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Argentina: The nation in ‘selective default’

The sexy Economics Minister with the sideburns, Axel Kilcillof

The Economics Minister with the sideburns, Axel Kilcillof

When Argentina ‘defaulted’ on $29 billion in debt, worldwide reaction tended to concentrate on the economic mismanagement by Argentina’s government, which lead to the default. But is that really fair? Rather the South American state was backed into a corner after doing its best to turn one.

The head of Argentina’s negotiating team in New York which attempted to ward off default ended up getting a lot of unexpected attention. As Axel Kilcillof announced no deal was being done, social media lit up talking about the sexy Economic’s minister with the sideburns.

He has more to him though than some striking sideburns. Since Kilcillof was appointed to the post in November 2013, Argentina’s path has changed. It’s been locked out of international markets since the 2001 default. By the end of last year dollar reserves were dwindling, capital flight was uncontrollable despite restrictions and inflation rampant.

The emerging markets crisis in January of this year hit Argentina the worst. It was the most vulnerable. The peso was devalued by 20% with Kilcillof the driver of the plan. It seemed a panic move but it was handled well and by March things were stable.

Argentina had been infamous for lying about its inflation figures, but in January they scraped the old indice and replaced it with one which the IMF considered acceptable. Believed to be over 30% for 2014, inflation is still a major issue while those figures are being disputed more and more, but after a rough start things seemed to be at least more manageable come the middle of 2014.

Argentina’s aggression towards foreign creditors and businesses softened. It agreed to pay $5 billion to Repsol for renationalising 51% of the Argentinian oil company YPF in 2012.

Another agreement was found in May with the Paris Club, of which Ireland is a member, to pay back arrears totalling around $9.7 billion.

So by June of this year, the capital reserves were up over $10 billion to just short of $30 billion, inflation was still high but stabilising, while Argentina had gotten major agreements which would help it return to international markets. One issue remained. The litigation from the holdouts.

93% of the defaulted debt from 2001 was restructured by agreements reached in 2005 and 2010. Seven per cent, some of which is made up of those who bought the debt on secondary markets on the cheap, are holding out for the full amount.

Argentina has been continuously paying the 93% it has agreements with, but it was two hedge funds (or vulture funds as they are also termed) called NML Capital and Aurelius International, which have led litigation proceedings bringing about the technical default.

They successfully convinced a US District Judge that it wasn’t fair that Argentina continued paying the 93% and not those who had restructured. Argentina appealed, it was upheld, then tried to go to the US Supreme Court and their appeal was dismissed. So it ended up both sides had till July 30 to come to an agreement or else default, which they didn’t.

Argentina, though, denies it’s in default. It’s not as a ridiculous claim as it sounds even if Standard and Poor’s says Argentina is in what it terms ‘selective default’. As Argentinian President Kirchner pointed out, a defaulter is someone who cannot pay. Argentina is willing and able to pay, so much so that it deposited $539 million to trustee Bank of New York Mellon in order to pay interest to restructured creditors.

It is the fact that payment did not reach creditors that Argentina is in default for debt of $29 billion. On orders from Judge Griesa, the payment remains frozen until an agreement with the holdouts has been found.

The funds litigating against Argentina want to maximise profit. They want full payment of $1.3 billion on debt they only paid a fraction of the price for. And NML Capital is an affiliate of Elliot International which has past form on litigating for payouts multiple times higher than the original in Congo and Peru.

In the case of NML/Elliot, their methods to discredit and force Argentina’s hand have been merciless. They had a Argentinian ship impounded in Ghana, which had 200 crew on board. Also, when Argentina agreed to open an investigation along with Iran into a Buenos Aires bombing of a Jewish cultural centre believed to be the responsibility of Iranian citizens, they published a page-long advertisements in US newspapers denouncing Argentina for cavorting with a rogue state.

The litigators have maintained from the beginning they want what they see as a fair agreement and it is Argentina which chose default, but a financial loophole hints otherwise.

Argentina’s default triggered a ‘credit event’ in the eyes of the International Swaps and Derivatives Association (ISDA). This in turn will likely trigger payouts of around one billion dollars in credit default swaps (CDS), which are insurances against defaults.

Who owns them? Well, we can’t be sure and we are only speculate, but many have rumoured that the same funds who are litigating against Argentina are also owners of some of these precious insurances. That would of course mean it was in their interests to prevent any agreement, collect the CDS when the default is declared then continue to demand full-payment from the South American state or, as is also an ongoing possibility, sell the debt to a third-party  like private banking institutions.

Another interesting thing is that one of the determinations committee members of the ISDA which decided to declare the credit event is Elliot Management Corporation whose subsidiary, as mentioned above, is NML Capital, the fund currently suing Argentina.

Argentina was caught in a bind throughout the whole negotiation due to a contractual obligation called the RUFO clause, which would mean if it paid out in full to the 7% of holdouts, the 93% could argue that they should get paid in full too, not just the haircut they agreed to. That could trigger multiple times the $1.3 billion the two hedge funds are demanding. That clause is set to expire at the end of this year.

Of course the default didn’t particularly change much except status in the short term at least. Argentina currently is in default, but if some agreement was to come soon, perhaps as rumoured between the litigating holdouts and international private banks, little damage would be done. Meetings are ongoing.

More long term it opens up a legal mess for Argentina as litigation could come across a lot of jurisdictions from all of the bondholders. It also shuts Argentina out of what it desires the most. Re-entry into capital markets at a time when the country’s economy is in recession and lack of capital may mean printing more money, thereby exacerbating inflation.

After doing much to undo its pariah status economically, a bind formed by the biases of a financial system and a Judge who didn’t give a sovereign state an inch leaving the country once again dangling.

Just when it seemed that Argentina was pulling itself back from the brink, for it to be tipped over by the profit-driven lust of funds would be a particularly bitter and sorry precedent.

It’s a good lesson though in how burning a bondholder is never truly so. More than likely, it will end up in a court somewhere with a hedge/vulture fund with assets worth billions demanding the whole payment and with full interest.

 

 
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Posted by on October 11, 2014 in Uncategorized

 

20 Tips for Visiting or Living in Buenos Aires

Is your next stop Buenos Aires?

Is your next stop Buenos Aires?

Here’s a helpful guide to what to do and what you can do in Buenos Aires whether you are planning or living or just coming to visit.

1 Bring Cash*: (Some of this may be illegal, so it will be written in a purely hypothetical way. It should also be read as if being whispered to you). SOME people have informed me it MAY be possible that if you were to arrive to Buenos Aires with a certain amount of cash in a currency like, say, dollars or euros, you COULD exchange that money on the black market for a better exchange than is available in ATMs. Some ways to exchange said money illegally MAY include approaching unwashed men on Calle Florida who shout “Cambio” randomly or in various jewellery shops.

2 Legal Ways to Get More Pesos for Your Dollar: So if you are not the type to break the law, then there’s legal ways too. Use money transfer services, which offer good exchange rates. For those living in Argentina with US dollar accounts, use Xoom, while those with British Pounds can use Azimo. Those with euro accounts need to hold on a little. Azimo have said they will launch their exchange service from euro accounts in late-Winter (in the Southern Hemisphere) 2013. They personally told me for Irish bank accounts it will be August 2013. At the moment of writing, the peso to dollar rate was officially 5.46 pesos for every dollar, 8.85 pesos on the black market (blue dollar rate) and Xoom offered 7.76 pesos. Both Xoom and Azimo have reputations for quite reliable services. Maybe not totally efficient, but you will get your money. If you have Bitcoins, there’s also the possibility you could exchange them for pesos at a very strong rate as well.

3 Free Concerts: If classical music is your thing, you can check out free concerts in Usina del Arte in La Boca every Sunday at 11.30am. Also, one of Buenos Aires’ premier tourist attractions, the prestigious Teatro Colon, offers free classical concerts once a month. You need to book two days in advance (that’s the only day possible due to demand) and it always takes place on a Sunday morning. Both have acoustics of the highest quality. Check their websites for further details.

4 English-speaking news in Buenos Aires: While living in the Argentinian capital, it’s important to understand what’s going on day-to-day and the two main publications are the Buenos Aires Herald and the Argentina Independent. The Herald offers decent day-to-day coverage of Argentinian, Latin American and international news. It can be found on most newsstands and online. The Argentina Independent offers a slightly more limited day-to-day coverage but is strong on reviews of various exhibitions and cultural events in Buenos Aires. It also offers strong features articles offering context to issues facing Argentina and Latin America today, for example on land reform throughout the Americas. The Argentina Independent is online only.

For more light-hearted news, but which also includes very effective reporting of serious issues, check out The Bubble.

Free Concerts in Teatro Colon once a month

Free Concerts in Teatro Colon once a month

5 Blogs and Internet Forums: If you are looking for information on more niche topics, check out the excellently informative Gringo in Buenos Aires blog or check the online forum BA Expats.

6 Spanish-speaking ‘Things to Do in Buenos Aires’ Websites: For City and state organised events try Agenda Cultural. For events not just organised by the state, try Vuenos Airez.

7 Spanish-speaking Newspapers: There’s five or six main national newspapers. The most prominent are ClairínLa Nacion and Página 12. It’s important to note that it’s hard to find unbiased coverage in any of the main newspapers. Clarín and La Nacion are strongly against the Government, while Página 12 is in favour. Keep that in mind when reading them.

8 Mate: Argentinians drink mate in the morning, evening, when they play sports, when they watch television, when sitting in the park under searing heat, when it’s almost ice-cold. If you want to live in Buenos Aires, make it a part of your life.

9 Know Your Barrio (danger-wise): Choosing where you live is important to avoid some bad things happening to you, which is all too possible, especially with regards muggings and pick-pocketing. As a general rule, if it’s north of Avenida de Mayo (the avenue that connects the Congress with the Pink House), there are relatively safe barrios (neighbourhoods), while south of there is not so good. In the north, you’ll find prosperous Recoleta, Palermo, Nunez and Belgrano. In the South there’s La Boca, Barracas, San Telmo and Congresso.

10 Know Your Barrio (Social-life-wise): The downsides in the northern barrios is that, while they are less dangerous, they are also more expensive, not just in terms of apartments, but basic produce like fruit and vegetables. Palermo, meanwhile, offers lots of bars and trendy places to go out, while San Telmo has grittier and edgier bars. Las Canitas (a small barrio between Palermo and Belgrano) is one of the most famous areas in the city to go for a meal. La Boca has two of the most famous tourist attractions, the Camino and the Boca Juniors football stadium.

11 Buy a Sube Card: Upon arriving into Buenos Aires, try and get a Sube card as soon as possible. One of these makes transportation a hell of a lot easier. They reduce the cost of a bus to a relatively insignificant amount (between 1.50 and 1.70 pesos), while without one, the buses cost 3.50 pesos and it’s only payable in change. Spare coins aren’t easy to come by in Buenos Aires either.

12 Jazz music: If jazz music is your thing and you are sick of, or were just never into, the clíched and tourist tango scene of Buenos Aires, try the Ionious Club or Notorious for some decent jazz music. Both have live jazz most nights of the week, while the cost will be somewhere between 40 pesos on less busier nights to 120 pesos at the weekends.

13 Kissing: Argentinian men kiss other men by way of greeting. Get used to it.

Free Concerts in Teatro Colon once a month

Free Concerts in Teatro Colon once a month

14 Supermarkets: The queues are long and with inflation rising all the time, the cost of goods is increasing in line (or relatively so) with inflation. Also be aware that goods may not be as plentiful as they are in other countries. Recently, the Government told citizens to cut down on eating tomatoes for two months, while cooking oil is limited to three bottles per family at time of writing. Also, products tend to disappear off the shelves and not come back for a week due to issues with suppliers. It’s all a part of living in Buenos Aires.

15 Traffic and transport in Buenos Aires: It can be a nightmare, but then sometimes you just get lucky and it’s fine. Buses are quite plentiful, so it’s actually rare to be waiting a ridiculous amount of time for one. They are small though, so generally packed. Ditto for the underground. If there’s a protest in the city centre, which is quite frequent, avoid all public transport at that time. The area will be at a standstill.

16 Teaching English: It’s the number one way newly-arrived foreigners pay day-to-day expenses in Buenos Aires and there’s a plentiful amount of websites looking for teachers, even those with little or no experience. Craigslist is probably the most prominent. If you wish to work for several months, make sure you are being paid in line with increases in inflation. If inflation is at 25%, as unofficial estimates suggest, your pay should rise 12% every six months or so.

17 Working as a Journalist: Some also come with aspirations to work as an English-speaking Journalist. Some important points to keep in mind. The Buenos Aires Herald does not accept freelance work. You can also only be hired by them for a paid position if you have a DNI (a sort of social security card), which allows you to work. The Argentina Independent offers only unpaid internships and will accept freelance work, but will be unpaid. Ditto for The Bubble.

18 Visiting a villa: In Buenos Aires, a villa is the term used for slum, much like favela is used in Rio de Janeiro. If you want to see one, but not in any working capacity for a charity for example, then you could take a bus through one. If you take the number 46 bus going south, it passes through two villas and gives you a brief glimpse of what life is like living in the most disadvantaged parts of Buenos Aires. With regards this, please use your discretion with regards your own safety.

19 US Dollars: If you just happen to, for whatever reason, want US dollars, you can do what many people in Buenos Aires do. Get the boat to Colonia del Sacramento in Uruguay, just one hour away, where you can take dollars out of the ATMs. You can also exchange Uruguayan pesos for US dollars if you wish, because frequently the ATMs are out of US dollars (I can’t imagine why).

20 Going to a Boca Juniors football game: Many tourist websites like BsAs4U offer packages to go see Boca Juniors play a game. At between 500 and 600 pesos, they are expensive for what is essentially 90 minutes of sport. Unfortunately it’s difficult to attend a game another way. Boca Juniors generally limit the general sale to club members and those who hold a type of reservation for season tickets. But it is Argentina. There’s ways around everything, but it probably involves borrowing the card of a club member or season ticket holder somehow.

*EverythingIsLoco does not advocate the use of illegal activities.

 
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Posted by on December 19, 2013 in Uncategorized

 

How to Avoid Being Robbed While Living in Buenos Aires

Places like Recoleta (above) are considerably safer than areas south of the city

Places like Recoleta (above) are considerably safer than areas south of the city

Coming from a country outside of South America, one of the most noticeably things when first living in Buenos Aires can be the edginess and fear in the city of getting robbed. During a Spanish course I did in Buenos Aires, three of the six students in the class had been, or were nearly, mugged during that one week. During the second week with different students, one pupil was pick-pocketed on her first day in Buenos Aires, while another’s friend was held at gunpoint and robbed. These anecdotal stories are not reflective of wider statistics on crime, but it seems a tourist who isn’t fully aware of the dangers gets singled-out. Here’s some of the strategies thieves use to steal your things.

1. Squirting Something: If you are walking down a relatively busy street and suddenly you feel you’ve been hit by ketchup or something other substance, just keep walking, don’t stop. This is a three-person job. One squirts you with something. Then another “helpful passerby” (likely to be a woman) stops and offers to help you clean up, while a third person comes from behind and takes whatever belongings you have in your bag while you are busy cleaning up. This happened to the above mentioned girl on her first day living in Buenos Aires, while this is also known to happen in parks (the squirter is up a tree above where you are sitting) and in train stations.

2. Squirting Something, a variation: A more popular version when there is two targets (usually a couple) is that at the same time as the squirter strikes one person, the second thief reaches into the bag or the pocket of the friend and quickly throws the phone, or whatever they grabbed, onto the ground. A third robber comes along in a flash and picks up the stolen good. This happened to an Argentinian student of mine. She’s a quick thinker though. When she was squirted, she didn’t shirk, she saw her boyfriend’s phone thrown to the ground and ran over and put her foot on it. The thieves got away, but empty-handed.

3. Asking for Directions: If someone stops and asks you for directions, happily help them but know where your bag or belongings are and make sure they cannot be reached from behind. Again, this is a two- maybe three-person job. One person asks you for directions and they usually choose a busy intersection, so you are even more distracted by the lights and cars going by. One asks for directions, while another comes up from behind and takes whatever they can. It’s possible a third person will be involved, who will “overhear” the conversation and offer their two cents on the best directions. This happened to a friend of mine and I was there too. While crossing Avenida Corrientes at the intersection with Avenida Callao, a woman stopped us, asking for directions. Meanwhile, someone came from behind and stole the purse from my friend’s bag. I could not tell you to this day who the second thief was. When my friend noticed her purse was gone, the woman they asked for directions off, was nowhere to be seen.

4. Crowded Undergrounds and Buses: Most buses and undergrounds are crowded throughout the day, not just at rush hour. They come at rather sporadic times, two or three could arrive at once meaning they are quite empty, while one might come after waiting 30 minutes, meaning it’s packed and most are forced to stand. Thieves usually target packed trains and while they may stick their hand in your pocket, it’s also known that they rip bags on backs open with a knife and take whatever is inside. Not a nice situation to be in. If you notice and react, and as you can’t really move on the crowded trains, you could end up with a stab wound not just lost valuables.

5. Held at Knife or Gunpoint at ATMs or on the street:  Obviously common throughout the world, but in Buenos Aires, there’s a tendency that if you are to be robbed, it will be with a gun not a knife. Most ATMs are situated inside banks, so you have to enter with a card during non-opening hours. Once you’ve completed the transaction, or even more scarily before you’ve entered your card, a person pulls a gun on you from behind.

6. Letting a Stranger into Your Apartment Block: Most apartments blocks have multiple doors which you are required keys for each. Many also have doormen on them to make sure they know who’s coming in and going out. If they don’t, make sure you know the person who happens to enter the apartment at the same time as you and ask if they have keys. If not, tell them to wait outside for their friend to come down and get them. This ploy happened to a friend. He let two strangers in who pretended to be pizza deliverers, who then held him at gunpoint in his apartment for 15-20 minutes while they ransacked the place.

These are just some of the stories I’ve heard or experienced over the past seven months living in Buenos Aires. I’ve never been robbed, which I put down to luck more than anything else. Here’s some extra tips from my experience here, which might help.

1. Don’t look like a tourist: Most of the streets especially around the city centre are quite crowded, especially the main shopping street, Calle Florida. Try to avoid stopping and admiring buildings or activities while in the middle of the street. Keep your camera hidden away unless you want to take a photo and avoid stopping and staring at a tourist map.

2. Your bag goes on the front not the back: Make sure you can see the bag you have with you at all times and that it’s not exposed. It’s a bit annoying to do this, especially with a big bag. But you need to be especially careful when you are moving on and off the underground, and when the underground is packed.

3. Choose your area: You’re simply less likely to be held at gunpoint and mugged in more prosperous areas of the city. As a general rule, Buenos Aires is divided in to the prosperous north and more edgy south. Areas like Recoleta, Palermo, Nunez and Belgrano are relatively safe, while La Boca, Barracas and even San Telmo and Congresso are dangerous. What part of Buenos Aires you live in is key, choose wisely.

This is my two cents Any tips to add?

 
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Posted by on December 19, 2013 in Uncategorized

 

Brazil is Beset by Protests. Could Buenos Aires and Argentina be Next?

brazil-2-170957492_620x350As the numbers rise to millions across Brazil taking to the streets, one of the many questions arising from the widespread agitation is, could the demonstrations in Rio and Sao Paulo spread across the continent to Buenos Aires and beyond just like with the Arab Spring? Let’s look at South America’s second biggest country, Argentina.

On the football field, they possess one of the biggest rivalries in international football, but politically both Argentina and Brazil may find themselves on a similar path.

Both are ruled by women, Cristina Fernández de Kirchner in Argentina and Dilma Rousseff in Brazil.

They, and the leaders before them, have steered their countries through a time in which a great reduction in poverty has been seen. In Brazil, 40 million have entered the middle-class, in Argentina poverty has decreased from a post-2001 default high of 57% to 27% unofficially (this figure is disputed by the Argentinian Government which claims it is much lower).

According to the World Bank, South America is the most commodity-dependent region in the world and favourable world markets throughout the 2000s fuelled this mass poverty reduction, but that didn’t mean the money had to be used to help the poor. Therefore, the Kirchners and Lula were loved.

#ChangeBrazil

Politically, the adage is that Argentinian always protest, the Brazilians never do. Perhaps hence why the massive protests have engulfed Brazil so quickly and forcefully. The hashtags are #Brazilawake and #ChangeBrazil. The giant has finally awoken, they are saying.

For Argentinians mass protests are nothing new. On April 18th, nearly one million people took to the streets across Argentina to protest against the Government. Comparing the two countries sizes, Brazil with 180 million against Argentina’s 40 million, the Argentinian protests are bigger than any per head thus far taken place in Brazil.

The issues are similar. Government corruption, crime, spiralling inflation brought Argentinians out in mass. The Brazilians say they have first world stadiums but third world services, the Argentinian say the have the Pope and Messi but a corrupt Government.

Transport in Buenos Aires is not just bad, it is deadly. 51 people lost their lives in a train crash at a central station in February 2012. Two weeks ago, three people died and several hundred were injured when a train crashed on the same line.

Brazilians are enraged by inflation running above 10%. In Argentina, it is around 25%. This is the unofficial figure. The Government claims it is close to 10%, all the while giving public sector union workers increases per year of close to but never 25%.

In Brazil, the people say they have high taxes but no decent services. In Argentina, they say their high taxes subsidise overgenerous benefits to the poor unemployed. A way of buying votes as the Kirchners get most of their votes from the poorest classes.

Big Mac

Government interference in Argentina means the price of a Big Mac meal is about €2 cheaper than other meals on the menu. Why? Because ‘The Economist’ magazine measures inflation and purchasing power parity using the price of a Big Mac in McDonalds in various countries. Keep the Big Mac low, inflation is (offically) low.

But inflation is high and with the legacy of lost savings from the 2001 default, nobody wants to save in the Argentinian currency, pesos. To prevent capital flight, the Government has introduced restrictions.

No more than 1000 pesos (141 euros) can be taken out per day, you have no way of changing your pesos for dollars and if you have an Argentinian bank account, you’d can’t pop over on the boat from Buenos Aires to Uruguay and get dollars. Your bank card won’t let you.

While Brazilian officials attempted to limit investigations on public offices with a law that was later rejected by a Congress reeling from the mass protests across the country, the Argentinian Government continues to try and stifle the Judiciary and the media conglomerates. Both have seen parts of these laws introduced by Government declared unconstitutional by the Supreme Court.

Corruption

Details of corruption are rife. Every Sunday night (Link in Spanish), Argentina’s most prominent journalist, Jorge Lanata, reveals more details of how the Kirchner’s have embezzled millions of dollars in public money. The Government has responded by ordering the football association to move the weekend’s most prominent football game to directly clash with the programme. So far, it hasn’t worked. Politics has defeated football in the ratings war three weeks in a row.

So, will something like a 20 centavos rise in bus fares be a catalyst to bring about mass protests in Argentina? It’s extremely hard to tell, but the answer is probably no.

The April 18th protests against the Government brought large amounts of people, but the Government could still mobilise around 400,000 to take to the streets of Buenos Aires alone last month to celebrate ten years of the Kirchners in power.

Argentina is a divided society. For anti-Government protests, the affluent neighbourhoods of Buenos Aires are deserted as the richer parts of society protest outside Government buildings. They are sick and tired of high inflation and capital controls among much else. For the poorer classes, the Kirchners have meant better lives or at least the hope of better futures.

Of course the Brazilian protests may be drawn across the same lines. A poll at the June 18th protest in Sao Paulo said those protesting are three times more likely to hold a college degree and almost 75% are demonstrating for the first time. This suggests a young, uninhibited, confident middle-class believing they have the right to better things originally drove the protests, but which has since developed into a classless popular movement which has widespread support across swathes of the Brazilian population.

In South America, only Argentina has had a larger middle-class increase in the past decade. From 2003-2009, 24% of the population entered the middle-class compared to 22% in Brazil. This suggests, like in Brazil and in the Arab Spring countries before them, Argentina is having a massive social change which could lead to a strong protest movement.

But unlike Brazilians who can look to the future with a degree of certainty at least with regards its currency and inflation, Argentinians don’t know what awaits them year-after-year. Could a 2001-style default happen again and if so when? Such uncertainty can lead to paralysis.

 
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Posted by on December 19, 2013 in Uncategorized

 

The Curious Case of the Cheap Big Mac

McDonald’s Menu: Note the McCombo Big Mac Price. The $ sign denominates Argentinian Pesos

McDonald’s Menu: Note the McCombo Big Mac Price. The $ sign denominates Argentinian Pesos

Walk into a McDonalds in Argentina and you’ll be struck by two things. One is plain to see. The other involves a rather keener eye.

The first is the prices. At an average of $45 pesos (€6.92) for a regular meal, they are slightly more expensive than the equivalent meals in restaurants in America, Britain or Ireland. Considering the average wages in Argentina are about half what they are in my home country Ireland, and the frequency of the American food chain is far above any country in Europe, this is a surprise.

If you resist the urge to splash on one of the meals in bright colours above the checkouts, and instead observe the prices in the full-menu written in small writing to the side, you’ll notice a peculiarity.

The McCombo Big Mac Meal, as it’s called here, is $29 pesos, a full $16 pesos cheaper than most meals on the menu. Since it’s not advertised, and rather hidden away, it’s obvious to assume this isn’t a special offer and is most certainly odd.

Big Mac meals are cheaper than other McDonald’s meals in Argentina

Big Mac meals are cheaper than other McDonald’s meals in Argentina

The reason for both involves an understanding of the economics of Argentina. Due to import restrictions and spiralling inflation (the Government claims it is 10% per year, most economists scoff at these figures and claim it is at least 25%), the price of certain goods in the South American country is above that of developed countries in Europe and North America, at least when you compare the official exchange rate. Hence the explanation of peculiarity number one.

Peculiarity number two is a way to hide the reality of peculiarity number one. Economists at ‘The ‘Economist’ magazine have devised a rather novel way of comparing purchasing power parity (PPP) throughout the world. They compare the price of Big Macs in McDonalds. If the price of a Big Mac goes up in one country but not another, this is an indicator of the strength of one currency against the later and the fluctuations year-on-year can measure inflation as well.

The Big Mac Index, invented in 1986, is by The Economists magazine’s own admission not the most scientific index for measuring PPP, as discrepancies exist in various countries to what value is placed on a Big Mac. For example, McDonald’s is viewed as exotic “Western” food in some developing countries, while in many others it is cheap junk food. Also there are potentially higher costs in certain countries of sourcing necessary raw materials, while lower labour costs means lower prices.

Nevertheless, it is a respected index which has shown up some truths over time, like the overvaluation of the euro when it first entered the market.

According to the index, in January 2013, Argentina’s currency was undervalued by 12.6% against the US dollar, although it’s black market dollar price rose to US$7 in January (it has since risen to to over US$9). The country most similar to Argentina in term’s of discrepancies between the ‘official’ dollar rate and the black market rate, Venezuela, has an overvaluation of 107.9%.

The above figure is the ‘raw index’ figure. When adjusted to GDP per person =, ie take the average income of a person in that country and predict the price, the peso is overvalued by 33.4%.

The Big Mac Index (2010 figures).

The Big Mac Index (2010 figures).

‘The Economist’ magazine hasn’t minced its words when it comes to Argentina and the Big Mac Index. “Burgernomics does support claims that Argentina’s government is cooking the books. The gap between its average annual rate of burger inflation (19%) and its official rate (10%) is far bigger than in any other country,” it said in 2011.

If true, it leads to two obvious questions. The first is why McDonald’s allowing the Argentinian Government meddle in its pricing? The second is why are Argentinian authorities so desperate to keep the PPP rate low?

The answer to the first question is, presumably, based on profit. If it refused to comply with the Argentinian Government’s request, things could be made more difficult for McDonald’s in Argentina. A McDonald’s spokesperson told Argentinian daily, La Nación, that claims of cooking the books were false, the cheaper price on the Big Mac was a “marketing strategy”. Evidently a long-term one, because the representative made those remarks in April 2011.

With regards to the second question, the answer lies in the level of trust Argentinian citizens have in their currency. Most remember the days their savings were obliterated by default and hyperinflation in the 1990s and early 2000s. As a result, capital flight (ie moving your savings into a more stable currency like US dollars or euros instead of Argentinian pesos) is a major issue, so the Government has set in place limits of the amount of money that can be taken out of ATMs per day, restrictions on exchanging currency, as well as moving money in and out of the country. Keeping the PPP rate of the Argentinian peso against the US dollar relatively artificially low prevents potential panic, meaning a more stable currency. That’s the theory anyway.

 
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Posted by on December 19, 2013 in Uncategorized

 

Argentinian Reaction to the Death of Margaret Thatcher

Translation: The Falklands were, are, and will be Argentina’s. Dead Heros of the War Live Without Identity

Translation: The Falklands were, are, and will be Argentina’s. Dead Heros of the War Live Without Identity

The more negative reactions to the death of Margaret Thatcher has led to street parties in London and Glasgow, gloating graffitti in Belfast and a Wizard of Oz song coming close to topping the charts. One of Thatcher’s most important achievements was the defeat of Argentina in the Falklands War. So, 31 years after the conflict, how have Argentinians reacted to the death of Margaret Thatcher?

“I didn’t react with euphoria to her death, just with the thought that a person that for us is synonymous with death is now gone”, says Ruben Alberto Velozo, an Argentinian veteran who served during the Falklands War.

“This nefarious character, a murderer, would commit the same crimes today if she was still alive”.

Without a doubt the Falklands War defines Argentinian understanding of the former leader. A war which is still at the forefront of many people’s minds. Streets and shops in Buenos Aires are called ‘Los Malvinas’ ( the Argentinian name for the islands), many street corners have graffitti about the conflict, while all country-wide maps include the islands under the blue-and-white flag of Argentina, not as British territory.

Ruben Alberto Velozo, an Argentinian War Veteran

Ruben Alberto Velozo, an Argentinian War Veteran

“I don’t know much about Thatcher as a Prime Minister, but I know she had little interest in the Falklands in 1980, then suddenly took a big interest in 1982 when the British press were questioning her”, says Cristian Iriart, who runs one of the ‘Las Malvinas Son Argentinas’  (The Falklands are Argentina’s) facebook pages.

The page has 287,000 ‘Likes’ on the social networking site and says he set it up because “I felt the need to pay homage to the heros of the war who fought to defend our country. It’s the least I could do for them”.

“I’m not happy about her death. She’s a human being just like all of us. But divinity will bring her the punishment she deserves”.

An opinion shared by the Falklands veteran. “There will surely be another place where the murders, cunning and treachery against defenceless people during the war will be judged”.

Velozo was an Argentinian conscript soldier during the war. He was a part of the original invading forces who arrived on the Falklands on April 2nd, 1982 under what the Argentinians termed “Operation Rosario”.

“I was one of the rare few who had the privilege to lower the pirate flag of England and raise the blue and white of Argentina in our beloved Malvinas”, he says.

He lost two friends from the original invasion. “Captain Pedro Giachino and soldier Almonacid, the first heros of the war”.

Iriart, meanwhile, points to the most controversial moment of the war –  the sinking on the Belgano light cruiser on May 2nd, 1982 – which claimed the lives of 323 Argentinian servicemen, half its total casualties of the war.

Pedro Malbonado, who was happy to hear of Thatcher’s Death

Pedro Malbonado, who was happy to hear of Thatcher’s Death

“She took an active role in the Falklands war and ordered the attack with torpedoes on the cruiser ARA General Belgrano, which was outside the maritime exclusion zone”.

31 years after the ending of the conflict, the dispute over the Falklands continues. On January 2nd, the Argentinian President, Christina Fernández de Kirchner, published an open letter to David Cameron saying “Britain, the colonial power, has refused to return the territories to the Argentine Republic, thus preventing it from restoring its territorial integrity.” The British PM rejected the claims.

On the streets of Buenos Aires, few felt sadness at the Iron Lady’s passing. “I was happy to hear the news”, says Pedro Malbonado (54). “She was very tough. She was very militant and made decisions like the sinking of the Belgrano which were very aggressive”.

“I have a very bad opinion of her because of the Falklands”, says Adriel Gusmai (28), an architect from Buenos Aires. “I wouldn’t say that I’m happy over the death of someone, but definitely when I heard the news there was some joy”.

Two British tourists currently visiting Buenos Aires also said no tears were shed when they heard the news. “I wasn’t really bothered when I heard the news to be honest. It makes you think of the past”, says Neil Hinde (41).

“I’m sort of glad that she’s dead to be honest. I know that sounds horrible”, says Imogen Smith (19).

Neil Hinde and Imogen Smith from Britain

Neil Hinde and Imogen Smith from Britain

Hinde looks back on the Falklands War with a degree of bewilderment. “I don’t just understand why we have them [the Falkland Islands]. It’s like them coming over to us and saying ‘we want the Isle of White’”.

Despite the timing of their visit and the general hostilities on a political level, the British tourists haven’t had any major issues with Argentinians. “I had one bad reaction when I told someone I was British, but either than that, it’s been absolutely fine”, says Hinde.

The diplomatic spat between the two countries has continued. The family of Margaret Thatcher specifically requested the Argentinian President not be invited to the funeral. An Argentinian government minister responded to the snub by saying “What do we care? We weren’t going to go anyway.”

 
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Posted by on December 19, 2013 in Uncategorized

 

Maduro Wins as the Revolution Rolls On

Marchers Hang Hugo Chávez Banners Near the Venezuelan Embassy in Buenos Aires

Marchers Hang Hugo Chávez Banners Near the Venezuelan Embassy in Buenos Aires

With Venezuelans just hearing the announcement of Nicólas Maduro as their new President, the choice made over Henrique Caprilles will resonate far beyond the confines of the South American country. Its former leader, Hugo Chávez, was one of the world’s most charismatic rulers and offered the world a different path to neo-liberal capitalism. It offered hope to left-wing enthusiasts that their ideals can succeed in practise. But what did Chávez’s Venezuela actually achieve and how long can it last?

Late into the night the drums beat, people sang and flags waved outside the Venezuelan embassy in Buenos Aires. Upwards of 1,000 people had gathered to make their voices heard on Venezuela’s second election night in less than six months.

The vast majority were left-wing worshippers of former Commandante Hugo Chávez, but few were from the homeland of their hero. There were Argentinians, Colombians, indigenous Bolivians and Uruguayans joining the ranks of the oil-rich nation. The multi-ethnic nature emphasising the importance of this election to Latin America.

Laura Soto from Colombia

Laura Soto from Colombia

“I’m here to show solidarity with the revolutionary process in Venezuela”, says Laura Soto (25) from Colombia. Speculating on a Caprillas victory, she says “Caprillas will bring Venezuela on a neo-liberal path, like in Colombia, Chile, even Peru. That would mean no participatory democracy”.

The winner, Nicólas Maduro, by an extremely tight margin of less than 2%, was the chosen successor of Chávez who died just six months after claiming yet another electoral victory during his 1998-2013 reign.

“There will be no transition. There will continue to be popular democracy in a social democratic country”, says the secretary of the Venezuelan Embassy in Buenos Aires, Juan Romero.

“The creation of a discussion of the relationship of politics across Latin America is the most important result of Chávez’s rule. It has resulted in a new way of thinking”, says Romero.

Its former leader remains an extremely divisive figure worldwide, where his reign points to clear successes and obvious failures

In 1999 when Hugo Chávez came to power the extreme poverty rate in Venezuela stood at 23.4%. In 2011 (according to the most recent statistics), it was 8.5%.

To put this into context, according to the World Bank, an average of 8 per 1,000 people in extreme poverty die each year because they are too poor to stay alive. This would mean in the region of 30,000 lives in Venezuela between 1999 and 2011 were saved as a result of the reduction of extreme poverty.

By any calculation, this is an incredible achievement, which can be put down to Chavez’s Socialist “missions” which invested in the poor in areas of health and education. And this figure is the minimum amount, as unmeasured are indirect causes of death through diseases directly related to poverty such as malaria or tuberculosis.

Compared to its nearest neighbour, Colombia, which has followed a neo-liberal, free market economic path for a number of years and whose main importer and exporter is the United States the statistics under Chávez remain impressive.

Poverty levels – based on the measurement of earnings of less than two dollars a day, “extreme poverty” is less than 1.25 dollars a day – in Colombia stood at 40.2% in 2011, in Venezuela it was 29.5%.

Unemployment stood at 11.2% in Colombia to 7.6% for its neighbour, while Venezuela was also considerably more equal, measuring a Gini Coefficient of 38 to 58.5 (the closer to zero, the better).

In 2011, Venezuela was the most equal society in South America with the fourth lowest level of poverty behind Chile, Uruguay and French Guiana.

“For me, Chávez will be the person who stood up for the people against imperialism”, says Caroline Lister, an Argentinian at the march outside the Venezuelan embassy.

Juan Romero, Secretary at the Venezuelan Embassy in Buenos Aires

Juan Romero, Secretary at the Venezuelan Embassy in Buenos Aires

In Colombia’s favour, it has a considerably lower level of inflation, 2.6% to Venezuela’s 30.6% and a more stable currency, where the black market dollar rate on the streets of Caracas reaches 25-1 with the official at 5-1.

It is important to keep in mind though that Colombia has nowhere near the wealth of resources Venezuela has. With the largest oil reserves in the world, Venezuela boasts a competitive advantage in this respect, although this by no means results in the wealth being passed on to its citizens. For confirmation of this, you need only take another look at the poverty levels before Chávez came to power

One of the world’s foremost academics, Noam Chomsky, has consistently hailed Chávez’s reign because he was the first Venezuelan leader “to give the oil back to its people”, although in more recent years has been more critical accusing Chávez of “amassing too much power in his own hands”.

Nonetheless, despite glowing statistics in certain sectors, Chávez’s reign has been vilified in large swathes of Western media since his death. The Economist magazine summed it up as “The Rotten Legacy” mourning the lost opportunity to install a neo-liberal regime during the mid-nineties, instead of the “brutish dictatorship” of Chávez.

Like his successes, there’s a vast swathe of glaring failures and questionable actions during his reign, too many to mention in an article of such length.

The most obvious is the rise in violence, with its capital, Caracas, becoming the most dangerous city in the world in 2011. There is a degree of unfortunate irony that while the amount of people dying of poverty has dropped, those killed in violent attacks has soared. 3,488 homicides were committed in Caracas alone in 2011.

“It is like a war. No other country in the world has this level of violence. This is solely the responsibility of Chávez. It’s a horrible situation”, said a Venezuelan student living in Buenos Aires who requested not to be named.

Another area consistently questioned during the Chávez reign is the concept of democracy. With days to the election, the opposition candidate, Henrique Caprillias, was shouting “fraud” due to the vast swathes of access to public money Maduro had for the campaign and the bias of state television. He also called foul on election night over what he described as “voting irregularities”.

Caroline Lister from Argentina

Caroline Lister from Argentina

The voting irregularities claims run contrary, though, to the judgements of the Carter Centre, a non-profit organisation set up to monitor election processes run by former US president Jimmy Carter. It concluded Venezuela’s fully-automated electoral system “of the 92 we’ve monitored, is the best the world”.

Others point to the silencing of the media as well. The main private television station, RCTV, had its request for license renewal in 2007 rejected. Critics suggested this was an encroachment of freedom of speech, while Chávez claimed the station was spewing propaganda and lies against him.

Nevertheless, there seems little doubt Chávez was intent on silencing his harshest critics. Stories of intimidation persist with the most notorious example being that of the imprisonment of María Lourdes Afiuni, a judge, who was jailed after she let go a Venezuelan banker on trial for corruption charges.

The Venezuelan economy remains vulnerable as well with many economists predicting it will go bust within the short-term. Inflation is high at 32%, while citizens have little faith in their own currency which means capital flight for those who can save. Of course, those issues are primarily the concern of the middle-class. The poorer classes, where Maduro got his core vote, have subsidised supermarkets and little savings.

With six more years of the “Bolivarian revolution”, the world has a somewhat erratically functioning version of socialism. Its middle-classes despise it, its poorer classes adore it. Since Lehmann Brothers crashed in 2008, many worldwide have searched for a viable alternative to the unequal, wealth-obsessed, rich-concentrated neo-liberal economic model. If Venezuela’s revolution can hold, maybe the world has found another way.

Interviews conducted with the help of Katherine Mora

 
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Posted by on December 19, 2013 in Uncategorized