Monday, June 15, 2009

Argentina: a lesson for the US

The Wall Street Journal's Mary Anastasia O'Grady is, in my opinion, the world's best journalist covering Latin America. I've kept close watch on developments there since living in Argentina in the late 1970s and covering the region as an analyst, so I can vouch for her deep understanding of the problems that have plagued the countries to our south. Today she writes about the ongoing disaster that is Argentina's government. A succession of presidents have vastly expanded the power of the executive branch, all in the name of resolving crises precipitated by the actions of previous administrations. The parallels to the Bush bailouts, the Obama stimulus spending, the Obama GM takeover, the Obama urge to control executive salaries, and the Obama proposal to create a vast new financial regulatory appartus are obvious and, needless to say, profoundly disturbing.
In the wake of the country's 2002 economic collapse, the Argentine Congress gave the executive immense powers on the grounds that the circumstances called for extraordinary government action.

Seven years later those powers have not been rescinded and the state dominates the economy as an owner and regulator. Argentina now faces the threat of a further consolidation of control by President Cristina Kirchner through means similar to those employed by Hugo Chávez. As in Venezuela, free speech and the free press are being targeted for increased repression.

Let this be a lesson to any modern democracy that cedes broad power to government in a time of crisis: Granting power to the executive is easy; getting it back isn't.

10 comments:

Rob said...

Scott, I have invested in an Argentinian farming company, and am about to invest more. The deal is this: two Argentinian brothers, one based full-time in the UK, where I live, have about $100m of inherited agricultural land. They are making a big push to develop land in the North, as well as closer to Buenos Aires. Becuase there's no credit in Argentina, they have tapped private investors elsewhere, mainly the UK I think. In return for our cash being tied up for a minimum of 5 years, they offer us a high annual yield (10-15% depending on various options) and a guaranteed capital gain after five or ten years (you can replace this with an equity type return based on prevailing crop prices). The investment is managed by an independent UK firm and is collateralised against the land itself, The two brothers basically are prepared to pay good money in order to pass on a much-expanded operation to their children. I have done a fair bit of research into this and believe the parties concerned are honourable. I am also told that despite its many ups and downs, Argentina has respected the rights of ownership of its farmers and their businesses have survived through even the dark times. However, I would very much appreciate your view on this investment opportunity. Many thanks.

The Lab-Rat said...

Hi Scott, is it possible to 'tag' your posts by subject so can search all posts related to TIPs or Gold for example?...of course, some may have multiple tags.. would be useful feature if not too much effort.

Bill said...

Rob: Frankly, this investment reeks of fraud to me. The 10-15% guaranteed payout is a big red flag (see also Bernie Madoff). I would like to see what Scott has to say though.

Scott Grannis said...

Lab-Rat: you can very easily do a search for whatever subject(s) you want. Use the field in the upper left hand corner of the blog.

Scott Grannis said...

Rob: I know this type of investment sounds interesting. There is a chronic shortage of capital in Argentina, and that is why investments there must promise, and hope to deliver, above-average returns.

Unfortunately, my long experience with Argentina tells me very clearly that the government cannot be trusted at all. They are capable of doing the unimaginable. The currency can be devalued massively. Export taxes can cripple the earnings of the agricultural sector. Bank accounts can be seized. Businesses and entire industries can be nationalized. I couldn't rule out the risk that foreign-owned land might someday be expropriated. Bottom line, you can never underestimate the ability of the Argentine government to steal money from its citizens and investors.

Of course, that does not rule out the ability to make a lot of money if you can time things right. Just make sure you get out before the government acts against you. I've made some good money that way in the past, but since then the government has gotten so much worse, and the economic siutation has deteriorated so much more, that I have no interest in trying to time an exit from a situation that is perilous.

Rob said...

Many thanks for such a speedy and interesting response, Scott. I forgot to mention that the investment is denominated completely in US dollars and run via a Wyoming-based LLC.

It's frustrating because basically I'm having to accept that I can't proceed because of the Argentine government rather than the people in whom I am directly investing (I have spoken at length to them many times and trust them as much as you can trust any business partner) ...

But your comment is probably enough to once again make me pull back from any further investment.

Scott Grannis said...

That's prudent: there are opportunities everywhere, but you don't want to put all your eggs, or even a lot of them, in the Argentine basket.

KC said...

Scott,I find it very disconcerting how far down this same road we seem to have already come, how rapidly Obama and these leftist radicals we call a congress have foisted these terrible policies off on us, and how hard all this CHANGE will be to ever turn back around.Thanks for sharing all your lovely insights into many things.Happy Birthday.KC

MW said...

The influence/control over the media seems more Venezuelan than Argentinian, but perhaps Scott could comment on that?

See this link: http://market-ticker.denninger.net/archives/1125-Goebbels-Media-UPDATE-Authenticated.html

P.S. Happy birthday, and thanks for blogging!

Scott Grannis said...

Venezuela's Chavez seems to be a model for the Kirchners in Argentina and for Obama in the US. So to see Obama getting cozy with the media is not surprising at all. Rather scary of course. Even Chavez noted the other day that there is a risk that Obama could outflank both him and Castro on the left.