Friday, August 12, 2011

Three reasons why “developing” nations like Argentina aren’t shielded from the World Crisis

Like we’ve seen in the article about Cafayate there’s people selling land and financial “investments” in Argentina as an attractive opportunity during these complicated times.  In the old days the conquerors got land and gold from the natives in exchange for mirrors and glass beads. Today, the modern day equivalent is taking place when someone offers (and sells!) an American a house in freaking Salta for nearly a quarter or in some cases half a million US dollars. Because of the world-wide economic crisis people want to believe there’s something safe from its influence, something untouched. In the mind of people they associate distance to safety.

This isn’t exclusive to land and real estate, it happens also in the financial and business world where its being promoted that 3rd world countries (these days the politically correct term is “developing nations”) are “shielded” form the crisis. That’s the term the president of Argentina (she who shall not be mentioned) has been using lately, and it’s the same strategy used by other 3rd world leaders and entrepreneurs to attract capital. This though, is far from the truth.

The three reasons why Argentina isn’t protected from world events applies to most  3rd world countries and their own business relationships with other nations:

1)Argentina depends on imports from China (and Brazil in a smaller degree). Anything that affects China will affect us directly.

2)Argentina exports to China and Europe. If those countries have problems, exports go down and we suffer those consequences. China already stopped importing (45% of Argentina’s soy export) soy oil from Argentina two months ago. This may be in reply to the importation bans Argentina has been applying this year for plastic products, or maybe they are speculating that the national peso or US dollar will go down.

3) Argentina Depends on financing from the Spain, USA, Brazil and France. Spain, representing   37% of our foreign investments is already going through a severe crisis which affects us too. If USA has financial problems we suffer them as well.

Give or take one investor or another, the same holds true for most Latin American countries. The fantasy that Argentina and other 3rd world countries are protected from what’s going on in this globalized world couldn’t be further from the truth.

During “Black Monday” NASDAQ went down 6.9% and the Dow Jones dropped 5.5%. At the same time the stock market in Buenos Aires went down 10.73 %(!). The only reason why people in the financial district didn’t start jumping from their office’s windows is that the stock market of Buenos Aires isn’t as significant, we’re an agricultural country. It can go down 15%, it doesn’t affect us as much as it would happen in a first world country with more important financial activity.  That’s the positive side in terms of economic sturdiness you have in certain way thanks to the 2001 collapse.
The distance may help in terms of physical problems (war, contamination) but the financial world is completely globalized. While a post financial country is smaller and more elemental, its in no way spared from what goes on in the rest of the world, even if it happens to be a great sales pitch to attract foreign investors.

Join the forum discussion on this post


No comments: