Will The Next Govt. Be Less Authoritarian?

[ben]

I dont think the next government will sibsidize the capital flight, or finance the argentine fascination with the dollar. Ask for money outside to finance the massive purchase of dollars from argentines to have a huge loss? that is economic suicide, thats why me (and some analysts I hear) think that it simply wont happen. Unless they want to have another 2001, or another model (like 1989-2001) of taking debt compulsively. Macri is in that direction.

This country does not have a fascination with the dollar, that is a K propaganda line.

It has rather a visceral and healthy (or at least sane) aversion to saving in the local currency (aka losing money), and the dollar is simply the most practical/liquid/widely available alternative.

A substantial percentage of those who save/transact in USD would do so in pesos, if there was the slightest economic justification for doing so.

 

[sleazemerchant]

With all due respect, you are rambling off statistics and implying correlations that have no basis in reality. To begin with, claiming that Uruguay is in even remotely the same boat economically as Argentina or Brasil is silly and flat out wrong. Since 2013 Uruguay has been issuing USD denominated debt at record low coupon rates (available to them as a result of record low interest rates globally and their 2013 upgrade to investment grade by all three major ratings agencies) as a means refinancing and retiring older debt issued at much higher interest rates when Uruguay lacked investment grade status. Uruguay's benchmark 10 year bond sells at 106 cents on the dollar with a 4.5% coupon and their benchmark 30 year note sells at par with a 5.1% coupon. In mid 2014 Uruguay received another credit rating upgrade by Moody's and now has a higher credit rating than Brasil. The Central Bank of Uruguay has about $18 billion USD in reserves for a population of only 3.4 million people (Argentina has $28 billion USD for 42 million and Brasil has $375 million USD for 200 million). The Uruguayan peso has weakened recently against the USD as a result of a global strengthening of the USD and an annual inflation rate just under 10%; there is no lack of USD in Uruguay.

It isn't misleading. The only difference is that the rest of Latin America has access to credit. Other than that, emerging markets are in the same situation when it comes to growth.

In the last year, the USDUYU has devalued 17 percent, the USDBRL 15 percent, and the USDCPL 15 percent. Just to name a few. Clearly, Argentina is worse off - why? Because it has no USD to defend its exchange rate.

And USD shortages are a major cause of inflation.

 

[ajoknoblauch]

This country does not have a fascination with the dollar, that is a K propaganda line.

It has rather a visceral and healthy (or at least sane) aversion to saving in the local currency (aka losing money), and the dollar is simply the most practical/liquid/widely available alternative.

A substantial percentage of those who save/transact in USD would do so in pesos, if there was the slightest economic justification for doing so.

In some matters, Argentines are pragmatic.

 

[sleazemerchant]

If the next government is led by either Massa or Macri, their two primary economic goals will be to lower inflation to a single digit and dump the currency controls within the first 12-18 months of their administrations. This will be achieved in exactly the same way that Argentina obtained relative FX and price stability from 2003-2010: by running "dual surpluses" in the primary budget and current accounts. Instead of plundering BCRA reserves to service the debt (which only started in 2010 when CFK fired Redrado, who now works on Massa's economic team) the government runs a budget surplus and uses the surplus to buy USD to service the debt. Either Massa or Macri will modify farm policies in a way that will encourage farmers to produce and export more.

That being said, the current government has dug a deep, deep hole for the following administration to dig out of and the transition period from the current government's recklessness and ineptitude to a system of sustainable economics will be ugly.

 

[sesamosinsal]

With all due respect, you are rambling off statistics and implying correlations that have no basis in reality. To begin with, claiming that Uruguay is in even remotely the same boat economically as Argentina or Brasil is silly and flat out wrong. Since 2013 Uruguay has been issuing USD denominated debt at record low coupon rates (available to them as a result of record low interest rates globally and their 2013 upgrade to investment grade by all three major ratings agencies) as a means refinancing and retiring older debt issued at much higher interest rates when Uruguay lacked investment grade status. Uruguay's benchmark 10 year bond sells at 106 cents on the dollar with a 4.5% coupon and their benchmark 30 year note sells at par with a 5.1% coupon. In mid 2014 Uruguay received another credit rating upgrade by Moody's and now has a higher credit rating than Brasil. The Central Bank of Uruguay has about $18 billion USD in reserves for a population of only 3.4 million people (Argentina has $28 billion USD for 42 million and Brasil has $375 million USD for 200 million). The Uruguayan peso has weakened recently against the USD as a result of a global strengthening of the USD and an annual inflation rate just under 10%; there is no lack of USD in Uruguay.

Uruguayan external debt hit record highs this year. If old debt were being paid off, then external debt wouldn't have hit all time highs in 2014.

What you're probably referencing is Uruguayan public debt, which is not the same thing.

I never said there was a lack of USD in Uruguay. Quite the contrary. Uruguay, as you astutely pointed out, has excellent credit, and thus secure access to financing, should it need it. And boy, it does!

But piling on debt to finance imports and sustain FX stability, while pushing bigger economic problems down the road (it can't do much about the global economy), does not make Uruguay any better off than Argentina.

 

[sleazemerchant]

In the case of Uruguay and almost all off-shore and international financial centers "external debt" is an essentially meaningless figure. Private bank deposits and investment accounts owned by non residents are included in that figure, heavily skew it, and represent no obligation whatsoever upon the Government of Uruguay.

Uruguayan external debt hit record highs this year. If old debt were being paid off, then external debt wouldn't have hit all time highs in 2014.

What you're probably referencing is Uruguayan public debt, which is not the same thing.

I never said there was a lack of USD in Uruguay. Quite the contrary. Uruguay, as you astutely pointed out, has excellent credit, and thus secure access to financing, should it need it. And boy, it does!

But piling on debt to finance imports and sustain FX stability, while pushing bigger economic problems down the road (it can't do much about the global economy), does not make Uruguay any better off than Argentina.

 

[sesamosinsal]

In the case of Uruguay and almost all off-shore and international financial centers "external debt" is an essentially meaningless figure. Private bank deposits and investment accounts owned by non residents are included in that figure, heavily skew it, and represent no obligation whatsoever upon the Government of Uruguay.

It's not a meaningless figure. Most of the external debt in Uruguay is taken on by the public sector. The private sector makes up less than a quarter. http://www.bcu.gub.uy/Estadisticas-e-Indicadores/Documents/Finanzas-Publicas/resdeu.pdf

As far as nothing outside of the public sector being the responsibility of the GoU, that's a bit comical. That's true until it's not. When things go belly up, it's the State that always has to come to the rescue.

 

[Matiasba]

This country does not have a fascination with the dollar, that is a K propaganda line.

It has rather a visceral and healthy (or at least sane) aversion to saving in the local currency (aka losing money), and the dollar is simply the most practical/liquid/widely available alternative.

A substantial percentage of those who save/transact in USD would do so in pesos, if there was the slightest economic justification for doing so.

Yeah sure, the fascination with the dollar is only a K problem. Do me a favour and please study (at least from internet -not quality material though) about Argentina and convertibilidad, about hyperinflation with Alfonsin, and "plata dulce" also known as "deme dos".

ps: ajo I responded you but went to moderation.

 

[ajoknoblauch]

Yeah sure, the fascination with the dollar is only a K problem. Do me a favour and please study (at least from internet -not quality material though) about Argentina and convertibilidad, about hyperinflation with Alfonsin, and "plata dulce" also known as "deme dos".

It never was a "fascination." It's always been a rational response to Argentina's economic instability and unpredictability.

 

[Dublin2BuenosAires]

Once the peso has 10+ years of a relatively stable and predictable FX rate in relation to the major world currencies people will flock to it.

Commuters will be able to travel from Rosario from BA via bullet train, CFK will decide that politics is not for her and will return to university to finish her law degree and 4g coverage will be the envy of the world. The Argentine national grid will be the envy of the world and a Peronist candidate will be elected President of the newly wise US of A.

Ladies and gentleman, the future....