How far will the downturn be in Argetina?

Conorworld

Registered
And on a side note I have been looking at vacation rentals in Buenos Aires. There is a significant drop of reservations after March/April. I think it is one example that things havn't hit yet that hard in Argentina. Bookings, short term business contracts and revenues have not kept up with the sudden change in the world economy. I think when the summer period is over it is going to be very interesting.

I have started a debate with my friend about even the possibility of deflation in Argentina! We have a bet going on about it. Yes a wildcard but the way things are it is possible. I am from Ireland and for the last decade we have had very high inflation for a developed nation (which at times touched the Argentine national statistics' cooked levels of 7-8%) and now we have deflation for the first time in 50 years. Things are very weird economically around the world. I would not cross out the possibility of it in Argentina.
 

syngirl

Registered
wnewman7 said:
All,
I am an American and work in for a local investment bank here in Buenos Aires and part of my job responsibilities includes gathering macroeconomic research for the entire Latin American region, but especially on Argentina.

The outlook is not good.

A conservative Wall Street Consensus (combiled from reports issued by Goldman Sachs, Merill Lynch, JP Morgan, Deutsche Bank, Credit Suisse, Citi and Santander) puts Argentina at -1.2% growth this year after explosive 7-10% growth annually since 2002. I wrote to this effect a few weeks ago in a post about electricity costs, but the government is in an extremely dire situation as far as being able to cover its costs due to huge spending increases in the last few years. Many of the policies instituted by President K#1 (that have been continued by President K#2) were meant as stimulus items after the crisis of 2001-2002 that were simply never rolled back until recently if at all for fear of losing the support of the electoral base. A few examples of this include the massive subsidies for electricity (5x cheaper per KW/hour than in the US in real dollar terms), public transport (a ride on the Subway in New York is US$3 and here its US$0.30), milk, beef, and the list goes on.

The government payroll has also increased massively in the last few years (especially in the smaller provincial cities), and when combined with the lower world prices for Commodities (Oil -68%, Soy -29%, Wheat -28%, Corn -30%, Copper -50% Source: Economist Intelligence Unit), the drought that could potentially eliminate 40% of the country’s agriculture production, and an ever increasing debt burden due to dollar denominated debt whose interest payments are based on domestic inflation numbers (that’s why INDEC lies about the national inflation), one understands why the private pension funds (AFJPs) were nationalized in October of 2008.

This gave a quick relief to government coffers, but took US$30 billion out of an already miniscule stock market and has destroyed over 50% of the value of nearly every public company in the country while at the same time pushing sovereign debt risk premiums as high as they were in October-November of 2001 (1,707bps over a US treasury bond as of yesterday).

This all leads us to a preoccupation of the government, any anyone else who hopes to keep Argentina at least marginally on the world economic map, which is paying off the foreign debt no matter what the domestic costs are. The government will be able to accomplish this for at least the next 18 months at the expense of the peso. Right now we are at 3.58 pesos / USD, July of last year it was 3.02 / USD, and end of this year it will be over 4 / USD heading towards 5 by the middle of next year. This makes it ever more difficult for the government to meet its dollar denominated debts, the only up side being inflation is expected to go as low as 6% this year after years in the high 20s.

An earlier post talked about how many companies are waiting until the next quarter to announce layoffs and let loose with all of the bad news and I agree. One thing that needs to be taken into account with the current state of affairs in Argentina is that it is still summer vacation. School aged children have not returned to classes, many people are just ending long vacations, they were spending their year end bonuses from last year, and in general the populace is not back in the swing of things after the long holiday. The same thing happened last summer in the Northern Hemisphere.... need I remind you of what happened last September 15th after the world was on vacation for 6 weeks amidst a looming crisis?

All this being rambling is essentially meant to give a basis for my belief that the economy here is currently an 18-wheel truck that is about to slam into a wall within the next 3-4 months. What will things be like on the ground here? I have no idea. I was not around in 2001-2002 (moved here in early 2007) but I doubt it will get that bad. For those of you in this forum that are looking at Argentina for long-term living and employment 2009 will be the true test. If the country makes it to 2Q 2010 without falling to pieces I believe we will be in the clear.... but 2009 will be a very, very bumpy ride.

Cheers.
This is the best analysis I've seen. The pension raid was just to bolster the coffers. We are in the quiet time of the year but it's end of holidays on Monday (although the school board is protesting, so a lot of kids won't be back to class yet) and the true situation will come to light in the upcoming quarter. The farmers seem ever more determined to protest again, at the most inopportune time, of course. On top of this we've got the upcoming election in October, and Cristina's supporters in senate are deserting her in a very public manner so nothing much is going to be accomplished in the upcoming months as senators are more interested in gathering their own power than approving anything that Cristina's had her hands on. Cristina and her VP aren't even in communication (and haven't been for 6 mos +) and Cobos is working to rally his supporters. The election will see a split, leaving Cristina with the choice of sitting as a lame-duck president for the rest of her term, or step down. So much for their dreams of holding power for 16 years. We're looking at a bad economic situation combined with a government that is essentially in deadlock. Not a great way to make it through economic tough times. Will make for an interesting and frustrating year.
 

reiver

Registered
Grazie said:
soulskier, I think we should start a new thread on that.
I vividly remember a prediction last year by someone on this site that the peso will be exchanging at 2.60 to a dollar. For the life of me I cannot understand why with the US economy so bad..as it is stated here and there...that the exchange rate is now.. what 3.55 pesos for a dollar. What gives?
Rule of thumb... when the US economy does bad, most other (non-US) economies do worse.

In a nutshell... most other (non-US) economies are directly or indirectly dependent on the US to buy stuff. When the US economy is doing bad, they stop buying as much stuff, so other (non-US) economies do worse (because the people from US and other parts of the world stop buying their stuff as much).

The US is in this unique position in a large part to the US dollar being used as a reserve currency in most other countries.
 

reiver

Registered
Lucas said:
Total BS lets see how things are going in the states first there is a BIG hole over there very hard to fill.

"According to its hopeful but economically ignorant proponents, globalism was supposed to balance risks across national economies and to offset downturns in one part of the world with upturns in other parts. A global portfolio was a protection against loss, claimed globalism’s purveyors. In fact, globalism has concentrated the risks, resulting in Wall Street’s greed endangering all the economies of the world. The greed of Wall Street and the negligence of the US government have wrecked the prospects of many nations. Street riots are already occurring in parts of the world. On Sunday February 22, the right-wing TV station, Fox "News," presented a program that predicted riots and disarray in the United States by 2014."

February 23, 2009
How the Economy Was Lost
Who were you replying to here?

(Because if that was a reply to me, I'm not following.)
 

Lucas

Registered
reiver said:
Who were you replying to here?

(Because if that was a reply to me, I'm not following.)
No yours, one before, seems we both post at the same time an yours go in first.
 

expatson

Registered
Wow, I really had the time of my life reading so many things (specially all about Ameros, chinese army in american territories and people talking about "developed countries".
How far will Argentina fall? It depends on how good or bad their gov will do, and how bad or good US gov do. As far as I can see, Obama is doing really bad. This crisis is like 1929. We need a different system, a change of rules. Unfotunately, Obama is not FDR, ke looks more like Wilson. It´s hard to explain in just a few lines, but i think this crisis will take 10 years to US economy.
 

gusgutier

Registered
[FONT=&quot]Respectfully, I must say that your report is based in a mix of old and half true info, ending, in my opinion, in rather biased statements.[/FONT]
[FONT=&quot]Let me some comments.[/FONT]
-[FONT=&quot]Subsidies have been reduced ( that`s the cause of the increasing prices of public services) in order of budget equilibrium . Last figures on January shows a superavit of $1.045,8 after payment of foreign debt. You can say it is a low number, but in present times, better superavit than deficit. I don’t see an irresponsible management on public funds, despite anyone can disagree about the destiny of money.[/FONT]
-[FONT=&quot]Lower prices on commodities. Copper, you are talking about Chile and oil about Venezuela. For good or bad, we´re not the same. Regarding to grains, if we take our last best year (2007), soy price was around $270 per tn, until the end of the year that began the commodities bubble. Today, price is up than $300. In addition, slow peso devaluation adds more profitability. [/FONT]
-[FONT=&quot]Drought: Soy Harvest is predicted to turn from 48 m tn to 42 (20% less). Last weekend I had the chance to visit one the hearts of farm protest (Venado Tuerto in Santa FE) where my land owner uncle lives. He is happy with money he´ll get after the harvest. There is no field without seeds and drought was no even close. Don´t be surprised of a greater result. Take in account that country people are historical and chronical moaners ( as most of argies, el que no llora no mama or the squeaky wheel gets the oil) so a deeper analysis must be done about the consequences of lack of water and productivity of the affected zones, but 40% decreasing is an statement out logic at present times.[/FONT]
-[FONT=&quot]I think we have different preoccupations. Of course, the institutions you report are concerned in the payment of foreign currency debt, but increasing price of dollar helps to maintain jobs. BTW, debt is been paid and most of it is arg pesos.[/FONT]
-[FONT=&quot]Season. In the contrary of your analysis, in the near future is harvest and grains exports. Likely, goverment will have a problem to maintain dollar high.[/FONT]
-[FONT=&quot]Another post forecast deflation, making comparison with Ireland. This country, pitifully, has a bad situation with a predicted deficit of 9.5% GDP and restrictive monetary policy. Here, we`ll try to get a 3% GDP superavit. We must ask for some inflation (how the things change) as a sign of pressing demand (by growth or government stimulus).[/FONT]
[FONT=&quot]Last comment. Far from me to try to paint a pink scenery but I don´t see advantage of looking just the supposedly tragic part of the picture. This is a real difficult year for the whole world, and I believe is better be calm and think cold. Many listened speeches has sectorial interests behind, and here and elsewhere we must try not to be idiotas útiles (useful idiots), those believers that works against their benefit convinced by professional sofhists.[/FONT]
[FONT=&quot]Time to be together .[/FONT]
[FONT=&quot]P.S. Excuse my English. The comments are related to [/FONT]wnewman7 post , but I can´t quote it.
 

perry

Registered
gusgutier said:
[FONT=&quot]Respectfully, I must say that your report is based in a mix of old and half true info, ending, in my opinion, in rather biased statements.[/FONT]
[FONT=&quot]Let me some comments.[/FONT]
-[FONT=&quot]Subsidies have been reduced ( that`s the cause of the increasing prices of public services) in order of budget equilibrium . Last figures on January shows a superavit of $1.045,8 after payment of foreign debt. You can say it is a low number, but in present times, better superavit than deficit. I don’t see an irresponsible management on public funds, despite anyone can disagree about the destiny of money.[/FONT]
-[FONT=&quot]Lower prices on commodities. Copper, you are talking about Chile and oil about Venezuela. For good or bad, we´re not the same. Regarding to grains, if we take our last best year (2007), soy price was around $270 per tn, until the end of the year that began the commodities bubble. Today, price is up than $300. In addition, slow peso devaluation adds more profitability. [/FONT]
-[FONT=&quot]Drought: Soy Harvest is predicted to turn from 48 m tn to 42 (20% less). Last weekend I had the chance to visit one the hearts of farm protest (Venado Tuerto in Santa FE) where my land owner uncle lives. He is happy with money he´ll get after the harvest. There is no field without seeds and drought was no even close. Don´t be surprised of a greater result. Take in account that country people are historical and chronical moaners ( as most of argies, el que no llora no mama or the squeaky wheel gets the oil) so a deeper analysis must be done about the consequences of lack of water and productivity of the affected zones, but 40% decreasing is an statement out logic at present times.[/FONT]
-[FONT=&quot]I think we have different preoccupations. Of course, the institutions you report are concerned in the payment of foreign currency debt, but increasing price of dollar helps to maintain jobs. BTW, debt is been paid and most of it is arg pesos.[/FONT]
-[FONT=&quot]Season. In the contrary of your analysis, in the near future is harvest and grains exports. Likely, goverment will have a problem to maintain dollar high.[/FONT]
-[FONT=&quot]Another post forecast deflation, making comparison with Ireland. This country, pitifully, has a bad situation with a predicted deficit of 9.5% GDP and restrictive monetary policy. Here, we`ll try to get a 3% GDP superavit. We must ask for some inflation (how the things change) as a sign of pressing demand (by growth or government stimulus).[/FONT]
[FONT=&quot]Last comment. Far from me to try to paint a pink scenery but I don´t see advantage of looking just the supposedly tragic part of the picture. This is a real difficult year for the whole world, and I believe is better be calm and think cold. Many listened speeches has sectorial interests behind, and here and elsewhere we must try not to be idiotas útiles (useful idiots), those believers that works against their benefit convinced by professional sofhists.[/FONT]
[FONT=&quot]Time to be together .[/FONT]
[FONT=&quot]P.S. Excuse my English. The comments are related to [/FONT]wnewman7 post , but I can´t quote it.
Well said Gus . Congrats for your interesting post
 

Stanexpat

Registered
gusgutier said:
[FONT=&quot]Respectfully, I must say that your report is based in a mix of old and half true info, ending, in my opinion, in rather biased statements.[/FONT]
[FONT=&quot]Let me some comments.[/FONT]
-[FONT=&quot]Subsidies have been reduced ( that`s the cause of the increasing prices of public services) in order of budget equilibrium . Last figures on January shows a superavit of $1.045,8 after payment of foreign debt. You can say it is a low number, but in present times, better superavit than deficit. I don’t see an irresponsible management on public funds, despite anyone can disagree about the destiny of money.[/FONT]
-[FONT=&quot]Lower prices on commodities. Copper, you are talking about Chile and oil about Venezuela. For good or bad, we´re not the same. Regarding to grains, if we take our last best year (2007), soy price was around $270 per tn, until the end of the year that began the commodities bubble. Today, price is up than $300. In addition, slow peso devaluation adds more profitability. [/FONT]
-[FONT=&quot]Drought: Soy Harvest is predicted to turn from 48 m tn to 42 (20% less). Last weekend I had the chance to visit one the hearts of farm protest (Venado Tuerto in Santa FE) where my land owner uncle lives. He is happy with money he´ll get after the harvest. There is no field without seeds and drought was no even close. Don´t be surprised of a greater result. Take in account that country people are historical and chronical moaners ( as most of argies, el que no llora no mama or the squeaky wheel gets the oil) so a deeper analysis must be done about the consequences of lack of water and productivity of the affected zones, but 40% decreasing is an statement out logic at present times.[/FONT]
-[FONT=&quot]I think we have different preoccupations. Of course, the institutions you report are concerned in the payment of foreign currency debt, but increasing price of dollar helps to maintain jobs. BTW, debt is been paid and most of it is arg pesos.[/FONT]
-[FONT=&quot]Season. In the contrary of your analysis, in the near future is harvest and grains exports. Likely, goverment will have a problem to maintain dollar high.[/FONT]
-[FONT=&quot]Another post forecast deflation, making comparison with Ireland. This country, pitifully, has a bad situation with a predicted deficit of 9.5% GDP and restrictive monetary policy. Here, we`ll try to get a 3% GDP superavit. We must ask for some inflation (how the things change) as a sign of pressing demand (by growth or government stimulus).[/FONT]
[FONT=&quot]Last comment. Far from me to try to paint a pink scenery but I don´t see advantage of looking just the supposedly tragic part of the picture. This is a real difficult year for the whole world, and I believe is better be calm and think cold. Many listened speeches has sectorial interests behind, and here and elsewhere we must try not to be idiotas útiles (useful idiots), those believers that works against their benefit convinced by professional sofhists.[/FONT]
[FONT=&quot]Time to be together .[/FONT]
[FONT=&quot]P.S. Excuse my English. The comments are related to [/FONT]wnewman7 post , but I can´t quote it.
Can't say I agree with your points.

Government spending has expanded greatly in recent years and cannot be maintained at current level now that there is a drop in revenues. Any surplus they had will quickly disappear. I would call any government doing this irresponsible.

I don't know where you get your prices for soy beans. Prices have fallen about 40% in the last year.

http://www.wikinvest.com/concept/Soybean_Prices

If farmers there are so happy with what's going on then why all the protests and strikes?

You state that all debts have been paid, this isn't exactly true, there are many people around the world holding defaulted Argentine debt. I assume you mean debt payments for this year which is taken care of at the cost grabbing the private pension funds. However, unless things improve this could return as a big problem in 2010.

I don't see anything that would make me optimistic about Argentina in the near term. According to the governments own numbers exports were down 36% in January. One month does not make a trend but if this continues it will be disastrous.

Other countries in S.A. are doing better. Chile puts aside funds to cover leaner times when commodity prices fall. Peru by following prudent economic policies is expected to grow 8.5% this year with low inflation.

I think Argentina has a lot of potential that will remain unrealized with governments like the one they have and most that have proceeded for the last 50 years.
 

gusgutier

Registered
My post wasn´t intended to be pro or againstbut to offer addtional data.
Good portion of goverment spending was wasted in subsidies oriented to competitiveness and support low income argies. They are cutting them off and spending in public projects (you can research that demand on building supplies has not fallen however prvate construction did). That´s to say, little savings but kind of contracicle policy.
Revenues were 11% higher than january 2008 with great decrease on taxes to exports and imports. Some words about this (sorry, in spanish) from a non pro goverment econonmist :por su parte, Orlando Ferreres, del estudio Ferreres y Asociados, comentó a esta agencia que "lo importante es la tendencia más allá que los números en particular" y destacó que la recaudación "viene aumentando" aunque "menos que el año pasado por la fuerte baja en los precios de los granos y la carne a nivel internacional". No obstante, se mostró confiado en que "aproximadamente para julio esto se va a modificar, y puede haber un repunte, lo que también influirá en forma positiva en el país".
The figures you send are according what I told. Difference that are expressed in bushels and not in tons. What you see in the graphic in 2008 is a price of $590 a tn.
I can¨t say why all the farmers are unhappy, but just tell you the causes of the anger of one my cousins :A) Couldn´t take advantage of last year high prices B)After 6 years of good money, it doesn´t reflects in good hospitals, roads, etc in the zone because retenciones are not shared with provinces.
Let me tell you something that surprised me due I had old info. The price of an hectare (100m2) goes from us$12.000 to 15.000, so an small farmer (50ha) has at less a us$600.000 capital.Not bad for Argentina. Who are in the oven are those like me with 11 ha.
I´m happy owner of post default bonds(par en pesos, laugh on me) and they are paid pnctuality(last pay december coupon tied to GDP). Those who didn´t accept the change of bonds in 2005 is a complex issue worth to be talk in extent.
I try no to be optmistic neither pesimist, just see facts and not adopt cliches.
 
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