapi pagos.

 

[PhilinBSAS]

I saw this reply in the comment thread to an article on the hedge fund seiznig the Argentine military boat in Ghana and though you might find it an useful way to summerise to people asking you why Argentina is so mad ....

quote That's where this kind of vulture funds get in the picture. Their modus operandi is simple: buy debt for cents (in this case, defaulted bonds), knowing that a large country like Argentina, very rich in natural resources would eventually recover, and then try to get paid the full price. Good luck with that. unquote

from here: http://news.ycombinator.com/item?id=4611825

NO! These people are parasites. Seizing the Sail Training Boat is a publicity stunt and part of a larger campaign of extortion following the set back for the vultures in the US Courts.

What they are up to against Argentina is bad enough but their record in Africa and elsewhere is truly appalling and contributes to the greatest amount of human misery and impoverishment. Strange therefore that Ghana have caved in to them but there again Ghana knows what clout they can wield.

http://www.coha.org/peace-over-profit/

This is not an apology for the K brigade. Opposing one set of gangsters doesnt mean you have to row in with another.

Vulture Funds operate differently from Hedge Funds

 

[AndyD]

I don't think molmalo's analysis is good.

The current overall economic situation is not as terrible as it may seem from outside. The main problem is that because of the high inflation, people try to have their savings in other currencies, but the government put restrictions on the amount of foreign money that can be bought.

The message is answering about the dissatisfaction of the people so, in that context, it makes sense to reduce "economic situation" to current possibilities to consume and purchase dollars. But if we're to take it as commentary about the economic status of Argentina, let's bear in mind that there's more to it.

Sadly, tax evasion is commonplace here, so, it's hard to prove the origin of the money, and thus making it an impediment to buy US dollars.

But people are not allowed to buy foreign currency with money that they have declared, even in small amounts that are easy to justify. Moreover, in practice, companies are not being able to move their declared profits to foreign accounts.

I have always said that the main problem in Argentina is that culturally, Argentine businessmen always try to make money selling a few products at a high price, instead of selling a lot of products at smaller prices (scale economy).

I don't mean to deny the existence of a business culture but, if it really was irrationally conservative since long ago, it would have been replaced by more aggressive businesspeople who would have reaped profits from the shy ones and shown them a better example. Investment in Argentina was not always low, and when there was room for it to be higher or, better put, more innovative, there were risks that justified precaution.

That makes the local industry totally noncompetitive, and thus, the government has to rely in protectionist policies to prevent importers from flooding the local market with chinese products, that would simply destroy the local jobs

Of course industry tends to argue for protectionism, as they probably do everywhere. If we are gradually lacking competitiveness and that's encouraging protectionist measures, there are underlying reasons. Not few are related to government policy (e.g., energy policy and using the dollar as an instrument against inflation). Plus there is an ideological bias.

(it has happened before, in the '80s, then again in the '90s).

It's odd to include the 80s, unless molmalo's referring to 1980 alone, or to 1977-1980. Otherwise, it might be buying into the myth of the 80s being neo-liberal.

As an example, you have some plain stupid policies, like having the electronics factories in the furthest possible place (Tierra del Fuego, the island just at the end of the continent!)

I don't intend to argue for that policy, but it's hardly an issue of protectionism or competitiveness relative to the world's markets. Its purpose lies elsewhere.

On the other hand, historically, the main source of wealth in this country has always being agriculture. But sadly, since the 1800's, almost 80% of the country has been in the hands of a few families. Currently, 2000 families own almost all of the fields.

I doubt these stats, which are also vague. How do you define "family"? Does it include large groups of loosely-related owners? How much is "almost all"? Why aren't companies (domestic and foreign) included? Plus, the stats obviously changed significantly since the 1800s. According to the latest census by INDEC, in 2002 there were roughly 297,000 farm owners in the country.

Besides, how do these stats relate to the rest of the message?

And sadly, in the last 10 years, they stopped producing a lot of products (wheat, fruits, livestock), replacing most of the production with soybeans. That resulted in a huge increase in prices, something unthinkable in a food-producing country like this.

Increases in the prices of foodstuff responded to the dynamics of the international markets, not to a decision to grow soybeans. I mean, if these were forbidden without changing the conditions to produce and export the other products, prices would have risen the same, except minor differences due to the effect on global markets of Argentine production and the impact on certain costs.

That, added to the fact that historically those families operate usually operate this way: They sell the products through a shell company in some tax heaven country, thus declaring much lower earnings here (evading local taxes).

Farm exports are pretty much controlled and their revenues liquidated through the official system. According to the census mentioned above, in 2002 only 23% of the land was in the hands of companies, including domestic ones and foreign ones that pay their taxes. Not just taxes on earnings, but hefty "retenciones" as well.

This sounds like the rhetoric of a greedy higher class being responsible for all of our ills. That narrative is quite successful here and frequently supports populist policies. So, in a sense, I guess the message does explain part of Argentina's "madness".

A few years ago, the government paid its debt to the IMF, and because it would have to eventually pay most of the debt to the remaining creditors, and its debt is adjusted by the inflation index they declare, they started forging that index.

Only a minor portion was adjusted by the price index. Besides, that debt was in pesos, much of it with local creditors, though molmalo seems to be referring to foreign debt here. If we refer to public debt in pesos with local creditors, there's a lot outstanding.

They did it by printing money, used to internal payments to government employees.

Printing money in excess creates inflation, which doesn't imply forging statistics. Plus, according to some evidence, price indexes and their derivatives were not the only stats that were altered.

Internally, as salaries were raised anually at the same level of inflation, it didn't change much to the average people.

Actually, the average salary raised more than inflation, as you would expect from a growing economy. But molmalo's conclusion is valid.

But in the long run, it affects business, as companies stop trusting the country, so they stop investing here.

There's more to it than higher risk for investments. Inflation became dollar inflation, eating up profits of companies producing tradable goods and services.

As the government had to afford some payments this year to finally complete payments from the 2001 crisis (Boden 2012), they tried to stop this capital flight, but instead of doing it gradually, they did it in a shockingly fast way.

Most countries pay their commitments without such strict currency controls. That payment doesn't justify those controls, nor were gradual ones the only alternative.

And finally, Media conglomerates that have an enormous amount of power are fighting its own war against the government, that again, even when they are trying to implement an understandable law to replace one from the time of the last dictatorship, the small amount of time given to split the "monopolies", escalated everything.

If "understandable" means "reasonable", I disagree. This is not just a matter of hurried implementation.

As an anecdote, after the 2001 crisis, this country was literally broke, there were no reserves, no money left, while, at the same time, the IMF was trying to prove some 'new theories' and Argentina became the perfect experiment.

The IMF was hardly trying to prove any such thing about Argentina during and after the crisis. There are misunderstandings about the IMF's role in the debacle. I guess they're useful for putting the blame outside...

 

[PhilinBSAS]

from here: http://news.ycombinator.com/item?id=4611825

Very interesting news combinator - thanks Jago for posting with link

I've just read this which others may be interested to see so I've cutn pasted!.

Aside: There seems to be a strange (one-way) attraction between creditors and sailing ships these days. Another example:
http://en.wikipedia.org/wiki/Sedov

"Sedov has regularly been targeted by unpaid creditors of the Russian Federation such as Nissim Gaon (of now defunct Swiss group NOGA, an anagram of Gaon) and also by French holders of defaulted Russian bonds; in 2002 Sedov was forced to precipitously and unexpectedly leave Marseilles in the dead of night[1] to avoid being served a writ by AFPER (French association of holders of Russian Empire bonds) the following morning.

For over a year French holders of defaulted Russian bonds have been warning they were going to reorganize and export their claim to Anglo-Saxon jurisdictions, more friendly to private citizens than the French."

reply

100k 3 days ago | link

I was curious AFBER because of the Russian Empire thing. It is indeed the association of holders of Tsarist Russian bonds. They are trying to get paid back two successor governments and 100 years later.

taken off http://news.ycombinator.com/item?id=4611825

Maybe Libertad is going to stay in Ghana for a while yet!