Friday, March 20, 2009

Argentine politics and capital flight

I was just in the hotel lobby and noticed the front page headlines of a local newspaper. One article noted that President Kirchner had proposed a compromise in the ongoing battle between the agro exporters and the government. She ignited the furor last year when she raised export taxes on agricultural exports, claiming that high commodity prices were a windfall for the sector and it was only fair for the government to redistribute that windfall to the more needy sectors of the economy by raising taxes. The controversy has been festering, and she keeps looking for ways to make the exporters back down; first by saying that all the money raised by the tax would be handed out in various forms to the poor, and now by saying she will "share" 30% of the tax revenues with the provincial governments provided that the money be spent on infrastructure designed to help the poor. This is sounding too familiar....

The other article noted that the start of the revenue war against exporters just happened to coincide with a new wave of capital flight. Some $9 billion dollars left the country last year. Seems that here in Argentina, just as anywhere, capital doesn't like to be taxed or threatened. It can always find more hospitable places. And the chronic lack of capital here—the inevitable result of decades of abusive, anti-capital measures—shows up in the faces of the poor, the rundown buildings, and unpaved streets. It's a real shame.

Despite all that, the people here are the nicest in the world and their generosity knows no bounds. And of course the food (lots of meat!) and the wine are great and abundant.

4 comments:

Donny Baseball said...

Scott-
You are lucky that you are not here to witness the utter destructive stupidity that is bubbling up from the pits of our system. Congress, barring a last minute fit of good sense from someone, is set to pass a retroactive 90% punitive tax on earnings of almost everyone in the financial services industry which will crater the New York, Charlotte and Boston economies as well as shrivel lending and capital flows like a prune. Obama is filling out his March Madness bracket and going full steam ahead with an historically unprecedented budget that his own people say lowballs things by roughly a trillion. Have a good time down there for all of us, the good times are a long way off here at home.

Mati Vivaldi said...

Scott -
In yesterday's La Nacion there's a great article by Roberto Cachanosky about the (miss)management of the Argentinean economy since 2002. If you understand spanish you can read it at http://www.lanacion.com.ar/nota.asp?nota_id=1110971

Scott Grannis said...

Cachanosky is always good. His article reminds me that Obama and his administration are rapidly succumbing to the same hubris which makes the Kirschners think they can run things by the seat of their pants.

Governments can't manage companies, and they certainly can't manage economies. The best they can do is provide for a stable unit of account and enforce respect for the rule of law. Let the private sector handle the rest.

Scott Grannis said...

I sure hope someone challenges the retroactive tax on bonuses. Sounds quite unconstitutional to me. Not to mention a start down a very slippery and scary slope. This is the kind of stuff that is supposed to happen in Argentina, not the U.S.