One can barely keep up with what is going on here in Argentina, since each day brings more ‘new’ government dictates, rules and initiatives which all seem to share the same features – dumb and dumber – and virtually all with guaranteed unintended negative consequences. Let me give you my on-the-ground insights of the lay of the land – of what is REALLY happening in Argentina – and about to happen! Words: 853
So says Arnaldo Paulini, an economic and political analyst resident in Argentina, in an exclusive article sent to Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds).
Paulini goes on to say, and I quote:
Massive Corruption, Protectionism and Currency Controls
The Argentine government’s policies are bad for the economy, but invariably good for the power brokers as they provide many additional opportunities for more massive corruption. Individual citizens and businesses have to bribe to get a shot at the much needed and coveted import permits and the limited US dollars necessary to pay for the stuff.
Underpinning all the nonsense is a government desperate for revenues. Its heavy handed approach is almost unprecedented. Well, maybe we could admit that it is all too Argentine in that these measures pluck defeat from what would otherwise be a stellar opportunity for the nation to succeed economically.
Major Political Infighting for Dominance, Control and Wealth
Moreover, the government is wasting much of its time and energy, with various power centers within the governing Peronist party, fighting each other for dominance. The muscle of certain unions and their leaders and their thuggish approach to political power are in an all out power struggle with La Presidenta, Cristina Fernandez de Kirchner.
All the while, the President, the spouse of the the previous late President, Nestor Kirchner, does her level best to reinvent herself in the mold of the highly venerated Evita Peron. Apparently one of the legacies of Peronism is megalomania. Of course there isn’t much remaining to strive for after a leader has corralled much of the power and vast amounts of wealth.
Informed and objective observers predict there will be a serious formal currency devaluation sooner rather than later. There has to be simply because 25+% compounded annual price inflation, caused by wildly excessive monetary growth, does nasty things to the competitiveness of the economy and country.
Major Currency Devaluation Coming – Again
The two thirds to three quarter ‘hit’ the Argentine peso took in 2002 is the model since it recalibrates the base much lower and allows for the nation to grow economically at a rapid clip for several years following a devaluation until the cycle of false prosperity, excessive money creation, corruption and bad public policy force the cycle to repeat.
Shrewd partisan politics dictates that this populist statist government should get this devaluation event out of the way early in their term, which began with the start of 2012. Since it controls the Presidency and both houses of the legislative branch, adopting this measure should be relatively simple. Nascent hyper price inflation will force a devaluation since the ‘black, blue, informal’ and real currency markets show the peso to be somewhere between 25 and 30% less valuable than the official rate suggests.
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The government in many ways seems to encourage, or at least welcome, this two price system since it is similar to what goes on in Venezuela on a more exaggerated scale. It gives those at the center many opportunities to get rich very quickly, by accessing the cheap formal official exchange rates and then selling into the ‘real’ unofficial currency markets. Of course, easy access to US dollars makes for a game only insiders can play.
On this point, as they proved in 2001/2, a government pays a big price in terms of public support and general economic and societal disruption when a major currency devaluation takes place. Hostile voter reaction is guaranteed with any level of devaluation, so shrewd politics suggests that the government must do so in a major way.
A government takes as much political blowback heat on a 20% devaluation as on a 50 or 60 % hit. The real lesson to be learned is that there is a serious price to pay for bad public policy. A pragmatic political partisan, however, will recognize the value of going for the gusto.
All hell breaks loose for a long period because the poor and pensioner become the major victims along with anyone in the middle class with savings in pesos. They become poor. That is in fact what has happened since the last go round a decade ago. The smaller middle class in Argentina today attests to, and confirms, the consequences of this financial nonsense.
Argentina is a country with vast potential, but it will never reach of what it is capable. Why? Selfishness, a kind of shared national value, ensures corruption and shortsighted policy making. Not a bright future for this nation, especially one which has the natural endowments and potential to become a world leader at generating wealth for the nation and its citizens.
“Don’t cry for me Argentina.” Viewed in perspective, we should all cry for Argentina and its terrible financial and economic fortunes. Argentina is a case study in how not to run the affairs of a nation.