ogc163
Superstar
BY ANDRES OPPENHEIMER
AOPPENHEIMER@MIAMIHERALD.COM
BUENOS AIRES -- miamiherald.com/andres_oppenheimer/
For a visitor returning here after a 10-month absence, it is amazing how fast things have changed: the biggest economic bonanza in this countrys recent history has suddenly turned into a sharp downturn, and optimism has given way to general anxiety, if not panic.
Argentinas eight-year-long fiesta is over.
Despite President Cristina Fernández de Kirchners passionate speeches claiming that her late husband President Nestor Kirchner discovered a new nationalist economic model that brought record growth rates of 8 percent annually during much of the past decade albeit growth that most economists attribute to outside factors, such as Chinas massive purchases of this countrys grain exports signs of the end of the boom everywhere.
Fernándezs popularity rate has fallen from a massive 63 percent after winning reelection in October to 39 percent today, according to a new Management & Fit poll. While her recent nationalization of YPF, the countrys biggest oil company, brought her a brief uptick in the polls, pot-banging protests in this capitals wealthiest neighborhoods are increasing.
Whats more threatening to the government is that the countrys biggest labor union CGT, until recently a close government ally has begun escalating its protests and is demanding a 30 percent wage increase. Agricultural producers organizations also are threatening nationwide strikes against the governments escalating taxes on grain exports.
The talk of the day in Buenos Aires is where to buy U.S. dollars in the black market, and at what exchange rate. Inflation, officially at 9 percent, is almost unanimously estimated at 25 percent. Fearing an economic crack that will result in hyperinflation, people are buying U.S. dollars on the streets from black market foreign exchange vendors standing on the corners, who are appropriately known as arbolitos or little trees.
After several years during which Fernández bragged that Argentina was one of the worlds most rapidly growing economies while the United States and Europe were crumbling, Argentinas economy is now projected to slow down from nearly 9 percent last year to 2.2 percent this year, according to the latest World Bank estimates. Many independent economists say that even that projection is too optimistic, and that the country may end this year with a recession.
We think the story ends with a large devaluation sooner or later, said a recent report by UBS bank economist Javier Kulesz, who added that it would come along with a large increase in public utility prices, heightened social tensions, and low if not negative growth. This is nothing Argentines arent familiar with. They have seen this movie in its various versions quite a few times over the past few decades, he said.
Why did Argentinas economy take such a sudden turn downwards? China has not stopped buying Argentine commodities, there has been no tsunami or earthquake that has crippled this countrys infrastructure, nor any international economic crisis that has hurt Argentina more than others. On the contrary, the international environment continues to be favorable to this country, as commodity prices remain relatively high, and many international investors disillusioned with Europes recession are increasingly looking at Latin America as an option.
Judging from dozens of interviews here last week, there is only one reason for Argentinas current decline and its the usual one. Its politics, of course.
Fernández de Kirchners populist government has given away massive subsidies in its quest to win elections, much like Hugo Chávez in Venezuela. While ever-growing subsidies work while commodity exports keep rising, they can leave a country bankrupt once world commodity prices stop growing.
While neighboring Chile under both center-left and center-right governments has saved in good years to maintain its social programs during bad years, Argentina has done exactly the opposite. It has squandered what economists say was its biggest economic bonanza in nearly a century in giving government jobs to loyalists, cash subsidies to millions of people many of whom now find it more convenient to live from government handouts than to find a job and transportation and energy subsidies.
Thanks to government subsidies, public transportation in Buenos Aires may be among the cheapest in the world: a bus ride costs the equivalent of U.S. 22 cents, and a train ride U.S. 26 cents.
Roberto Lavagna the former economy minister under Nestor Kirchner who is credited with resurrecting Argentinas economy after the countrys 2001 default on its foreign debts estimates that government subsidies for transportation and energy soared from U.S. $1.2 billion at the end of 2005 to U.S. $19 billion last year.
While commonsense would suggest that Fernández de Kirchner would start reducing public spending in light of the economic slowdown, she seems to be doubling her bets. Last week, she announced a giant plan to give out 400,000 low-interest mortgages and build 400,000 homes over the next four years.
Where will the money come from? It will be borrowed from the states Social Security System. The government says the plan will create 100,000 jobs in construction work, and help reactivate the economy. Skeptics say the money will disappear in the hands of corrupt officials, like so many times before, and future retirees will not see a penny of their pensions.
They have a very short-term, strictly political vision of the economy, Lavagna said. Thats very unlikely to change.
Whats most worrisome is that a large number or Argentines, while increasingly skeptical about Fernández de Kirchners narrative about the alleged new economic model, are not necessarily opposed to a growing state role in the economy, Lavagna said.
There is a growing statist trend, which is very accepted by society, Lavagna said. The latest polls show that Argentines support statist policies by a margin of two to one.
My opinion: All indications are that Fernández de Kirchner will blame the outside world the media, Greece or Washington for the downturn caused by her own irresponsible economic fiesta. She will print increasingly more money to buy votes to win the October, 2013 legislative elections, if they are not held earlier, and will pray for a new spike of world commodity prices which very few are predicting to rescue the countrys balance sheet.
In the process, she will have squandered Argentinas best opportunity in a century to use its commodity bonanza for improving education standards, attracting investments to create new industries, and lifting millions of people from poverty for good.
I hope Im wrong about this, and that during the 3.5 years remaining in her term, Fernández de Kirchner she will take a more long-term, less ideological, view of whats best for her country. But I didnt hear anything during my stay here to convince me that she will do anything to save Argentina from its self-inflicted crisis.
Argentinas economic fiesta is over - Andres Oppenheimer - MiamiHerald.com
AOPPENHEIMER@MIAMIHERALD.COM
BUENOS AIRES -- miamiherald.com/andres_oppenheimer/
For a visitor returning here after a 10-month absence, it is amazing how fast things have changed: the biggest economic bonanza in this countrys recent history has suddenly turned into a sharp downturn, and optimism has given way to general anxiety, if not panic.
Argentinas eight-year-long fiesta is over.
Despite President Cristina Fernández de Kirchners passionate speeches claiming that her late husband President Nestor Kirchner discovered a new nationalist economic model that brought record growth rates of 8 percent annually during much of the past decade albeit growth that most economists attribute to outside factors, such as Chinas massive purchases of this countrys grain exports signs of the end of the boom everywhere.
Fernándezs popularity rate has fallen from a massive 63 percent after winning reelection in October to 39 percent today, according to a new Management & Fit poll. While her recent nationalization of YPF, the countrys biggest oil company, brought her a brief uptick in the polls, pot-banging protests in this capitals wealthiest neighborhoods are increasing.
Whats more threatening to the government is that the countrys biggest labor union CGT, until recently a close government ally has begun escalating its protests and is demanding a 30 percent wage increase. Agricultural producers organizations also are threatening nationwide strikes against the governments escalating taxes on grain exports.
The talk of the day in Buenos Aires is where to buy U.S. dollars in the black market, and at what exchange rate. Inflation, officially at 9 percent, is almost unanimously estimated at 25 percent. Fearing an economic crack that will result in hyperinflation, people are buying U.S. dollars on the streets from black market foreign exchange vendors standing on the corners, who are appropriately known as arbolitos or little trees.
After several years during which Fernández bragged that Argentina was one of the worlds most rapidly growing economies while the United States and Europe were crumbling, Argentinas economy is now projected to slow down from nearly 9 percent last year to 2.2 percent this year, according to the latest World Bank estimates. Many independent economists say that even that projection is too optimistic, and that the country may end this year with a recession.
We think the story ends with a large devaluation sooner or later, said a recent report by UBS bank economist Javier Kulesz, who added that it would come along with a large increase in public utility prices, heightened social tensions, and low if not negative growth. This is nothing Argentines arent familiar with. They have seen this movie in its various versions quite a few times over the past few decades, he said.
Why did Argentinas economy take such a sudden turn downwards? China has not stopped buying Argentine commodities, there has been no tsunami or earthquake that has crippled this countrys infrastructure, nor any international economic crisis that has hurt Argentina more than others. On the contrary, the international environment continues to be favorable to this country, as commodity prices remain relatively high, and many international investors disillusioned with Europes recession are increasingly looking at Latin America as an option.
Judging from dozens of interviews here last week, there is only one reason for Argentinas current decline and its the usual one. Its politics, of course.
Fernández de Kirchners populist government has given away massive subsidies in its quest to win elections, much like Hugo Chávez in Venezuela. While ever-growing subsidies work while commodity exports keep rising, they can leave a country bankrupt once world commodity prices stop growing.
While neighboring Chile under both center-left and center-right governments has saved in good years to maintain its social programs during bad years, Argentina has done exactly the opposite. It has squandered what economists say was its biggest economic bonanza in nearly a century in giving government jobs to loyalists, cash subsidies to millions of people many of whom now find it more convenient to live from government handouts than to find a job and transportation and energy subsidies.
Thanks to government subsidies, public transportation in Buenos Aires may be among the cheapest in the world: a bus ride costs the equivalent of U.S. 22 cents, and a train ride U.S. 26 cents.
Roberto Lavagna the former economy minister under Nestor Kirchner who is credited with resurrecting Argentinas economy after the countrys 2001 default on its foreign debts estimates that government subsidies for transportation and energy soared from U.S. $1.2 billion at the end of 2005 to U.S. $19 billion last year.
While commonsense would suggest that Fernández de Kirchner would start reducing public spending in light of the economic slowdown, she seems to be doubling her bets. Last week, she announced a giant plan to give out 400,000 low-interest mortgages and build 400,000 homes over the next four years.
Where will the money come from? It will be borrowed from the states Social Security System. The government says the plan will create 100,000 jobs in construction work, and help reactivate the economy. Skeptics say the money will disappear in the hands of corrupt officials, like so many times before, and future retirees will not see a penny of their pensions.
They have a very short-term, strictly political vision of the economy, Lavagna said. Thats very unlikely to change.
Whats most worrisome is that a large number or Argentines, while increasingly skeptical about Fernández de Kirchners narrative about the alleged new economic model, are not necessarily opposed to a growing state role in the economy, Lavagna said.
There is a growing statist trend, which is very accepted by society, Lavagna said. The latest polls show that Argentines support statist policies by a margin of two to one.
My opinion: All indications are that Fernández de Kirchner will blame the outside world the media, Greece or Washington for the downturn caused by her own irresponsible economic fiesta. She will print increasingly more money to buy votes to win the October, 2013 legislative elections, if they are not held earlier, and will pray for a new spike of world commodity prices which very few are predicting to rescue the countrys balance sheet.
In the process, she will have squandered Argentinas best opportunity in a century to use its commodity bonanza for improving education standards, attracting investments to create new industries, and lifting millions of people from poverty for good.
I hope Im wrong about this, and that during the 3.5 years remaining in her term, Fernández de Kirchner she will take a more long-term, less ideological, view of whats best for her country. But I didnt hear anything during my stay here to convince me that she will do anything to save Argentina from its self-inflicted crisis.
Argentinas economic fiesta is over - Andres Oppenheimer - MiamiHerald.com
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