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Fiscal Crisis Gives Argentines Familiar Sinking Feeling
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Orders for
bikinis are down by more than 15 percent at the
Innocenza factory in Buenos Aires. |
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BUENOS AIRES (By Alexei
Barrionuevo, NYTimes) November 14, 2008 — Along the cobblestone streets of the
Palermo neighborhood, a mecca for this city’s hippest restaurants, the outdoor
tables are still full most nights and the red wine flows freely. Signs of the
global financial meltdown are not always obvious in a country conditioned by
past economic traumas to live for the moment.
But even here in Palermo, where tourists and well-heeled Argentines come to
play, Manoj Menghani, the owner of two Indian restaurants, is quietly preparing
for the worst.
With summer in South America a month away, Mr. Menghani is among a growing
number of Argentines who are stockpiling dollars amid worries that their
government’s economic policies have doomed them to yet another financial crisis.
A steep fall in commodity prices and the global credit crunch are affecting much
of Latin America. But Argentina is widely considered to be among the countries
in South America most vulnerable to recession or other financial shock because
of its government’s stewardship of the economy.
It saved far less than neighbors Chile and Brazil did during the recent
commodity boom, and the Peronist government of President Cristina Fernández de
Kirchner has lost credibility with international markets for its populist
politics, lack of financial discipline and questionable government data on the
economy.
Argentines are pulling money out of the country’s banking system at a pace that
has alarmed some economists, stoking potentially self-fulfilling fears of
another crippling default on international debt that could bring Argentina’s
seven-year economic expansion to a screeching halt.
Six months ago, when the country’s farmers were waging a protracted battle with
the government over export taxes, Mr. Menghani started to convert almost all his
money from Argentine pesos to dollars. Today, he keeps just enough in the local
currency to pay salaries and cover his other expenses.
“We think the real crisis could hit Argentina in two or three months,” Mr.
Menghani, 47, said. “Argentines are very skeptical of the summer. They always
seem to have crises in the summer.”
After a period of relative prosperity and renewed confidence, Argentines are
living through another moment of uncertainty. The failed effort to raise taxes
on farmers, and now a move by Mrs. Kirchner to nationalize some 86 billion pesos
(nearly $26 billion) in private pension funds, has raised fears that the
government is short on cash. Mrs. Kirchner said the pension takeover was
necessary to safeguard retirees’ savings from turbulence in the global economy.
But the move, which requires legislative approval, has alarmed international
investors, who see it as an admission that the government will grab whatever
cash it needs to avoid losing political support before regional elections next
year.
Now Argentines are getting that familiar feeling of being let down by their
government again. Millions were caught flat-footed in December 2001, when the
government tried to limit withdrawals of bank savings. The measure backfired,
causing a panic as Argentines rushed to pull out whatever they could. The
country then defaulted on billions of dollars of loans, and the government
sharply devalued the currency. An economic malaise pushed more than half the
country below the poverty line by late 2002, before a strong recovery began.
These days, there are browsers but few buyers at the Innocenza beachwear shop in
the garment district. Its orders for bikinis are off by more than 15 percent.
“This is very frustrating, because we prepared hard for the season,” said Ariel
Fritzler, the company’s commercial director. “People are paralyzed with
uncertainty; they don’t know what to do. There is a definite feeling that 2001
could happen again.”
In many ways, Argentina is still living out the consequences of its last
economic crisis. The previous government of Néstor Kirchner, Mrs. Kirchner’s
husband, complicated matters by keeping utility prices artificially low and,
more recently, “fudging” inflation figures to try to maintain popular support
and avoid higher debt payments, said Rafael de la Fuente, chief economist for
Latin America for BNP Paribas.
“Although you could see the cracks in the edifice, it was going O.K. until we
had this credit crunch,” Mr. de la Fuente said. Now, “people are losing faith in
the government’s ability to fund itself,” he said.
At least $16 billion in private capital left Argentina in the first nine months
of this year, economists said. During the farmers’ strike, from May to August,
$8.4 billion was pulled out, even more than during the same period in 2001, said
Dante Sica, the director of abeceb.com, an economic consulting firm here.
When times are tough, Argentines seek refuge in American dollars. Everyone
obsesses over potentially counterfeit pesos, holding bills up to the light to
check for seals and watermarks.
“Nobody here trusts our currency,” said Néstor Coria, a waiter. “If you want to
buy a car or a bicycle, you try to do it in dollars.”
Mr. Sica said he believed that the government’s decisions were affecting the
mood in the country more than global economic woes. When Mrs. Kirchner announced
her plan to take over the pension system last month, car sales in Argentina
plummeted by some 30 percent in one week, he said.
The signals the Argentine government is sending stand in stark contrast to
Brazil and Chile, where leaders have made almost daily announcements to calm
markets and head off recession. Last week, Michelle Bachelet, Chile’s president,
said her government would spend $1.15 billion in reserves to expand credit for
businesses and bolster home sales, adding to $850 million in stimulus spending
announced in October.
Brazil says it is spending billions of dollars to help its major export
industries and is prepared to spend up to $50 billion more to defend the
country’s currency.
In Argentina, the Kirchner government has used some reserves to try to limit the
peso’s decline and has tried to stem the outflow of money. Then on Tuesday, the
president announced efforts to bolster fuel production.
But Mrs. Kirchner may have limited options. Government subsidies on gasoline and
electricity have ballooned to about $8 billion this year from about $5 billion
last year. And the country will owe $12 billion in minimum debt payments alone
next year, economists said.
Beyond that, Argentina’s checkered history with lenders has disqualified it, for
now, from getting a short-term loan from the International Monetary Fund as part
of the global aid package the fund announced last month, according to Dominique
Strauss-Kahn, managing director of the I.M.F. Nor is the government likely to
ask for one, since it would require the kind of severe changes it has been
unwilling to make, economists said.
“It seems that Argentina is in the middle of its own trap, trying to resolve a
big dilemma: a recession in the short run, with an I.M.F. adjustment program, or
take the risk of default in the medium term,” said Alfredo Coutiño, senior
economist for Latin America at Moody’s Economy.com.
Officials at Argentina’s Economy Ministry did not respond to repeated requests
for interviews. Government officials have played down the country’s fiscal
problems in recent months, insisting Argentina will not default.
But with the Senate due to vote on Mrs. Kirchner’s pension plan in the next
week, Argentines have filed lawsuits defending their right to the money, while
foreign holders of some of the government’s defaulted debt have persuaded courts
— including in New York — to freeze some of the pension funds’ accounts.
Here in Palermo, Mr. Menghani said sales at his restaurants had dropped 12
percent in the past month. He has already laid off two employees.
He also knows that he could be contributing to the strain on Argentina’s banking
system by converting so much of his money into dollars.
“It’s a Catch-22 situation,” he said. “But the government was sending some wrong
signals, and I decided to be cautious. They did not give me much of a choice.”
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Grupo Jon Garrido
Global Economic
Development Services
Phoenix, Arizona,
USA
Jon@JonGarrido.com
602.244.1000 |
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