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Economy on the mend?
Final del juego.
Published by The SAN JOSE MERCURY NEWS, August 11, 2005
[url]http://www.mercurynews.com/mld/mercurynews/news/world/12355837.htm[/url]
RECOVERY FROM '01 COLLAPSE, BUT NOT PROSPERITY.
By Jack Chang.
Knight Ridder.
BUENOS AIRES, Argentina - According to economists, Argentina finally recovered this year from the economic collapse of 2001 that sent the currency plunging and pitched the country into social turmoil.
Unemployment rates have dropped to precollapse levels, shoppers have returned to glitzy Calle Florida in Buenos Aires' city center, and the nation is running big budget surpluses.
So, given all the good news, why does 55-year-old slaughterhouse worker Rodolfo Gómez still earn less than a subsistence-level income, about $300 a month?
A member of a cooperative that took over the slaughterhouse after its owners went bankrupt in 2001, Gómez takes pride in what he and his 500 fellow workers have accomplished.
They took a business that failed in the thick of the economic turmoil and restored it to relative economic health, he said, a feat aided by the growth of the overall economy.
Yet they haven't restored it to prosperity.
"At least people have work instead of sitting in their houses,'' Gómez said, as cow carcasses on hooks passed by. 'And at least my wages have risen, although it's not much.''
It isn't just workers casting doubts on the recovery.
So are foreign investors whose views of Argentina are colored by the country's default on government debt in 2001 -- still the biggest by any nation.
"I tell my clients this is a high-risk investment,'' said Maria Velez de Berliner, president of Alexandria, Va.-based Latin Trade Solutions. 'I will not be surprised if a collapse happens again.''
On paper, the big-picture numbers show an impressive comeback after a traumatic economic blow that impoverished millions within weeks.
Memories of the turmoil still haunt the country: the default; the unpegging of the Argentine peso to the U. S. Dollar, which reduced the peso to a quarter of its former value; and the bloody riots that consumed the country.
After free-falling by some 20 percent during the crisis, Argentina's gross domestic product has climbed back to virtually the same peak it hit in 1998, growing by nearly 9 percent in 2003 and 2004, according to an International Monetary Fund review of the country released last month.
The country's unemployment rate dropped to an estimated 12 percent this year after hitting a 2003 high of 20.8 percent, the report said. The poverty rate similarly fell from a 2002 high of 58 percent to about 35 percent last year.
Much of the economic growth can be traced to China's growing consumption of Argentine agricultural exports such as wheat and soy, which best weathered the crisis, Velez said.
The big economic question now confronting Argentina is where the country goes after two years of stellar growth.
Several Argentine economists predicted total GDP growth would stabilize at about 3 to 4 percent for the next few years.
'When you came from the bottom, you're going to have a great return,'' Velez said. 'Whether you can keep growth at 6, 7, 8 percent, that's highly questionable.''
Although the macroeconomics look good, new jobs aren't paying nearly the same real wages as precollapse positions and the recovery isn't helping enough pocketbooks, said Buenos Aires economist Juan Luis Bour.
For example, per capita GDP has risen but much more slowly than the total GDP. It reached $4,100 in 2004 after falling 65 percent from $7,900 in 2000 to $2,800 in 2002, IMF figures show.
The continued weakness of the Argentine peso, which still hovers at about a third of its precollapse value, also has suppressed buying power, Bour said.
'From the point of view of the people, they don't feel like they have the same money they had seven or eight years ago because they have lower incomes,'' he said. 'There is still a lot of uncertainty.''
Nonetheless, Bour said he believes that the country has emerged from the turmoil. The trick now, he said, is to make the argument to the rest of the world.
'The total GDP has recovered,'' he said. 'The government is now trying to convince everybody that the 2001 crisis is completely over, and it needs to do that through sound fiscal policy.''
That means doing in part what the government has done -- running large trade and budget surpluses and keeping inflation in check.
The administration of President Nestor Kirchner and Finance Minister Roberto Lavagna has also tried to maintain a cheap peso to spur exports.
Ironically, many of those policies come straight from the IMF cookbook despite what's been a largely antagonistic relationship between the country and the fund.
In its review of the country, the IMF board of directors wrote in June, 'Prudent macroeconomic policies in 2003-04 have provided an anchor for the recovery of confidence.'' Directors 'commended the authorities for their steadfast implementation of fiscal policy.''
I read in the Clarin economy section a history of the Argentine economy. I already knew about some of it, but not in such detail. Between 1970 and 1992 (the beginning of the US$ convertibility era, which was apparantly the only relatively stable fiscal era in recent history) there were about 5 currency changes and 13 zeros were lopped of the national currency - about 3 zeros every 5 years or so. Thats about 300% average inflation per year. It was about 5000% in 1989, I believe Alfonsin's last year. That 5000% number (along with the largest sovereign debt default in world history) is in the record books - I think only interwar Germany may have had a higher rate until Hitler took charge. Have the fundamentals here changed - I think not. My forecast for August 15, 2010: 1 dollar = 200,000.00 pesos. 1/2 hour sexo convencional at Santa Fe 1707 - 8,000,000.00 pesos (30% cheaper) That is if the currency is still called "pesos".
Why is still cheap in Argentina and in Brazil 2 to 1 these days? How come Brazil can not be as cheap as Argentina these days?
[QUOTE=Papa Benito]I would describe the recovery as ''a dead cat bounce''! It is not likely to be sustainable. The current inflation (much higher than reported) wage cost inflation, and price controls make a sustained recovery less likely. This is in addition to Kirchner's incredibly stupid economic policies, an undervaled peso, protectionist policies, anti-investment policies, no credit available, contracts are suspect, crooked courts, mafia, bureaucracy, difficulties to return capital to AR, high export taxes, anti-agrarian policies, coveting socialist countries and not capitalist countries, etc. Have I left out anything? Although the fall election seem like a sure thing for Kirchner, it all could fall apart with a rapid rise in inflation. Or rapid inflation after the election. Then what? Kirchner will become a ''lame duck''. And political and economic chaos could ensue.[/QUOTE]Papa Benito:
All gurues from the City have been predicting the same aftermath scenario as yours since 2002. I'm still waiting for that to happen.
Of course, eventually, the current econmic policies will become outdated and a new crisis will emerge. But that happened to EVERY economic policies applied to Argentina, including those that involved "an overvalued peso, free-trade policies, low export taxes, pro-agrarian policies", etc.
Andres
[QUOTE=Papa Benito]Of course I should have included the debt repudiation, the minority hold-outs, other huge debt, the dwindling surplus, sour relations with the IMF, and continuous new public works projects to ''buy'' votes. Plus a real rate of unemployment of 15 per cent, 14 million poor people, and 47 per cent of the labor force working in illegal conditions (Buenos Aires Herald)[/QUOTE]Interesting point: If Argentina cancels all its commitments to the IMF, it is deemed "sour relations". If it repudiated the debt to the IMF, it would be called an "irresponsible country".
What is the correct policy then, from your perspective?
Andres
[QUOTE=Andres]What is the correct policy then? [/QUOTE][QUOTE=Andres]Of course, eventually, the current econmic policies will become outdated and a new crisis will emerge. But that happened to EVERY economic policies applied to Argentina, including those that involved "an overvalued peso, free-trade policies, low export taxes, pro-agrarian policies", etc.[/QUOTE]So, is there any correct policy since nothing ever works?
[QUOTE=Papa Benito]I would describe the recovery as ''a dead cat bounce''! It is not likely to be sustainable. The current inflation (much higher than reported) wage cost inflation, and price controls make a sustained recovery less likely. This is in addition to Kirchner's incredibly stupid economic policies, an undervaled peso, protectionist policies, anti-investment policies, no credit available, contracts are suspect, crooked courts, mafia, bureaucracy, difficulties to return capital to AR, high export taxes, anti-agrarian policies, coveting socialist countries and not capitalist countries, etc. Have I left out anything? Although the fall election seem like a sure thing for Kirchner, it all could fall apart with a rapid rise in inflation. Or rapid inflation after the election. Then what? Kirchner will become a ''lame duck''. And political and economic chaos could ensue.[/QUOTE]Excellent post.
Here's more: [url]http://www.mises.org/story/1472[/url]
Anybody get any good pussy lately? I'm in sex prison. That's the dead zone that stretches across the globe from Pakistan to Morroco and then jumps over and includes the entire fucking United States.
[QUOTE=Moore]So, is there any correct policy since nothing ever works?[/QUOTE]It depends on what do you mean by "works".
To me, policies work when they fit a desirable agenda (or "political program" or "project of society") FDR's New Deal worked for a given scenario at a given time, but it wasn't sustainable forever. We cannot say though that FDR policies never worked.
IMO, the advantage of Kirchner's agenda it's that it restored the economy to a more "real" base, rather than the artificially-inflated, financially-based economy of the 90s. Whether it will remain sustainable or not is another issue.
A fact is that there's growth somewhat independently from the financial markets. That "independency" (sustained by a dependency to a high soy value) is what pisses off many people in this board, since that clearly means that such sector hasn't the influence that it used to have. Otherwise, I cannot understand why people complain about cancelling the debt to the IMF.
Andres
[QUOTE=Andres]IMO, the advantage of Kirchner's agenda it's that it restored the economy to a more "real" base, rather than the artificially-inflated, financially-based economy of the 90s. Whether it will remain sustainable or not is another issue.[/QUOTE]It's not sustainable when you fail to reduce the public sector's 60%+ claim on the economy and inflate the currency by printing ever greater amounts of pesos and artifically restrict price fluctuations (export restrictions, price controls, etc).
[quote=Andres]A fact is that there's growth somewhat independently from the financial markets. That "independency" (sustained by a dependency to a high soy value) is what pisses off many people in this board, since that clearly means that such sector hasn't the influence that it used to have. Otherwise, I cannot understand why people complain about cancelling the debt to the IMF.[/QUOTE]The IMF was looked to by the markets as a source of stability and a restraining influence on Argentine policy makers. There is now free rein for Mr. Kirchner to do what he wants, for good or ill. I'm guessing ill. But then I am a student of history, not a wishful thinker.
Papa Benito and Hunt99, are spot on the issues and show remarkable understanding of macroeconomic issues. I fully agree with them both, but lets not forget that the whole growth story in Argentina is sustained by strong international fundamentals. In that context, the party could go on for longer than expected and macro indicators are very positive (other than inflation, which is the result of excess money, too much agregate demad, and why not relative price adjustements) The main problem is that the microfoundations of this recovery are poor and deteriorating. This eventually will come to hunt the country as international conditions worsen. In particular, a fall in commodity prices and higher international K markets risk aversion could be very damaging to the country.
[QUOTE=Hunt99]It's not sustainable when you fail to reduce the public sector's 60%+ claim on the economy and inflate the currency by printing ever greater amounts of pesos and artifically restrict price fluctuations (export restrictions, price controls, etc)
The IMF was looked to by the markets as a source of stability and a restraining influence on Argentine policy makers. There is now free rein for Mr. Kirchner to do what he wants, for good or ill. I'm guessing ill. But then I am a student of history, not a wishful thinker.[/QUOTE]As far as I know, the public sector was always oversized and poorly managed, which provided easy-to-get contracts to many lobbies. There's no interest to the elites to reform that, since an efficient public sector goes against many of their interests.
By the way, I cannot get the rational of inflating the currency by PRINTING. Usually, that's the opposite (the more you print, the less your currency is worth)
If I were to choose, I would prefere a less controlled price scheme and a more stringent taxation system. The problem is that many sectors are against of building the latter, and free prices along with no social protection measures would bring Argentina to the levels of violence seen in Mexico, Colombia or Brazil. 2002-2003 were so nasty in terms of crime that Argentinos prefer to control it by implementing "progressive" policies.
The IMF is clearly one of the most important lobbies for the "markets"', and very far from its intended role, to the point that its recommendations and policies are now VERY far away from the Bretton Woods agreements. What the financial markets regret is that the IMF isn't listened as much as before.
Argentina could get out of the pit left by the peso peg without the IMF and against their recommendations. No wonder why many people lost confidence in such institution.
Andres