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    Thoughts from the Frontline

    Argentina on Sale

    March 13, 2013

    When I was younger, so much younger than today,
    I never needed anybody's help in any way.
    But now these days are gone, I'm not so self assured,
    Now I find I've changed my mind and opened up the doors.

    – John Lennon, the Beatles

    (From Cafayate, Argentina) There are some who worry whether the path that Argentina has taken to monetary ruin on multiple occasions (and that it seems intent on taking again) is one that the US may also find itself on. That worry has crossed my mind a few times, I must confess. Today we will look at Argentina more in depth. From a monetary perspective, it deserves attention. And once again there will be opportunity.

    Let me jump right to the conclusion: Just as Spain is not Greece, because each chose a unique route to economic malaise, the US is not Argentina. We are perfectly capable of avoiding Argentina’s problems while cooking up ones that are all our own. But there are some worrisome and potentially instructive issues in Argentina.

    Argentina: A Lesson in Chaos

    At the turn of the 20th century Argentina was one of the richest countries in the world, due primarily to its vast and fertile farmlands. In 1913, GDP per capita was about equal to those of France and Germany and close to that of the US. By 1950, though, Argentina's GDP per capita wasn’t even half that of the United States. (You can read a short, graphic…

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    Comments

    carlosrenfiges@yahoo.com

    Jan. 31, 1:33 a.m.

    Saludos desde Salta, Argentina. Buena nota, si falta analizar el rol de la soja en economia Argenina.

    malcolmglenn.turner@gmail.com

    March 17, 2013, 6:10 a.m.

    John’s article reads very much in the tone of deja vu by yet someone else, who is wondering why is it that everything seems to go wrong, over and over again. The answer is very simple. I lived in Argentina for many years, as also Brazil, and a couple of the Andean nations. In the 50’s and 60’s, Brazil was a sort of national joke on its misgivings and cultural background, and as far as Argentines were concerned, could only match up to Argentina in soccer, and even then, occasional defeat would be excused with bad luck or bad refereeing. The Andean nations with their high indigenous population were looked upon as 3rd world units with little to offer, and when Brazil started to emerge as a power coupled with problems of a population explosion, any envy directed against the bordering nation would result in blame on the government, that was not doing as well as say, the Brazilian one. I went back to Argentina after a long absence in the early 2000s, and on several occasions. I was there shortly after the peso was devalued overnight from being pegged to the US dollar to sliding by over 100% in the months to come, and personal savings frozen by the initiative of the Argentine Central Bank. Woe was even a bigger energy sapping state of mind during that period, when there was a general acceptance by all that the country was on the brink of disaster, including their own livelihoods, and a sort of reluctant consensus that everything, including Aerolineas in semi bankruptcy, was a disaster. Who was the blame, the Government, of course, at some stages of wealth were revered as politicians with Argentine “vivenza”, but when things went wrong, time and time again, were portrayed as just a bunch of thieves and thriving on corruption and stealing the people’s hard earned money. It was just a repetition of every time the country was hit with austerity drives and mega devaluations or unstoppable inflation, it was all the fault of the government who they had not elected, although they probably had. And going back in time, if it was not the government to blame, then it was the military who had seized control of the flagging government in a once again unexpected coup. They were probably right, which country who has been independent for 200 years, or 150 at the time, wanted to see the military take over the nation, and apply military discipline, and with time seize the opportunity to do well for themselves while the going was good. And wasn’t it the junta miliitar who took the nation into a misguided and costly war over the now famous islands in the South Pacific, with the hope of distracting the nation from the unholy mess the country was going through, but paid dearly for the folly that had not been endorsed by any international body at the time, and so took the world by surprise.

    So by the relentless blame on the government, the individual politicians and the economists, the army and all the generals, and any other military involvement, probably the Air Force being the only exception, the loud mouth blames came back over and over again, with the swagger, and shrug of the shoulders, and a sort of belief, that in spite of everything, something or somebody would come to their aid.

    The truth is, that although those blamed where never flawlessly clean, the real blame, not acceptable to the public, is the characteristics of the people themselves. As pointed out by John, the country was a very wealthy one up the second world war and beyond, and had every reason to believe it could be up there alongside the success stories of dominant nations. The indigenous background of other Latin American nations, and the comparison of illiteracy compared to Argentina’s high literacy and high percentage of European stock (mainly Italian and Spanish, but from other nations too), led the Argentine people to believe they were superior,  incomparable and far above other nationalities. In many ways it was true several decades ago, Buenos Aires was a mecca of culture, dazzling classical architecture, wide avenues and an endless hinterland of agricultural wealth. Throughout the rich and varied landscapes, a collection of areas of beauty occuring over 45% of the globe’s latitude, and every range of climatic availability known to the world beyond.

    The rise of Peronism, and its eventual fall coupled with the war torn nations getting back on their feet, started the landslide, and except for limited periods of relief, has continued ever since. The accumulated wealth mentioned by John, enhanced with exports to the world at war in the early forties, brought an immense feeling of success to the European immigrant founded nation, and from there on, the relentless spending began. After the fall of Peron in 1955, the interim government drove the media headlines with the word “Austerity”; someone had realized that the money was gone or going. The public had never seen this word. They asked: What is Austerity? 60 years or so later, as John points out, it is a failed nation, but the restaurants in Buenos Aires remain full at lunch and dinner time. Among the grumbling and criticism toward those who have led the country into default and failure, the perpetual diners slice their thick sirloin steaks with serrated knives, are lively and connected in the overall comments of blame to others while still enjoying their routine of dining out. The truth is that Argentina has never really come to terms with Austerity. And why should they? With a nation, that despite continuous plundering, is a basket of plenty, a gift of God’s own nature. It will continue to feed the short lived plights, but because of this, as opposed to being a saving grace, creates the chain of events that happen over and over again: the land of plenty is the main catalyst of the nation’s ability to grumble and be moody as opportunities provided by such a magnificent nation, fall into failure caused by human intervention and years old practices.

    Travelling the world, one can pick out a national from Argentina immediately. The arrogance is still a national pride, there is little humility, there is a lot of criticism of others and everything they stand for, the inherited complex of superiority will not go away. Our country is perhaps a basket case, but we are still the best! Brazil? We can still beat them at football. the powerhouse that Sao Paulo has become? No comment.Taxes: (not seen as a major need for a country to survive), lets find a way with our viveza to avoid paying.

    The nature is that of perpetual pessimism towards institution, compared to the nature of the Brazilian who is and has been, with music and rhythm, dance and multi cultural and racia mixl, born optimists. The music of Brazil is victory of a heritage, while Argentina’s tango, for all its greatness, is one of melancholy.

    Many Johns will go to Argentina, analyze the contradictions that haunt the nation, and write about their difficulties to believe how what is happening can actually happen. And list a series of statistics that defy belief. The problems will not go away, it is inherent to the nation and its inhabitants, and history will repeat itself over and over again. But so what? Argentines are special, they believe they are special, and they want the rest of the world that they are special. The fault of the country’s misfortunes is not their doing or fault. So it has to be the government…or the Military!

    Gordon Davis Jr

    March 14, 2013, 10:57 a.m.

    Perhaps Argentina is our future.  Among young people, there is little disagreement that unfettered capitalism is the root of evil in our society.  More government is always the solution, regardless of how we define the problem.  The growth government entitlement programs is a self perpetuating phenomenon. Change in an economy this size (the US) is often ponderously slow, but ultimately, macro economic principles will decide our fate even in the face of Fed meddling. As always, the timing of events is the rub.  Makes investing a real challenge.

    pwwatson@me.com

    March 14, 2013, 9:27 a.m.

    I had the same thought as Joseph Cooper.  John’s Argentina analysis comes out hours before the Argentine cardinal’s promotion?  Someone upstairs must have arranged it.

    Ed Worrell 48022366

    March 13, 2013, 10:29 p.m.

    Ed Worrell

    what investments did well in Argintina during the time of hyper inflation?

    Joseph Cooper

    March 13, 2013, 8:55 a.m.

    Okay John, are you part of the Conclave?  John, You are either a clairvoyant or spot on dog.  This article and the election of a new Pope from Argentina is too ironic.  This is starting to scar me.

    Jerry Desmond

    March 13, 2013, 8:16 a.m.

    John’s commentary on Argentina is excellent.

    He appears to have relied on Wikipedia for some of his facts, which is OK, but he might also have consulted the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/geos), which is the absolute best source of info on foreign countries that nobody ever has heard of.

    The Factbook, he would have disclosed that his comment—“more than half the people live in one city, Buenos Aires”—is incorrect. In fact the population of Argentina is 42.19 million, of which about 30.8% (12.988 million), not half, live in Buenos Aires.

    The CIA Factbook also would have disclosed several additional important facts, some critical to his economic analysis, some just important background/context, to wit:

    —The unemployment rate is 7.2%

    —30% of population below poverty line (as of 2010)

    —The literacy rate (defined as age 10 and over can read and write) is 98.1%

    —97% of the population is White

    —The population is growing at less than 1% per year

    Also, the CIA Factbook would have provided some very important additional facts re the financial crisis of 2001-02, and more importantly its aftermath:

    “A severe depression, growing public and external indebtedness, and an unprecedented bank run culminated in 2001 in the most serious economic, social, and political crisis in the country’s turbulent history. Interim President Adolfo RODRIGUEZ SAA declared a default - the largest in history - on the government’s foreign debt in December of that year, and abruptly resigned only a few days after taking office. His successor, Eduardo DUHALDE, announced an end to the peso’s decade-long 1-to-1 peg to the US dollar in early 2002. The economy bottomed out that year, with real GDP 18% smaller than in 1998 and almost 60% of Argentines under the poverty line. Real GDP rebounded to grow by an average 8.5% annually over the subsequent six years, taking advantage of previously idled industrial capacity and labor, an audacious debt restructuring and reduced debt burden, excellent international financial conditions, and expansionary monetary and fiscal policies. Inflation also increased, however, during the administration of President Nestor KIRCHNER, which responded with price restraints on businesses, as well as export taxes and restraints, and beginning in 2007, with understating inflation data. Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late 2007, and the rapid economic growth of previous years began to slow sharply the following year as government policies held back exports and the world economy fell into recession. The economy in 2010 rebounded strongly from the 2009 recession, but has slowed since late 2011 even as the government continued to rely on expansionary fiscal and monetary policies, which have kept inflation in the double digits.”

    Dutoit Leon

    March 13, 2013, 5:12 a.m.

    It’s strange that you did not talk about soya. Argentina is one of the 3 big producers (with US and Brasil). It is the main product of Argentina, and tends to replace everything in agriculture. This has nothing to do with wheat or beef production ?
    On the other hand these data

    https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_pp_kd&scale_y=lin&ind_y=false&rdim=region&idim=country:ARG:BRA:CHL:URY:PRY&ifdim=region&hl=en_US&dl=en_US&ind=false

    seem to indicate that Argentina is not so bad, compared with its neighbours.