“I never changed my opinion on Bergoglio” -Adolfo Pérez Esquivel
By Arturo C. PorzecanskiNovember 12, 2013Carlos Mauleon, the former Barclays Capital investment banker who handled Argentina’s 2005 debt restructuring, recently wrote a guest post on beyondbrics justifying that infamous transaction: “Whatever you may think of Argentina, … the one good decision its leaders made was to aggressively restructure [the public] debt back in 2005” because “the question is, did [Argentina] have a better choice? Not really.”But it did. Here’s why.After discussing the case of Greece in 2011-12 and its supposed relevance to Argentina’s situation in 2005, Mr Mauleon concluded with a plea that while “the rhetoric and economic policies of the Argentine government post restructuring muddle the justification of their approach and provide ample ammunition for the holdouts, the courts as well as public opinion to throw the country under the bus,” we should refrain from doing that, at least in our minds.However, it was Argentina that threw its creditors under the proverbial bus a dozen years ago – and needlessly so.To recall, President Eduardo Duhalde stopped debt-service payments to bondholders and official bilateral creditors in January 2002, and in the sixteen months that he was in office, he never reached out to his local and international investors to explain himself – never mind to work out collaboratively on a solution to cure the default. By the time he stepped down at the end of May 2003, and his elected successor Néstor Kirchner took the reins of power, next-door Uruguay had already successfully refinanced its public debt in a creditor-friendly manner without ever missing a single payment – and despite having had to face fiscal, currency, banking, and economic shocks fully comparable to those in Argentina.Second, President Kirchner took another twenty months until he finally presented bondholders with a punishing, take-it-or-leave-it debt exchange offer – a delay of three years since January 2002 intended to encourage creditor capitulation to whatever proposal Argentina would finally put on the table. His economy minister at the time, Roberto Lavagna, went so far as to announce that the government would regard any investor participation rate above fifty percent as having effectively cured the country’s default. The clear implication was that even if nearly half of all bondholders failed to accept the terms of the ruinous debt exchange, they would be ignored and go unpaid. To ensure that the message was heard loud and clear, the government passed a law forbidding the reopening of the debt exchange in the future – the so-called “Lock Law” which has been cited by the courts as evidence of the country’s ill will.Third, Argentina’s economy was sufficiently recovered by early 2005, largely thanks to a commodity export boom, such that the government only needed a modest amount of debt-service relief from its creditors. For example, the country’s official international reserves had doubled from early 2003 to early 2005, from under $10bn to over $20bn, and so had government tax revenues measured in dollars between 2002 and 2004. And yet, the authorities pleaded on-going and future poverty by referencing a proprietary debt-sustainability model which failed to reflect the strong economic rebound underway, incorporated excessively pessimistic forecasts, and was never validated – never mind endorsed – by the IMF, as was customary in prior sovereign debt restructurings. During 2006-12, the economy ended up growing twice as fast as the government’s estimates as of late 2004, with actual export earnings and tax revenues outperforming official gloomy forecasts by even wider multiples.The good news about Argentina’s economic and fiscal recovery of 2003-04 began to circulate around the international investor community, and thus the credibility of the government’s plea to be treated as if the country was still in the midst of an economic emergency started to erode. The improvement in Argentina’s capacity to pay was already so evident by early 2005, when the government put its demand for massive debt forgiveness on the table, such that one-fourth of the bondholder universe (by par value of claims) refused to enter into the debt exchange. The holdout component would surely have been larger still if the authorities had not intimidated the investor base as aggressively as they did, encouraging large-scale creditor capitulation.Therefore, it should be crystal clear that Argentina and its financial advisors did have much better choices: they should have put forth a more reasonable and credible proposal based on consultations or negotiations along the lines of the Uruguay refinancing; better yet, they should have done so much earlier (say, in 2002) to restore their reputation and thus their access to the world’s financial markets.By early 2005, the government had the financial wherewithal to put forth a debt exchange that would have been viewed as realistic and thus fair, because it captured the strong economic recovery and the favourable winds that were blowing in Argentina’s direction at the time. Such a proposal could have gathered the usual degree of support (around 95 per cent, as per many other sovereign debt restructurings), minimizing any holdout problems. However, for domestic political reasons, the authorities chose to default and then exhibited protracted unwillingness to pay, choosing a confrontational path which has haunted Argentina and its creditors to this day.It has set such a bad example that no other nation has dared to follow it since.Professor Arturo Porzecanski is Director of the International Economic Relations Programme at American University, Washington DC. During 2000-2005, he was a managing director and the head of emerging markets sovereign research at ABN Amro.By Eliana RaszewskiNovember 12, 2013Eric Francos, a French doctor on a three-week vacation with his wife and two children, was huddled off to one side of a pedestrian thoroughfare clogged with shoppers in downtown Buenos Aires, taking $100 bills out of his money belt as illegal money-changers beckoned with calls of “dollars, euros, exchange.”“I know the risks, but so far I’ve never had problems, I try to be careful,” Francos, who plans on touring vineyards in the province of Mendoza, which lies 1,100 kilometers (680 miles) west of the Argentine capital and is renowned for its Malbec wine, said last week as he stuffed pesos into his front pants pocket. “Changing dollars in the streets is worth it.”Tourists like Francos, who got 9.7 pesos per dollar compared with 5.9729 at the official rate, are turning to the black market to obtain local currency and shaving as much as 40 percent off their vacation costs. They’re also depriving the central bank of the foreign reserves the government uses to pay its debt, which is the most expensive to protect against non-payment anywhere in the world using credit-default swaps.Visitors who spent $622 million during the second quarter sold only $342 million through official channels including banks, a 48 percent plunge from a year earlier, according to government data.Last month, in an attempt to get more dollar inflows into the country, the government said Argentines who bring in foreign currency to pay taxes will be exempt from a bank deposit requirement.Reserve PlungeLured by a widening gap between official and illegal exchange rates as President Cristina Fernandez de Kirchner tightens limits on foreign-currency purchases, tourists are contributing to the longest stretch of reserve declines in at least two decades and helping to reduce dollars held at the central bank to a six-year low of $33.05 billion.“The numbers show that tourists are changing their dollars in the illegal market to take advantage of the higher rate,” Belen Olaiz, who wrote a report on the illegal market for Abeceb.com research firm, said in a telephone interview from Buenos Aires.An official at the central bank didn’t return phone calls seeking comment on the decline in reserves.Reserves cover 27 percent of outstanding foreign-currency debt, the lowest in seven years, according to Orlando Ferreres y Asociados.Arbolitos, CavesArgentina has been unwilling to pay borrowing costs that are almost double the average rate for emerging markets to tap global credit markets since its 2001 default on $95 billion of debt. In 2010, Fernandez ordered the central bank to pay investors who received bonds in two restructurings with reserves.Since then, the government has drawn down more than $39 billion of central bank funds to pay debt, contributing to an unprecedented streak of 12 straight months of declines in reserves.The country is using reserves to reduce its debt levels, which have fallen in the past years, said an official at the Economy Ministry with direct knowledge of the mater who asked not to be named due to internal policies.The country’s foreign-currency debt held by private creditors fell to 9.3 percent as of June 30, from 11.9 percent at the end of 2010, data compiled by the Economy Ministry show.‘Blaming Tourists’Tourists who change money illegally face the risk of receiving fake bills or being robbed. Street money-changers, known colloquially as “arbolitos,” Spanish for “little trees” because they’re like a fixed part of the landscape, often ply their trade within a few yards of policemen.An alternative is to visit one of the small shops or back-street offices known as “caves” that use tourist agencies or dealerships in antiques, gold and coins as a front for trading currencies.Sanctions for illegal currency trading range from a fine of 10 times the transaction if it’s the first time a person is caught to as many as eight years in prison.Some shops and restaurants accept foreign currency as payment, giving clients more for their dollars or euros than they would get at a bank or using credit cards.Pablo Romano, a 24-year-old employee in a clothing store on Florida Street, where Francos exchanged dollars for pesos, says he offers tourists who make purchases an exchange rate of nine pesos per dollar.Foreign Investment“We shouldn’t be blaming tourism for the drop in reserves rather government policies,” said Jose Luis Espert, who runs research firm Espert & Asociados in Buenos Aires. “High public spending makes the government print more pesos which Argentines don’t want.”Foreign-direct investment in Argentina fell 32 percent in the first half of 2013 from the same period a year earlier to $5.2 billion, while investment in neighboring Brazil and Chile was $39 billion and $10.4 billion, respectively, according to the Santiago-based United Nations Economic Commission for Latin America.“What we have in Argentina is a dollar supply problem, not demand,” Ricardo Delgado, director of Buenos Aires-based Analytica Consultora, said in an interview. “The big problem is that we’re not receiving dollars because investors don’t have confidence in the country.”Investors demand an extra yield of 8.23 percentage points over U.S. Treasuries to hold Argentine debt, as of 5:24 p.m. in Buenos Aires, according to JPMorgan Chase & Co.’s EMBI Global Diversified index.Tourism DeficitWith the depreciation of the peso lagging annual inflation that economists estimate has run at more than 20 percent for at least four years, Argentina has become more expensive for foreign tourists.The rising costs have also encouraged greater numbers of Argentines to buy goods abroad while on vacation and to withdraw cash to exchange in the black market at home. While the government slapped a 20 percent charge on the transactions to discourage consumers, the implied rate of 7.176 per dollar is still cheaper than the black market.As a result, the country will run up an $8 billion tourism account deficit, or the difference between what foreign tourists spend in Argentina and what Argentines spend abroad, according to Delgado.Fernandez may act to cut off access to dollars further for Argentines traveling abroad, both Olaiz and Delgado said.“The government may decide to adjust credit cards payments of foreign-currency purchases,” Delgado said. “Still, any ideas the government may have are only palliatives if it doesn’t boost confidence in the country to solve its deeper problems.”For now, Francos, the French doctor, will continue to spend in cash to finance his trip to Patagonia in the south and Salta in the north rather than swipe his foreign bank cards at the official rate.If it weren’t for the cheaper rate, “many items are as expensive as in Europe,” Francos said.By Whitney McFerronNovember 12, 2013Argentina, the world’s biggest biodiesel exporter, is increasing shipments of the fuel on stronger U.S. demand, Oil World said.Argentine exports of biodiesel made from soybean oil will climb to 450,000 metric tons in the three months through December, more than double the year-earlier 221,000 tons, the researcher said today in an e-mailed report. The U.S. may account for two-thirds of purchases from September through the end of the year, it said. Argentina’s biodiesel production this quarter may jump 57 percent from a year earlier to 670,000 tons.“The U.S.A. has become the leading export destination for Argentine biodiesel,” Hamburg-based Oil World said. “A large part of the U.S. biodiesel imports is destined for re-export to African and Asian countries.”U.S. biodiesel output rose to a record 128.3 million gallons in August, according to the most recent monthly data from the Department of Energy. Inventories of soybean oil used to make the biofuel fell to an eight-year low of 773,000 tons at the end of the 2012-13 season on Sept. 30, and supplies may slide further to 741,000 tons by the close of 2013-14, the U.S. Department of Agriculture estimates.Argentina’s annual biodiesel exports still will decline in 2013 to 1.224 million tons from 1.558 million tons a year earlier, Oil World said. Shipments to the European Union tumbled as the 28-country bloc made plans to institute anti-dumping tariffs on both Argentine and Indonesian biodiesel, the researcher said last month.Argentina’s government may raise its mandate for domestic biodiesel usage, with the Ministry of Industry calling for a 10 percent blend level in fuel by the end of the year, according to Oil World.In Indonesia, biodiesel exports dropped 22 percent from a year earlier to 118,000 tons in August, Oil World said. Shipments in 2013’s first eight months were still a record 1.04 million tons, 12 percent more than the prior season, according to the report.12 November 2013The following is a press release from Standard & Poor’s:– On July 4, 2013, we placed our global scale ratings on the four rated Argentinean local and regional governments (LRGs)–the city of Buenos Aires, and provinces of Buenos Aires, Cordoba, and Mendoza–on CreditWatch negative after lowering the institutional framework assessment score on Argentinean LRGs.– On Sept. 13, 2013, we lowered the foreign currency global scale ratings on these entities to ‘CCC+’ from ‘B-’ after Argentina’s downgrade. We maintained the CreditWatch negative listing on the ‘B-’ local currency global scale ratings on these entities until we concluded the assessment on whether any of them could comply with the requirements to be rated above the sovereign.– We now believe that neither the provinces of Cordoba, Buenos Aires, or Mendoza fulfills the necessary conditions to be rated above the ‘CCC+’ local currency sovereign rating. Consequently, we are lowering our local currency global scale ratings on these three provinces to ‘CCC+’ from ‘B-’. The outlooks are negative.– On the contrary, we consider that the city of Buenos Aires presents a measurable likelihood that its credit characteristics will remain stronger than those of the sovereign in a scenario of economic and political stress. Consequently we are affirming our ‘B-’ local currency global scale rating on the city. The outlook is negative.BUENOS AIRES (Standard & Poor’s) Nov. 12, 2013–Standard & Poor’s Ratings Services lowered its local currency global scale ratings on the provinces of Cordoba, Buenos Aires, and Mendoza to ‘CCC+’ from ‘B-’ and removed them from CreditWatch negative. The outlooks are negative. At the same time, we affirmed our ‘B-’ local currency global scale rating on the city of Buenos Aires and removed it from CreditWatch negative. The outlook is negative.“These rating actions follow the Sept. 10, 2013, downgrade of Argentina to ‘CCC+’ from ‘B-’ and our subsequent assessment of characteristics of each LRG and their capacity to withstand a sovereign scenario of default,” said Standard & Poor’s credit analyst Delfina cavanagh.According to our criteria, the local currency global scale ratings on Argentinean LRGs could be above the sovereign ratings if there’s a measurable likelihood that their credit characteristics will remain stronger than those of the sovereign in a scenario of economic or political stress. At the same time, given that the sovereign is rated in a low-speculative grade, we incorporate additional specific considerations, because we have more visibility on the potential sovereign default scenario at this rating level.Conversely, the foreign currency global scale ratings on Argentinean LRGs are capped at the sovereign’s current transfer & convertibility (T&C) level of ‘CCC+’. Consequently, we cap our foreign currency global scale ratings on all Argentinean LRGs at ‘CCC+’.12 November 2013Argentina reached 7.3mn fixed and mobile connections at the end of the first half of the year, an increase of 1.78% compared to end-2012, according to the latest broadband barometer study released by Cisco.The country saw a 9.9% increase in fixed broadband 2.0 connections (above 2Mbps) in the first half of the year to reach 3.4mn connections. This figure represents a penetration of 8.2%, according to Cisco’s latest Broadband Barometer study, carried out by tech consultancy IDC.Cable modem connections expanded 5.6% during the first half of the year, while xDSL connections grew 1.7% during the same period, according to Cisco’s barometer. These two technologies represented 98.6% of total fixed broadband connections at end-June.The report also stated that 55.4% of total fixed broadband connections in the country had access speeds of over 2Mbps.Meanwhile, mobile broadband connections totaled 1.2mn at the end of June, or 16.2% of total broadband accesses in the country. Mobile broadband connections declined 5.3% in the first half of the year, according to the study.Cisco’s study also forecasts a total of 9.2mn fixed and mobile broadband connections by 2017. Mobile connections will account for 11.2% of total connections.Cisco’s country manager for Argentina, Gabriel Sakata, told BNamericas that the relatively low number of devices for fixed broadband 2.0 connections is limiting growth in this segment. According to Sakata, the number of available devices for this technology is lower than in other countries in the region.Sakata also said that connection speeds in Argentina are still slower compared to other countries such as Brazil and Chile. The average connection speed in the country is 2.4Mpbs. Sakata said that ISPs are currently offering higher access speeds maintaining the same tariffs for subscribers.The executive also highlighted that some provinces in the country still lack sufficient infrastructure for broadband services. However, he added that fixed, mobile and cable operators have been significantly investing in backbones.By Pete SeppNovember 12, 2013Amid all the recent political brawls between the White House and Congress over government funding for the current fiscal year and the federal debt ceiling, many Americans likely haven’t noticed that other nations’ financial practices can be much worse, while still impacting their wallets here at home. That’s why the National Taxpayers Union, along with 14 other groups in the limited government movement, wrote to Congress last week to draw attention to the alarming news that the World Bank is considering $3 billion in new loans to Argentina.In the letter, which was co-organized with the Taxpayers Protection Alliance, we urged Congress to send a strong message to the administration to oppose these World Bank loans, and for the U.S. Treasury to withhold funding from the bank if it continued to underwrite “financial rogue” states like Argentina. Such a stance is especially important, given matters such as:Argentina’s continual defiance of the U.S. judicial system: Argentina’s economic and political leaders, who have mired their nation in statist, anti-free-market policies, have expressed they would rather default than abide by U.S. court determinations. To date, the government of President Cristina Kirchner has actively ignored more than 100 such judgments, totaling billions of dollars. And in a new video clip Argentina’s counsel is seen telling the U.S. Second Circuit Court of Appeals that Argentina “would not voluntarily obey” their rulings.Argentina’s continual defiance of its international obligations to investors and lenders: According to the Financial Times, “of a total of 439 legal disputes between countries and companies at the World Bank tribunal, no fewer than 50 involve Argentina – far more than anywhere else, with socialist Venezuela lagging some way behind in second place.” Many companies that hold International Center for Settlement of Investment Disputes claims against Argentina are American. While Argentina just settled five of its ICSID cases last month, 45 cases remain outstanding, in addition to unresolved debts with the Paris Club, various nationalizations and ongoing censure by the International Monetary Fund for failure to comply with basic obligations.Argentina’s currency policies which, some say, have the effect of actively encouraging money laundering within its borders: During the summer, the Argentine government allowed its residents to trade in their U.S. dollars, which are running short, for a new “pseudo currency” and receive tax amnesty while doing so. International observers criticized the plan as a way to legalize dirty money. The Financial Action Task Force, the inter-governmental body developing and promoting policies to combat money laundering and terrorist financing, determined this month that Argentina will remain on its “grey list” for the time being, alongside the countries of Afghanistan, Angola, Cuba and Sudan.These are just some examples of how Argentina’s misconduct impacts American investors, taxpayers, and international rule-of-law. It’s therefore no wonder that advocates of limited government have long expressed concerns about our Treasury helping to prop up these bad actors.To give just one example, NTU submitted comments in 2010 to the New York Legislature, which was holding hearings on the impact of the 2001 Argentinian default on its debts. At the time, we noted that “Argentina’s pattern of fiscal irresponsibility and economic mismanagement has left U.S. taxpayers to shoulder the burden of such recklessness, and has exacerbated the already battered and fragile state of our own economy. Repayment of Argentine debt in full is the only option to relieve the misery caused by Argentina’s negligence.” In 2012, NTU released a study authored by Alex Brill and James K. Glassman calling for a restructuring and reform of the G-20, a multi-country economic policymaking forum. Utilizing a rational set of data-driven criteria, Brill and Glassman recommended that four nations, including Argentina, be removed from G-20 and replaced with others.The United States has a reputation to uphold in opposing future lending to Argentina. Following the adoption of a U.S. policy in 2011 to oppose all multilateral development banks’ lending to Argentina, several other nations followed suit, including the United Kingdom, Spain, Germany, Japan, the Netherlands and Canada. It remains in American taxpayers’ best interest for this policy to continue while Argentina chooses to behave like an international scofflaw in the financial sphere.November 12, 2013Neuquen Province in Argentina has extended the exploration period for the Roch SA-operated Coiron Amargo Sur block by 1 year until Nov. 8, 2014, said 35% working interest owner Madalena Energy Inc., Calgary.The northern part of Coiron Amargo, known as Coiron Amargo Norte, is under a 25-year exploitation concession that the province approved in 2012.The extension provides the four-company group time to satisfy remaining work commitments, Madalena said. After satisfying these, the partners have the ability to extend Coiron Amargo Sur through further exploration, evaluation, and exploitation phases.Madalena said the group has reentered the CAN.XR-2(H) well and is drilling horizontally in the Sierras Blancas light oil reservoir. This is the first horizontal well drilled into one of the six Sierras Blancas conventional light oil pools discovered on the block to date.After this well, the group plans to drill an additional Vaca Muerta shale delineation well (CAS.x-15) in the southern part of the block.Coiron Amargo interests are Roch and Gas y Petroleo Neuquen SA 10% each, Apco Oil & Gas International Inc. 45%, and Madalena 35%.8. DENNIS BURNS WAITS FOR ARGENTINIAN SUPREME COURT TO RULE ON RETURN OF ABDUCTED DAUGHTERS (The Huffington Post)November 12, 2013In what is probably every divorced parent’s worst nightmare, a Colorado father has been waiting for over three years to have his abducted children returned to the United States.Dennis Burns’ two daughters were kidnapped by their mother to Argentina after a judge denied her request to relocate to the country with their children, and now there is no immediate end to their custody battle in sight and the Supreme Court of Argentina has even been asked to weigh in.In 2009, Burns and his ex-wife Ana Alianelli initially agreed to keep their divorce “amicable” for the sake of their two daughters when they split up after five years of marriage. But Alianelli soon claimed Burns had abused her and requested to take their children with her to Buenos Aires, Argentina.A judge later ruled that Alianelli’s claims of abuse were unfounded and ordered that Burns be the primary residential parent. In that ruling, the judge ordered the girls — Victoria and Sophia, who were ages 3 and 1 at the time — to remain with Burns in the United States.“I felt a sense of relief that was just beautiful,” Burns told CNN of the decision. “And I was like, ‘I’m going to be able to spend time with my daughters, finally, and live with them and be able to teach them things, and show them things, and live here with them in Colorado.”But three weeks later, Alianelli defied the order and took the girls to Argentina.The U.S. State Department says they receive about 1,200 new cases similar to Burns’ each year.According to Burns’ Facebook page “Return Burns Children Fund,” Burns has already contacted the FBI, the U.S. Attorney General’s Office, the U.S. State Department and the National Center for Missing and Exploited Children.Even though the judge signed an order for the immediate return of the Burns children to the United States, the U.S. State Department has told Burns it could take 18 months to years to get his daughters back.From the U.S. Department of Justice’s website:Under federal law, prosecutors may investigate and prosecute the parent who kidnapped the child. However, prosecutors generally have no control over the custodial decisions affecting the kidnapped child or if foreign authorities will order the return of the child.The return of kidnapped children is often settled through negotiation. The U.S. Department of State handles the coordination of efforts with foreign officials and law enforcement agencies to effectuate the return of children to the United States. In some circumstances, the return may be governed by the Hague Convention on the Civil Aspects of International Parental Child Abduction (1980).The Hague Convention only applies if both of the countries involved in the child abduction case are signatories to the Convention — the U.S. and Argentina are — but there have been significant delays to the proceedings. While an appellate court in Buenos Aires ruled in favor of Burns, Alianelli appealed it and the case is now headed to Argentina’s Supreme Court.A study on parents who abduct their children from the UK by the National Parents Organization found that an astounding 70 percent of the abductions are committed by mothers.“It’s such an isolated feeling. There’s nothing to soothe the pain and the hole in my heart,” he told The Aspen Times. “I’m in unchartered waters here. I’ve always had a pretty blessed life.”Burns has been able to see his daughters since, but he’s had to travel to Argentina to do so and last time the visit was cut short by Alianelli and her lawyer.Burns has also enlisted the help of another dad, David Goldman, who went through a similar ordeal in 2004 when his son was kidnapped by his Brazilian-born mother. He ended up spending upwards of $700,000 to get his then 8-year-old son Sean back.In Burns’ case, his home has already been foreclosed and he claims on his website that he was forced to declare bankruptcy after accruing so many legal fees. He is now asking the public for donations to help him secure his daughters’ return.The financial aspect is something that I hate to face and realize at times, because it almost seems secondary to the concept that the girls are the most important focal point. But it simply cannot be ignored that unfortunately, this international incident is extremely costly. I personally know other left behind parents who have given up on trying to have their children returned after being kidnapped. Each time it has been financial constraints which have left these parents facing the unthinkable. I have cried many tears speaking with these parents and have a paralyzing fear that this quest for justice in the name of the best interests of my daughters can end due to lack of financial ability.By Ian MountNovember 12, 2013Jess Jackson, a San Francisco lawyer, changed the face of US winemaking when he founded the Kendall-Jackson company in California in 1982. By the time he died in 2011, the man behind the slightly sweet Kendall-Jackson Vintner’s Reserve Chardonnay was a billionaire producing more than 5m cases a year.Yet, in spite of considerable investment, Jackson was never able to repeat his success in Argentina.In 1996, he bought 1,100 acres in Mendoza’s Uco valley, later adding 1,750 acres and a winery, led by Randy Ullom, who ran his Chile operations.But, in 2003, after a series of business missteps and Argentina’s debt default, which caused the peso to lose almost three-quarters of its value, Jackson sold his Argentine business to a Buenos Aires couple for $2.5m – a $5.5m loss on his investment, according to Wine Spectator magazine.Jackson was not the only foreigner to enter the Argentine wine business only to discover that it could be a minefield of hand-shake deals, erratic government policy and economic collapse.“The growth and excitement that Argentina has produced continues to attract people. But Argentina is not an easy-to-deal-with country,” says José Manuel Ortega, the Spaniard who runs Mendoza’s O. Fournier winery.About $1.5bn was invested in the Argentine wine industry in the 1990s, about two-thirds of which came from foreign winemakers. This led to a surge in exports from $128m in 2002 to $920m in 2012, according to the Instituto Nacional de Vitivinicultura, the Argentine wine agency.But high inflation and import restrictions in the past two years illustrate that doing business in Argentina can be difficult. For foreign investors, it is a reminder that success requires creativity and a willingness to do things the Argentine way.It was a shortage of that willingness that hurt Kendall-Jackson.From the start, Kendall-Jackson had problems getting enough water to its land, which was outside Mendoza’s traditional vineyard zone, as well as difficulties importing the US plants it wanted.“There was a way we wanted things done: how to make wine, how to grow grapes, how to do the financial records,” Mr Ullom says. “We’re very strict and have some very focused plans. It’s our way or the highway.” In the end, the rigid Kendall-Jackson chose the latter path.Foreigners in Mendoza have since learned from Kendall-Jackson’s experience. But overseas investors are again facing tough times. Inflation has been about 25 per cent a year since 2010 and the national government has instituted import controls to stem the outflow of central bank reserves.For Mendoza winemakers, this means higher costs, scarce supplies and squeezed margins. The cost of making wine has doubled in the past four years, says Valeria Mutis, an analyst at Rabobank.“The biggest problem the industry is facing is a loss of competitiveness,” Ms Mutis says.According to Caucasia Wine Thinking, a market analysis company, in the first nine months of 2013, Argentina exported 220.3m litres of wine for $640.6m, down 19.8 per cent and 5.5 per cent respectively on the same period of 2012. The entry level has been especially hard hit: exports of bottled wine under $18/case have fallen by 37 per cent.In response, vintners have become more creative.Argentina’s government encourages exports by refunding various taxes to exporters, but it does so slowly. To cut the wait, Pato Reich, the Chilean chief executive of Renacer, his family’s Mendoza winery, sells wine to local companies that need to export in order to get permission to import other goods (a government requirement).They export for Mr Reich and handle the refund delay. “There are a lot of rules that change day to day, so you have to be flexible,” he says.Mr Reich has also learned to plan. After he was unable to import label paper, making it impossible to ship exports worth about $400,000 a month, Mr Reich began to stock 10 months’ supply of corks, paper and bottles, up from a three months’ supply before. The problem, he says, is that it ties up $200,000 of working capital.Foreign owners also have to learn that business in Argentina runs on friendship. After applications to import oak barrels were repeatedly rejected, Mr Ortega from the O. Fournier winery explained his problems to Marcelo Barg, agro-industry minister for Mendoza, at a winery dinner.The barrels were promptly approved, just in time for the 2013 harvest. “You have to go and plead,” Mr Ortega says.There have been some encouraging signs of late. Carlos Clément, a Mendoza shipping agent, says all but one of his barrel import requests have been approved.And Argentina is allowing the official peso exchange rate to devalue, thus easing inflation’s bite on exporters.In the end, foreign wine investors have to learn the lesson of Kendall-Jackson, and understand that Argentina is cheaper because life is more difficult there.As they say: you can’t have your cake and eat it too.