Inflation Redux


Jan 2, 2007
So what do you think will happen in Argentina? There appears to be no question that the "official" inflation rate is a fraud. From Bloomberg News "While the institute reports annual inflation was 9.1 percent in July, Goldman Sachs Group Inc. and Credit Suisse Group say it was closer to 30 percent, driven by a doubling of government spending over the past three years and a four-month farmers strike that sparked food shortages. "
I have to say, I'm geting more & more concerned. I am returning to Arg & my company was planning on setting up at LATAM subsidiary there. But given the instability..I'm getting more & more hesitant to pursue this route. I'm also very hesitant to have large funds in the banking system there. This is a large project and honestly, I'm not so sure its in the company's best interest to look at Arg vs Brazil.
I've only been back in the US for 3 months for work but all my friends there are saying prices have skyrocketed since I left. I was hoping to buy a place when I returned but definitely think I will be holding off for a while.
So what do people think? Hysteria? Will it all just continue status quo? Are we looking at another crash - although on a smaller scale?
1 word: China. So much for "communism" & corruption there... It just became one of the world's leading industrialized country with privatization of the companies 20 years after the Tienanmen incident. Inflation is everywhere there is no doubt about that. It just boils down to who you know and how much money you can muster up for the lobbying. Just ask Bush & company (the oil mafia), how they managed to extort the American people for the past 7 and going on 8 years. =)
Just use common sense and keep up with what's going on in Argentina. With the folks in charge there anything is possible. The debt ratings on Argentina continue to be downgraded, many other countries in South America have had their ratings raised. I was told about three weeks ago a mortgage in Argentina carries a 26% interest rate. What this means is that people who worry about this stuff for a living see high risk in the future of Argentina.
This could change with appropriate government actions to rein-in inflation and other excessesses. Unfortunately, the current government doesn't seem to be one in close contact with reality.
The best thing to do is to earn dollars, euros, or punds and live on pesos.
I believe inflation will continue as it is - around 25-30% for at least the next twelve months, the dollar will rise a little, probably return to about 3.2 but probably not more. There has already been a downturn, just ask people in business. A crash? Probably not for the next 12 months however if it happens it will not be anything so serious as the last one. Keeping money in the bank here is insanity. And definitely Brazil is a wiser place to invest in. They have a decent President to begin with and a positive business ethic.
People in many parts of the world yearn, risk their lives, in the hopes of living the American Dream. As Ive travelled around the world, Ive seen this aspiration expressed over and over. I cite this example for the stark contrast it offers when we talk about why would anyone want to move to argentina to live like an argentine. No! They move here, reasonably content, if, and only if, they can live like a colonial expat, living well above the means of the ordinary citizen, with foreign bank accts., a healthy stream of income, and an escape hatch next time the perpetual civil war that rages here flares up.
Currently, Im living like an argentine. believe me, its a bad dream. Here, a pilot light on your stove or a garbage disposal is "movin on up!" Cheese with flavor? Got to save up for that!
I doubt many people are envious or yearning to live like this. This is the city of fury whose people are in a perpetual angry mood. I know this place too well.
I have to agree with JG that a lot of expats here are living like pre WW II colonial expats, a bit like the Raj. They come with money, foreign bank accounts, investments, money to buy property in the best parts of town and are seldom dependent on the local economy. They benefit from cheap local labor and a favorable rate of exchange. That is not a bad thing. After all, they are bringing money into the economy, providing employment etc. What gets on my nerves is how some deny that they are living privileged lives here, how they have advantages that few Argentines have. If they had to live like the vast majority of people in ARgentina, they would never be here. They really should get out a bit and look at how most people live, get out of the expat protection zone of Recoleta, Berrio Norte, Palermo, Belgrano and Zona Norte. I mean just take a look and see how most people live, just to have a more realistic idea of life here.
Not all expats are living the high-life. There are some who come here on the cheap. But of course I don't think anyone in their right mind would argue that if you have the benefit of earning in dollars, pounds, etc - you are very lucky indeed. My quality of life has improved immeasurably compared to NYC & I took a substantial salary cut to come here.
I really am struggling with this. My company would be making a decent sized investment in the local economy - jobs for at least 10 people intitially, office space, etc. And there are reasons we originally looked at Arg vs Brazil (while Brazil has a much more settled economy, taxes are astronomical, incorporation processes are *incredibly lengthy* and it is definitely more expensive from a cost of labor perspective.) I would like to see an investment in Argentina - I think we can contribute to the economy here, provide jobs & opportunities. And selfishly, I live in Arg and would like to see the company here.
However, I need to see signs that the economy is stabilizing in Argentina before I can in good conscience reccomend we move forward in Argentina. Goldman is giving a 45% chance of gov't default in the next 5 years. And given we would have to keep fairly decent sums of money in the bank - this causes me great concern.
PS - Stanexpat, regarding your comment about the insurance rates for mortgages. I don't take that as a comment on the "stability" that people see here, just a reflection of the fact that lending isn't common practice. Everything is paid for in cash. So if you choose to/need a mortgage, you have very few options & its going to cost you - a lot.
Quoting "citygirl": ". . . . about the insurance rates for mortgages. I don't take that as a comment on the "stability" that people see here, just a reflection of the fact that lending isn't common practice. Everything is paid for in cash. . . ."
Mortgages formerly were very common. One of the old immigrants' banks, still around, is named something like "Bank of Mortgages". Mortgage lending, and lending in general, is uncommon today precisely because of the inflation that has over the last three generations or so become endemic in the Argentine economy.