Saturday, August 31, 2013

Argentina Heading into Recession in 2014


Argentina’s economy keeps getting worse each passing week. Just when you think it couldn’t possibly get worse, another desperate measure is taken by the government, buying a little time but making the inevitable collapse even worse.

An example of such madness was restricting importations. The theory behind doing such a thing was that if you don’t allow imports people are forced to consume national production, therefore national industry grows. That may have been the case in the 1800’s but today the world is a tad different. From TVs, microchips, to medications and luxury goods, other than agricultural produces little else is made in Argentina, and what little is made usually has a majority of parts being imported anyway. Even products of limited complexity are made using imported machinery.

It’s because of this that as time goes by, imported goods become more scarce and more expensive. And given that the attempt to boost the economy with these childish measures failed miserably the economy just keeps getting worse with inflation spiraling out of control at a steady 24% per year, the 3rd highest inflation in the planet.

Desperate attempts such as freezing food and household consumable prices for a couple months at the begging of the year only made things worse. On September 2013, the cost of medical care, another price the government tried to freeze, will go up 9,5%.
The Peso Argentino, the national currency, keep losing value, and today the official peso to USD rate of 5,60 pesos per USD is half of what people are paying in the street at 9,60 Pesos per USD. Of course, buying at the fictitious official rate is all but impossible, virtually banning the purchase of foreign currency. Its because of irregularities like these that Argentina seems to float in a surreal parallel universe where for example, a person traveling to US or Europe can pretty much pay for the trip by buying a couple used smartphones of the latest generation and selling them when back home, or filling a suitcase up with American brand name clothes and reselling it on their return.

Why is the situation in Argentina hopeless? Because those ruling the country have no desire to fix what's broken. You can't solve a problem if you don´t accept you have one to begin with, any more than you can't get treatment for a disease you refuse to get diagnosed.

“… since 2007 Argentina’s government has published inflation figures that almost nobody believes…. From this week, we [The Economist] have decided to drop [Argentina's government agency] INDEC’s figures entirely. We are tired of being an unwilling party to what appears to be a deliberate attempt to deceive voters and swindle investors. For Argentine consumer-price data we will look instead to PriceStats, an inflation specialist, which produces figures for 19 countries that are published by State Street, an investment bank.”

With the balance sheet just not adding up and nowhere else to take money from, having already nationalized everything they could, taken over private pension funds and not much of a middle class left to tax, most predictions point towards recession and official devaluation in 2014.



Anonymous said...

I hope you work hard to prosper and put down roots in Ireland. Your extended family may need a place to run to someday.

Anonymous said...

How sad it is, that in a country that has the BEST tasting beef in the world, most cannot afford it now.