And All This Means What?

March 18, 2012  •  1 Comment


Having traveled to Argentina off and on since the mid '70's I learned a long time ago that things here aren't always what they seem. It is true that there was a military dictatorship back in those days and as often as I walked the streets of B.A. at that time, I had no idea that some of the worst atrocities since the Second World War were taking place right under my nose. Since those days, there has been a return to democratic rule, a war over the Falkland Islands (British held territory a few hundred miles off the coast) and a recession unlike anything experienced by any country since the great depression. Talk about a place of extremes. Argentina has gone through a hellish recent history .. not one I would care to live through. 

I recently read a great book, entitled The Money Kept Rolling In (And Out) by Paul Blustein.

Here is what the reviewers said about his book.

This dramatic, definitive account of the most spectacular economic meltdown of modern times exposes the dangerous flaws of the global financial system In the 1990s, few countries were more lionized than Argentina for its efforts to join the club of wealthy nations. Argentina's policies drew enthusiastic applause from the IMF, the World Bank and Wall Street. But the club has a disturbing propensity to turn its back on arrivistes and cast them out. That was what happened in 2001 when Argentina suffered one of the most spectacular crashes in modern history. With it came appalling social and political chaos, a collapse of the peso and a wrenching downturn that threw millions into poverty and left nearly one-quarter of the workforce unemployed. Paul Blustein, whose book about the IMF, The Chastening, was called 'gripping, often frightening' by The Economist now gets right inside Argentina's rise and fall in a dramatic account based on hundreds of interviews with top policymakers and financial market players as well as reams of internal documents. He shows how the IMF turned a blind eye to the vulnerabilities of its star pupil, and exposes the conduct of global financial market players in Argentina as redolent of the scandals - like those at Enron and WorldCom - that rocked Wall Street in recent years. By going behind the scenes of Argentina's debacle, Blustein shows with unmistakable clarity how sadly elusive the path of hope and progress remains to the great bulk of humanity still mired in poverty and underdevelopment.

Everything that has happened here since those days has to be taken with due consideration to the "melt-down' that occurred back then.

Argentina now has the modern day version of Eva Peron, in the form of Cristina Fernandez de Kirchner, running the government. At the moment, the Fed is spending more on its public programs and social reforms than it has money coming in. So what is the government doing about it?

In the last three months, the government has enacted a number of laws limiting the access or use of foreign currency (read as being U.S. dollars) such that the Central bank retains the reserves in U.S.$'s that it needs to carry on business. So yesterday the Congress enacted a revision of the Bank Act that now gives the Federal govt greater access to the Central Banks reserves. In this way the Federal govt can spend the money in the reserve to maintain their social services and stay in the good graces of the lower middle class and lower class folks (of which the overwhelming majority of Argentines are).

Along with this little fiasco, the Feds, who used to be responsible for the subsidies to the bus services and train services around the country, have pawned off (by act of Congress mind you) the bus and train service here in the Federal Capital region, to the city. The city mayor has already had to assume the responsibility for the subway because of a similar rule change by the Feds going back to last month. As a result, the fares for the train will probably go up 125%, the bus fares from 1peso 25 to 2pesos 75, and the subway is still an unknown .. they haven't quite figured it out yet. At last count, the mayor has approached the Supreme Court here for an order to stop the transfer .. as he knows it's just a way for the Feds to sluff off the financial responsibilities for maintaining that transportation system to someone else. 

The Feds have also started a program of reducing imports by requiring a special clearance to import any foreign made goods. Licensing is required. All this to protect the manufacturing industry here in the country. Sounds like a plan, except that the locally manufactured goods (of any sort) are of lousy quality and even the local Argentines don't want to buy them .. they much prefer imports, even at greatly inflated prices ... which, of course, leads to inflation. The consensus seems to be "buy it now .. you may not be able to find it in the future". So there is a bit of a push by the average guy to spend more than he should on things he might not be able to get down the road. And for good measure, the banks are now starting to offer mortgages ... at over 9.5% interest. Private consulting firms have pegged the annual inflation rate at over 28% ... so the govt decided to fine those private consulting firms upward of 500,000 pesos ($125,000 U.S.) if they issue reports that differ from the govt report stating inflation at 9%. How sweet does it get?

Again mind you .. most people here don't have loans or mortgages. They have such a distrust of banks (since 2001) that most transactions are done in cash ... which is usually in U.S. cash I might add. Not all of it is declared. I was recently made aware of the fact (by an American who sold his apartment here) that even the banks are involved in somewhat risky (read illegal) money exchange programs. The govt's Internal Revenue Service (the AFIP) has a separate Bureau de Denuncias with it's own private phone number and you can make your worst enemies' life a private hell for the next 5 years by phoning in an anonymous complaint that he is taking payment in American dollars but not declaring it. Additionally, if you are an Argentine travelling abroad and wish to use your bank card to access local currency, you have to have an American dollar account here in Argentina to effect the exchange or your card won't work. That way the govt can keep tabs on how much in the dollar reserve cash fund is actually leaving the country. I was also told that the fellow selling his apartment made an additional $15,000 U.S. on the sale, having done the money exchange under the table.  

If you read back to the events of 2001/2002 and before, you can see the gist of that history happening all over again. Too much government spending to fund social programs (so it can stay in power), not enough revenue coming in to fund the programs, dipping into the countries financial reserves to keep those social programs going, money restrictions to keep the foreign currency reserves that it needs to gain loans from outside sources, assets fleeing the country via underground methods (vast amounts of money and company offices are moving to other parts of the world), the list goes on. And pretty soon they'll be needing the help of the foreign banks to keep themselves afloat in the sea of debt. 

But this time, no one will help, not if they're smart. And eventually the events of 2001 will repeat themselves. It has to happen . It's destiny. 

I've spoken with a number of locals, both the wealthy and those who are not so much so, and they all say the same thing. You get used to it. Every 10 years or so the country goes through a massive financial upheaval, then things get better, then things get worse .. it's a cycle that everyone is aware of and that everyone seems to take for granted. As this "formula" works it's way through the various levels of " governmental non-performance" the rich get richer .... and do it on the backs of the poor and disadvantaged. Totally unfair ... but what's the alternative? I have no idea ... maybe a benevolent dictatorship ... but they tried that and it was a disaster. Perhaps finding a few good men for government offices, ones that aren't corruptible and who can't be bought off ... that might work. But go ahead ... find one. I dare you. In a land where family honour and reputation seem to be of ultimate importance I can't fathom how there can be so much corruption in the government ranks. It boggles my mind. 

So what are we left with? Next year it will be worse than it is this year. And this year is worse than last year by a long shot. I will not be returning to Argentina for next winter. I know if I come back it will be more costly, more things will be harder to come by and more people will be unhappy. More strikes for higher wages, more social unrest and possibly more military interference to maintain law and order .. sound familiar? History repeating itself. 

it just bothers the soul out of me to see such a wonderful country, that has so much to offer, being raped and pillaged with such regularity by people who have more money than god and still want more ... and are willing to get it by ruining the lives of so many others. 

But this is just my opinion ..... and, as always ...... I could be wrong.


That is so sad Mike. You are right, Argentina is a great country being torn upart by its own "leading class". What a shame, but greed knows no bounds. Glad we were able to visit last year.
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