Archive for the ‘ARGENTINE UPDATE’ Category

ARGENTINE UPDATE – Feb 4 & 5, 2014

6 febrero, 2014

ARGENTINE UPDATE – Jan 31 & Feb 3, 2014

4 febrero, 2014

ARGENTINE UPDATE – Jan 27, 28 & 29, 2014

31 enero, 2014

 

Monday, Jan. 27

 
1. ARGENTINA EASES RULES, INTERVENES IN BID TO DEFEND PESO (The Wall Street Journal)
By Ken Parks, Taos Turner and John Lyons
28 January 2014
BUENOS AIRES — Argentina’s government on Monday tried to prevent last week’s currency devaluation from turning into a financial crisis by allowing Argentines to swap some of their pesos for dollars online, but there were signs the move could fall short.
Despite a 15% slide in the peso’s value last week, the Central Bank still burned through dwindling dollar reserves to defend the peso at its new, weaker rate of eight per dollar, compared with 6.9 a week ago.
Although estimates varied, one person familiar with the foreign-exchange market said the bank spent $135 million Monday defending the peso. The intervention helped the peso close almost unchanged at 8.01 on the official, regulated market.
“If the Central Bank hadn’t intervened, the peso would have gone to 8.50 within two minutes,” said one currency trader, who estimated the bank spent $120 million on the day.
Worse, the currency actually fell in the black market to 12.25 from 11.8 on Friday, suggesting many Argentines still view the official rate as too strong.
“The authorities are rearranging the chairs of a sinking Titanic,” said Arturo Porzecanski, an economist at American University, who described the government’s measures as erratic and self-defeating, likely sparking inflation that would soon diminish the impact of the weaker currency.
The stakes are high for President Cristina Kirchner as she tries to avoid a deep recession before she leaves office in December 2015.
The government has been burning through reserves to support the peso and pay servicing on some $66.8 billion in foreign debt, according to government figures, which has some investors wondering if the country will run out of dollars this year or next unless it is able to find new sources of hard currency. Argentina’s reserves sit at $28.9 billion, down from $52.7 billion in 2011.
Unable to tap global bond markets because of a legal battle with foreign creditors, Argentina gets most of its dollars from trade and meager inflows of foreign direct investment. But the trade surplus shrank to $9 billion last year, its lowest level in more than a decade, and the outlook for 2014 is hardly rosy.
Last week, the Central Bank stopped intervention long enough to allow the peso to fall quickly against the dollar, partly to protect reserves by narrowing the difference between the official and black-market exchange rates. A weaker peso might also spur Argentine exports by making them more competitive.
But the move also comes with big risks, particularly in fueling inflation by making imports more expensive in peso terms.
“There isn’t anyone not raising prices now,” said Jose Mair, 64, who manages a store that sells computers and electronics in Buenos Aires. “I try to sell as little as possible because it is so hard to replace my stock. And my stock is much more valuable than my currency.”
Under new currency rules published Monday, individual Argentines who are registered with the tax agency and who earn at least 7,200 pesos ($900) a month will be able to buy dollars at the official exchange rate — plus a 20% tax. Purchases will be capped at 20% of a person’s net monthly earnings. No one will be allowed to change more than $2,000 a month.
But from the start, there were hiccups.
“I got online this morning, before 9 a.m., to get permission to buy dollars and everything went perfectly,” said Matias Zopatti, a 28-year-old computer programmer. “When I went to the bank they said they still hadn’t received authorization from the Central Bank to sell dollars. I’ll go back tomorrow and try again.”
2. AS ARGENTINA’S CURRENCY PLUNGES, ECHOES OF PAST FINANCIAL CRISES (The Christian Science Monitor)
By Jonathan Gilbert
27 January 2014
After a tumultuous week of monetary backtracks and a currency devaluation, Argentines awoke Monday to more economic uncertainty.
The government today announced how it will implement new rules on dollar purchases, a measure that follows its decision to allow the peso to plunge. It claims the moves are astute reactions to “speculative attacks” on Argentina’s economy by destabilizing forces. But analysts argue they are haphazard and foster uncertainty in a country with a history of financial mismanagement and inflationary spirals, including a debilitating crisis in 2001-02.
“These decisions create more doubt than certainty,” Guillermo Nielsen, a former finance secretary, wrote in a financial newspaper. “The government is very disoriented.”
A tumbling currency
The peso tumbled by 15 percent against the dollar in just three days last week, according to Bloomberg, including a drop of 9.5 percent on Thursday, the biggest since 2002, when Argentina’s previous dollar peg collapsed.
Last week’s devaluation followed a policy shift by Argentina’s central bank, which was trying to execute a quick depreciation of the peso but ran into difficulties over its shrinking dollar reserves, which recently touched a seven-year low of around $29 billion. Locked out of global financial markets, the government needs the reserves to pay for energy imports and foreign debt servicing. So the Central Bank kept hold of its dollars and let the peso dive.
In a move that surprised many observers, on Friday the government chose to ease currency controls aimed at curbing capital flight that date back to President Cristina Fernandez de Kirchner’s reelection in October 2011.
The government hopes the measure will reduce the gap between the official dollar exchange rate, which closed on Friday at eight pesos, and the black-market rate that hit a peak last Thursday of 13 pesos. Under the new rules, Argentines can now buy dollars to save, but the federal tax agency is expected to keep a tight control over these purchases in order to shore up the dollar reserves.
‘A lost battle?’
Still, analysts say the government needs to accompany its change in currency policy with tougher action on unofficial inflation, which is estimated to exceed 28 percent.
“There could be a spiral of devaluation and inflation,” says Gaston Rossi, a former deputy economy minister under President Kirchner. “The government can confront that with a credible plan, reducing its spending and raising interest rates.”
Some people here believe Kirchner and her aides are close to losing control of the economy. “It’s not the apocalypse yet, but we’re not in a good place,” says Santiago Sasso, an office worker. “I don’t have faith in the government. It’s a lost battle.”
Axel Kicillof, the economy minister, insisted in an interview published Sunday that the government has a firm grip on the situation. “The economic panorama is very calm,” Mr. Kicillof said. He accused Argentina’s media – with whom the Kirchner government has long been at odds – of trying to fuel a run on the peso.
On Friday, he claimed a “speculative attack” by Shell, the oil company, had contributed to the peso’s dive. “The large and concentrated financial sectors have a lot of experience in destabilization,” Kicillof said. “But we have the tools to face up to them.”
The tumult has thrown a spotlight on Kicillof, a former university professor known for his Marxist interpretations of economic theory. He took up his post in November as part of a cabinet reshuffle that was supposed to favor pragmatists. But his management of the economy is now being widely criticized.
He also lashed out at reporters on Friday in a curt televised comment that showed the strains on an administration, which, commentators wrote in an anti-government newspaper, is facing a crisis of leadership and communication. “It was impulsive,” says Mr. Rossi. “It doesn’t send a message of calm.”
The government today announced new rules that make it easier to buy dollars after the Central Bank let the peso plunge. So far, Argentines are taking it calmly.
3. ARGENTINA SPENDS TO HALT PESO DROP (The Wall Street Journal Online)
By Taos Turner
27 January 2014
Central Bank Move Latest in Series of Steps To Stem Currency’s Fall
BUENOS AIRES—Argentina’s Central Bank spent around $135 million on Monday to prevent the peso from depreciating further, said a person familiar with the matter.
The move indicates new exchange-rate policies may do little to prevent the Central Bank from losing even more of its foreign-currency reserves the government uses to pay its creditors.
The peso closed little changed at about 8.00 per dollar on the regulated MAE wholesale currency market on Monday after losing 15% of its value last week when the Central Bank briefly stopped supporting the peso.
The bank spent several hundred million dollars in recent trading sessions to defend the peso. The spending has depleted the country’s currency reserves to about $29 billion from around $43 billion a year ago.
“If the Central Bank hadn’t intervened, the peso would have gone to 8.50 within two minutes,” said a currency trader who asked not to be identified.
The prospect of more dollars in the economy didn’t tame the black market, where the peso weakened to about 12.25 per dollar, from 11.80 Friday.
The gap between the two rates threatens to boost annual inflation that is believed to be running already around 30% as businesses set the prices for everything thing from televisions to refrigerators with an eye on the black-market rate.
The gap between the official and black-market rates also reinforces expectations that the government will devalue the peso even more. The local Rofex futures market has the peso at 10.73 per dollar in December.
“This won’t take any pressure off the [official] exchange rate,” Fausto Spotorno, an economist at consulting firm OFJ, said of Monday’s new currency policies, which make it easier for people to buy dollars. “On the contrary, this will put more pressure on the rate by increasing demand for dollars.”
The more flexible exchange-rate policies could eventually reduce the gap between the official and informal rates by shifting dollar demand to the regulated currency market, Mr. Spotorno said.
4. LETTERS: DEVALUATION IN A TIME OF FERNÁNDEZ (FT.com)
From Mr Pierpaolo Barbier
January 27, 2014
Sir, The depreciation of Argentina’s peso (reports, January 24) has very little to do with the global ramifications of Fed tampering and much to do with an amateurish government at its wit’s end. The FX controls in place since 2011 have forced the Central Bank to squander dollar reserves to prop up a local currency that is overvalued and therefore uncompetitive. Having destroyed the Central Bank’s independence, and isolated from international markets, the government funds itself and pays debt through its reserves. Deprived of savings mechanisms, Argentines have logically flocked to the informal or “blue rate” market. Eventually something had to give, and it now has: the faster devaluation is the triumph of experience over hope.
Most ironically, this comes after last year’s statements from President Cristina Fernández de Kirchner’s promise that “whoever expected a devaluation would have to wait for another government”. Fortunately for her and her family, she does not seem to practice what she preaches.
So do not blame the Fed, blame the lack of sensible, coherent economic policy in Buenos Aires.
Pierpaolo Barbieri, Special Advisor, Institute of New Economic Thinking, New York, NY, US
5. LETTERS: INFLATION RATE IS AT 63% IN ARGENTINA (FT.com)
From Prof Steve H Hanke
January 27, 2014
Sir, In combat, John Maynard Keynes often had an edge simply because he had a good feel for the data and a sense of magnitudes. Those who report on economics and finance (among others) could benefit from paying attention to that little Keynesian attribute.
Your report on Argentina’s most recent economic travails (“Currencies hit in wake of Argentina”, January 25) is a case in point. Your reporters note that one of the main causes of Argentina’s problems is that Buenos Aires “has allowed inflation to reach 25 per cent”. The Johns Hopkins-Cato Institute Troubled Currencies Project, which I direct, has been producing reliable estimates for Argentina’s implied annual inflation rate since 2012. Our current estimate is 63 per cent – more than double the figure reported in the FT.
Steve H Hanke, The Johns Hopkins University, Baltimore, MD, US
6. ARGENTINA A SPECIAL CASE AMONG EM NATIONS (FT.com)
By James Mackintosh
January 27, 2014
That is not to belittle the problems facing other emerging markets
As warning signs go, the plunge in Argentina’s peso on Thursday was 150 feet tall, surrounded by flashing lights, klaxons and a troupe of acrobats whose bodies spelt out “PANIC”.
Emerging markets duly dropped. The Turkish lira led the way down, hitting another new low. Monday was set to be the lira’s worst day since the post-Lehman crisis before the central bank called an emergency meeting. Tensions spread into developed markets, while emerging equities fell 2 per cent, the worst day since last summer’s taper worries.
 
Argentina’s economy and markets are now so small they are all but irrelevant to global investors. Here is the case for fear: Buenos Aires is merely the first to be caught out by a dollar shortage as the US Federal Reserve tapers off its bond purchases and the tide of greenbacks which flowed into the emerging world recedes.
But Argentina is a special case, even a basket case. It has been bleeding foreign exchange reserves to defend its exchange rate for three years. It saw none of the fast-money inflows which prompted excessive consumption or misdirected investment elsewhere, so there is little reason to expect it to suffer from the outflows. Argentina’s problems could have hit at almost any time.
That is not to belittle the problems facing other emerging markets (EM). The dollar’s value against a trade-weighted EM basket has risen 6.6 per cent since its low in mid-2011, shortly after the post-crisis peak for EM shares. It would need to rise another 12 per cent to return to 2009 or 2003 levels. If that happens, EM countries running current account deficits will have trouble filling their shortage of dollars. A stronger US economy and less Fed liquidity is far from a certainty, but would mean higher EM interest rates were needed to attract dollars.
Markets are challenging EMs. Higher rates and slower growth beckon. Badly managed, this adjustment could prompt more EM crises. But Argentina does not inevitably signal the way for everyone else.
7. ARGENTINA TO KEEP $2,000 MONTHLY LIMIT ON DOLLAR PURCHASES (FT.com)
By Jonathan Gilbert and Jonathan Wheatley
January 27, 2014
Jorge Capitanich, chief of ministers, said Argentines registered with the federal tax agency who earn a monthly salary of more than 7,200 pesos would be able to purchase and save up to 20 per cent of their monthly salary up to a maximum of $2,000. Mr Capitanich told reporters that a 20 per cent tax would not be applied if the dollars were left in banks for more than a year.
“If the person that buys dollars deposits them in a savings or fixed-term account, the 20 per cent tax will not be levied,” Mr Capitanich told reporters. “He can withdraw them when he wants, but if he does it within 365 days, he must pay the tax.”
The government hopes the measure will reduce the gap between the official dollar, which closed on Friday at eight pesos, and the black-market dollar, which closed at 11.7 pesos. As the government devalued on Thursday, it hit a record of 13 pesos.
Cristina Fernández, Argentina’s president, who is in Cuba for a regional summit, used Twitter on Monday to accuse banks of “speculative manoeuvres” on the currency markets. In her first remarks on the recent currency tumult, she said: “It seems like some people want to make us drink the soup again” – a reference to the financial crisis of 2001 – “but this time with a fork.”
However, the government’s announcement left confusion about how the new rules would be applied and doubt about its effectiveness.
Martín Redrado, governor of Argentina’s central bank until 2010, said the latest measures would do little to ease pressure on the exchange rate. “In my view, this doesn’t solve the problem,” he said. “The time of reckoning for all the policy mistakes of the past few years has arrived.”
He said Argentina’s problem derived from a worsening mismatch between money in circulation and foreign currency reserves. “When I left the central bank we had $50bn in reserves and the ratio of reserves to the monetary base was one to four. Now the relation is one to 13. What is behind this is excess public spending and the monetary financing by the central bank of an increasing fiscal deficit.”
In the absence of policies to tackle this, he said, foreign reserves would continue to drain as the economy stagnated and inflation increased. He said the government was hoping to bridge a gap until export revenues from Argentina’s soya harvest began to arrive in 45 to 60 days’ time. “In this context,” he said, “45 days is a really long time.”
Economists have said the federal tax agency will probably obstruct most purchases as the government looks to protect dwindling foreign reserves, which have fallen to a seven-year low of $29bn. “The easing of restrictions will be virtual,” said Gastón Rossi, a former deputy economy minister.
At the weekend, Axel Kicillof, the economy minister, said Argentines would continue to pay a 35 per cent tax on credit and debit card purchases abroad. The government had originally said the rate would drop to 20 per cent from today. He accused the media of trying to fuel a run on the peso in “speculative attacks” by “concentrated financial sectors”.
“They are looking to destabilize the government by saying the dollar is worth 13 pesos,” Mr Kicillof said in a newspaper interview, adding that “we have the tools to face up to them” and that “the economic panorama is very calm”.
Mr Capitanich insisted on Monday morning that the easing of capital controls was not an isolated move amid widespread criticism that the government has no integrated strategy for the economy.
Retailers, meanwhile, were reporting price increases on imported products. JA Aceto, 60, who owns a shop selling electronics in central Buenos Aires, said: “Providers are rising prices by 20 percent and we have to follow in line.”
8. ARGENTINA ROUT: WHICH EMERGING MARKETS ARE IN THE FIRING LINE? (Forbes.com)
By Chris Wright
January 27, 2014
Following the 11% decline in the value of the Argentinian peso in a single day last week, the markets are trying to digest a single question: are these problems localized to Argentina, or ought we to expect a rout in all emerging markets? And if the second conclusion is the correct one, then a further question follows: which ones are exposed?
This blog has written frequently about the BIITS or Fragile Five (Brazil, India, Indonesia, Turkey and South Africa), and at first glance those are the ones with the most to worry about. All five, plus Russia too, suffered declines in their currencies on Friday after the decline in the peso. In South Africa’s case, the rand hit a five-year low on Friday. All of these currencies have already weakened considerably in recent weeks anyway.
The negative view is that we are now in a period of unavoidable contagion through which all these economies, and then other emerging markets, will enter a spiral. In this spiral, investor concerns trigger outflows from those countries, which exacerbate their existing problems, and so we go on in to crisis. Although BIITS its a lazy and convenient abbreviation which brings together some diverse economies with different challenges, those countries do have some things in common: current account and fiscal deficits – both, in most cases – and doubts about the levels of foreign currency reserves they have relative to their short-term borrowings. As I discussed here, five countries – Turkey, South Africa, Chile, India and Indonesia – only had enough reserves in the second half of last year to cover one year of their short term financing requirements, and Hungary, Brazil and Poland, two. And most of those reserves have declined significantly since then: Turkey’s central bank is believed to have poured as much as one tenth of its foreign currency reserves into the market in support of its currency, without any clear success.
The positive view is that Argentina is a special case, and although markets are naturally made nervous by an event like this, they will eventually recognize that Argentina’s problems are not replicated elsewhere (except arguably Venezuela). Confidence in Argentina has fallen because of a host of situations that do not apply in India, or Russia, or Turkey or elsewhere: Argentina faces more international law suits than any other country from companies and sovereign states around the world. It still holds debt in default and has not yet agreed terms for its repayment. It has nationalized companies and scared off foreign investors – see my account of the Repsol situation here – and in doing so it has exacerbated its existing problems with foreign currency reserves relative to outstanding debt.
In support of this positive view is the fact that India, for example, has not fared too badly in light of Argentina’s sudden decline. The rupee did drop almost 2% against the dollar last week, but the Sensex stock market index was roughly flat, and actually rallied on Friday.
As I have written before, here and here, emerging market debt and equities – and, logically, currencies – do have some suffering ahead as tapering gathers pace in the United States. That, in turn, should be expected to lead to some capital flight from risky assets such as emerging markets. Slowing Chinese growth, dampening demand for exports from other emerging markets, isn’t helping either. These, rather than Argentina’s domestic malaise, are the year’s biggest threats for emerging market assets.
But the problem is, so much of market behaviour is based on sentiment rather than logic, and Argentina may be enough to drive extensive capital flight from emerging markets with or without US tapering. And that is a big problem for countries with big debts to pay and dwindling reserves.
9. ARGENTINA EASES LIMITS ON DOLLAR PURCHASES TO CALM MARKET (Dow Jones Institutional News)
By Ken Parks, Taos Turner and Juan Forero
27 January 2014
BUENOS AIRES–Days after a currency devaluation revived concerns of economic crisis in Argentina, the government began allowing locals to buy limited amounts of dollars in a bid to head off potential panic buying of dollars on the black market that could further undermine the currency and fuel inflation.
The measure eased strict restrictions on dollar purchases put in place in November 2011 that were designed to prevent capital flight but which had the side effect of spurring a thriving currency black market, where the peso has plunged.
The government was granting online requests to buy dollars, though banks weren’t ready to exchange currencies.
“I got online this morning, before 9 a.m., to get permission to buy dollars and everything went perfectly,” said Matías Zopatti, a 28-year-old computer programmer. “When I went to the bank they said they still hadn’t received authorization from the central bank to sell dollars. I’ll go back tomorrow and try again.”
A weaker peso might spur Argentine exports like soy by making them more competitive, but also carries big risks, particularly in fueling inflation by making imports more expensive in peso terms. Many stores had already begun to mark up prices last week, reflecting the weaker peso rate.
“There isn’t anyone not raising prices now,” said José Mair, 64, who manages a store that sells computers and electronics in the capital, Buenos Aires. “I try to sell as little as possible because it is so hard to replace my stock. And my stock is much more valuable than my currency.”
Last week, hoping to stop spending dwindling central bank dollar reserves defending the peso, the government allowed the peso to fall some 15% against the dollar to about eight per dollar. That helped narrow the difference between the official and black-market exchange rates, which sits at roughly 12 per dollar. But a big gap remains.
Argentina’s central bank spent around $135 million Monday to prevent the peso from depreciating further, a person familiar with the matter said, indicating new exchange-rate policies may do little to prevent the bank from losing even more of its foreign-currency stocks the government uses to pay creditors.
The sudden devaluation of the peso has unsettled Argentines, many of whom still remember the traumatic devaluation and deep economic crisis of 2002.
“What the government has done is a good thing. It’s a step forward. But I hope this is just the beginning of a lot of things to open up the exchange market and the economy as a whole,” said Nicolás Di Martino, 25 years old, who works at a food exporter in Buenos Aires province and who was authorized to buy dollars at the official rate.
All the same, economists who follow Argentina described the dollar sales as a half-measure that would be ineffective in taking pressure off the peso. Moody’s Investors Service said the government lacks a plan to deal with inflation related to the currency decline, and expects the peso to weaken another 50% of its value by the end of the year.
“They are trying to break what could be a vicious psychological cycle that the more they let the currency go the more people want to buy dollars. And in order to do that they came up the idea of loosening ever so slightly the access to dollars,” said Arturo Porzecanski, an economist at American University. “It’s some kind of Faustian bargain in that dollars were more expensive now than they were before, but you have a better chance to get them from us, as opposed to the parallel market of 12 or 13 per dollar.”
The peso closed little changed at about eight per dollar on the regulated MAE wholesale currency market, virtually unchanged from Friday’s close. The local Rofex futures market had the peso at about 10.49 per dollar in December. In a sign the official exchange rate still looks overvalued, the peso weakened to about 12.25 per dollar on the black market Monday, from 11.80 last week.
Under new currency rules published Monday, individual Argentines–not businesses–who are registered with the tax agency and who earn at least 7,200 pesos ($900) a month will be able to buy dollars at the official exchange rate. Purchases will be capped at 20% of a person’s net monthly earnings. No one will be allowed to change more than $2,000 a month.
The restrictions will leave out the majority of Argentina’s lower classes, who don’t qualify to buy dollars and who are most vulnerable to inflation.
The government is waving the 20% tax deductible surcharge on those purchases if the buyer deposits the money in a local bank account for at least one year, which means the dollars will still form part of the central bank’s reserves.
But that requires a huge leap of faith on the part of the public that the country isn’t headed for a repeat of the 2002 crisis, when the government of the time forcibly swapped dollar-denominated deposits for devalued pesos.
“The only defense that Argentines have always had to save has been the dollar,” said Freddy Micheli, a 69-year-old barber who dodged the 2002 devaluation by keeping his dollars outside the banking system.
The vast gap between official and black-market exchange rates is troublesome for the economy because some businesses start to set prices for goods and services using the former. It also reinforces expectations that the government will have to devalue the peso even more.
The stakes are high for President Cristina Kirchner as she tries to avoid a deep recession before she leaves office in December 2015. Her government has been burning through reserves to support the peso and pay its debts, which has some investors wondering if the country will run out of dollars this year or next unless it is able to find new sources of hard currency.
Unable to tap global bond markets because of a legal battle with foreign creditors, Argentina gets most of its dollars from trade and meager inflows of foreign direct investment. The trade surplus shrank to $9 billion last year, its lowest level in more than a decade.
The outlook for 2014 is hardly rosy amid a drop in commodity prices and sluggish growth in top trade partner Brazil.
The government appears to be gambling that the recent devaluation will spur exporters to part with their grain and soybean stocks because they now get more pesos for their exports than was the case just a week ago. Those trade dollars will help the authorities meet the higher dollar demand resulting from looser currency controls, Jorge Capitanich, Mrs. Kirchner’s cabinet chief, said in a television interview over the weekend.
Critics of Mrs. Kirchner’s policies say she is playing with fire by weakening the currency instead of addressing the root causes of inflation–years of rampant government spending financed in part by money printing. The administration has instead turned to price controls to contain inflation.
Mr. Capitanich rejected those allegations on Monday.
“Those that say that are those who don’t want industry, jobs or a positive outlook. I think this is a positive measure that will create the conditions so Argentina can keep growing,” he said in reference to the new currency rules.
10. ARGENTINA’S CENTRAL BANK SPENDS $135 MILLION TO DEFEND THE PESO MONDAY (Dow Jones Institutional News)
By Taos Turner
27 January 2014
BUENOS AIRES–Argentina’s central bank spent around $135 million Monday to prevent the peso from depreciating further, a person familiar with the matter said.
The move is an indication that new exchange rate policies may do little to prevent the bank from losing even more of the foreign currency reserves the government uses to pay its creditors.
The peso closed little changed at about 8.00 per dollar on the regulated MAE wholesale currency market Monday, after losing 15% of its value last week after the central bank briefly stopped supporting the peso.
The bank spent several hundred million dollars in recent sessions to defend the peso, which has reduced its currency reserves to about $29 billion. A currency trader who asked not to be named said the central bank sold about $120 million in the exchange market.
“If the central bank hadn’t intervened the peso would have gone to 8.50 within two minutes,” the trader said.
The prospect of more dollars in the economy didn’t tame the black market, where the peso weakened to about 12.25 per dollar from 11.80 Friday.
The gap between the two rates threatens to boost annual inflation, which is already believed to total around 30%, as businesses set the prices for everything from televisions to refrigerators with an eye on the black market rate. It also reinforces expectations that the government will devalue the peso even more. The local Rofex futures market has the peso at 10.73 per dollar in December.
“This won’t take any pressure off the [official] exchange rate,” Fausto Spotorno, an economist at OFJ, a consulting firm, said of the new currency policies that make it easier for people to buy dollars. “On the contrary, this will put more pressure on the rate by increasing demand for dollars.”
The policies could eventually reduce the gap between the official and informal rates by shifting dollar demand to the regulated currency market, Mr. Spotorno added.
11. ARGENTINA AIMS TO STEM PESO DECLINE BY EASING CAPITAL CONTROLS (Market News International)
By Charles Newbery
27 January 2014
The government this week likely will seek to contain the peso at around 8.0 to the dollar after allowing it to plunge nearly 18% last week in an effort to arrest a slide in foreign reserves, as the decision to lift the ban on buying dollars for savings takes effect Monday.
Argentines who have been prevented for more than two years from legally purchasing dollars except in small amounts for foreign travel, will be able to again acquire currency at the official exchange rate.
They must request authorization to buy dollars from the federal tax agency, which will allow amounts only in line with the purchaser’s declared income.
This is the first major reversal in the capital controls the government started implementing in October 2011 after capital flight surged that year to $21.5 billion, equivalent to 40% of the nearly $53 billion in foreign reserves at the time.
This raised concern that the government could run low on reserves which it relies on to make debt payments and financing imports, given that it has yet to fully settle a $100 billion debt default from 2001 that would allow it to borrow on global markets.
The government has stepped up efforts to protect reserves since the capital controls were first introduced. Last week, it restricted the purchase of merchandise from overseas-based websites for delivery in Argentina to two transactions per year. People who buy more than $25 a year from such sites must pay a 50% customs tax on the value above that amount.
Economists say these measures hurt consumer confidence, prompting people to buy dollars to protect their savings against more currency depreciation.
This sparked a surge in trading on the black market, driving the rate there to a record 13.10 to the U.S. dollar last week after running at 7 to 10 for most of 2013. This led to gap of 75% with the official rate and further accelerated a decline in foreign reserves, which fell to $29.3 billion last week.
With the easing of the dollar-buying restrictions, economists expect the exchange rate gap to narrow and allow the government to focus on more important issues including a widening fiscal deficit, dwindling investment, worsening energy shortages, double-digit inflation and a narrowing trade surplus.
Some economists say the biggest concern is inflation, which also is fueling demand for dollars and limiting investment.
While the government says inflation is steady at 10.5%, private economists put it at 28% and accelerating, according to an average of different estimates compiled by opposition lawmakers. Some economists say inflation could hit 30% this year.
Most economists say the main driver behind rising consumer prices is that monetary expansion is rising faster than the demand for pesos for savings. An excess of pesos in the market and low interest rates, is prompting spending instead of saving due to concerns that inflation is chipping away at purchasing power – a phenomenon Argentines remember well from the hyperinflation of the 1980s.
The faster depreciation of the peso last week to 60% annual from an average of 20-25% in 2013 has made people even keener to dump pesos, he added.
The central bank this week may continue to raise interest rates to encourage more savings in pesos, a strategy that started earlier this month. The 30-day savings rate for large deposits, for example, has gone up to nearly 22% annual from 14-18% in 2013.
The government will report December retail sales at shopping malls and supermarkets Wednesday, followed Friday by construction activity and consumption of public services for the same period.
12. ARGENTINA’S LYING PRICES SHOW CAPITAL CONTROL LIMITS: CURRENCIES (Bloomberg.com)
By Ian Katz, Katia Porzecanski, Andrea Wong and Ye Xie
Jan 27, 2014
When Argentina decided last week to ease limits on dollar purchases, it became the latest emerging-market nation to acknowledge that capital controls usually fail in masking an economy’s flaws.
Argentina allowed the peso to plunge 15 percent after the central bank began scaling back interventions in the foreign-exchange market on Jan. 22, spurring price increases of as much as 30 percent on consumer goods as international reserves fell to a seven-year low. The black-market price in Argentina rose last week to a record 12.75 pesos per dollar, compared with the official rate of about 8, according to Buenos Aires newspaper Ambito.
“Capital controls signal that a country is very worried about preserving its foreign exchange,” Steve Hanke, professor of applied economics at Baltimore-based Johns Hopkins University and an adviser to the Argentine government in the 1990s, said in an interview. “That means bad things are in the wind.” The restrictions spawn illegal traffic in the local currency that creates “lying prices” in the economy, he said.
Restrictions on capital flow, ranging from Argentina’s tax on vacations abroad to Malaysia’s stabilizing the ringgit after the 1997 Asian crisis, have had mixed results in boosting investor confidence in a country’s economy. Capital outflow restrictions can be effective “if they are sufficiently comprehensive to slow a sudden ‘rush to the exit,’” according to a report by four International Monetary Fund researchers released this month.
Turkey Next?
“For the average country, a tightening of outflow restrictions is ineffective as net outflows increase as a result of it,” wrote Christian Saborowski, Sarah Sanya, Hans Weisfeld and Juan Yepez, authors of the IMF report.
In Turkey, pressure is building on Central Bank of Turkey Governor Erdem Basci to raise interest rates or face the prospect of the lira plunging to fresh records and government bonds extending declines. The scheduling of an extraordinary meeting with a midnight statement tonight by the central bank may signal that policy makers are planning to implement capital controls, said George Magnus, an independent senior economic adviser to UBS AG.
“The odd time does suggest, to me, something that’s going to be much more market-sensitive in that it will affect the operation of markets, not just the cost of funding,” Magnus said by phone from London yesterday.
The announcement from the bank came after the Turkish lira fell to records against the euro and dollar yesterday. The lira touched 2.39 versus the dollar before erasing losses to break a 10-day slump and close at 2.2833 in New York. The lira rose 2.3 percent to 3.1242 per euro after reaching 3.2726.
Venezuela Experience
In Venezuela, a decade of currency controls is fueling the world’s fastest inflation among the 114 economies tracked by Bloomberg and shortages of basic goods.
The official rate of 6.3 bolivars per dollar compares to the 75 bolivar rate on the black market. Official dollars therefore are the most profitable assets in the country, allowing people who have access to them enjoy a lifestyle far beyond the reach of an average Venezuelan.
“Capital controls to avoid excessive inflows have had limited success,” Ricardo Hausmann, a former planning minister in Venezuela who now teaches economics at Harvard University, in Cambridge, Massachusetts, said in an e-mail. “Capital controls to prevent outflows often postpone and amplify rather than moderate the need for adjustment. If they involve a emergence of a black or parallel foreign-exchange market, they lead to a dangerous macro and micro disaster.”
Malaysia Success
The IMF, influenced by then-U.S. Treasury Secretary Robert Rubin and his deputy Lawrence Summers, started to push Asian countries to open their financial markets and lift capital controls in the early 1990s. When the financial crisis started in late 1997, the IMF advised the region to cut budgets and raise interest rates to limit the currency depreciation.
Nobel laureate Joseph Stiglitz, then chief economist at the World Bank, opposed the IMF’s remedies, pushing for capital controls to stem the crisis, advice no Asian countries except Malaysia took.
Malaysia, faced with global investors selling the nation’s assets betting for a depreciation in the ringgit, imposed restrictions in September 1998, including making investors hold the ringgit proceeds of share sales for at least a year and banning the transfer of the local currency between offshore accounts.
‘Revitalizing’ Economy
The ringgit’s real effective exchange rate stabilized the next year, after tumbling almost 20 percent, while the nation’s foreign-exchange reserves gained following the biggest annual decrease on record.
“The restrictions provided room for the authorities to accumulate reserves amid a stable exchange rate and enact policies aimed at revitalizing the economy, such as reducing interest rates,” the Washington-based IMF researchers wrote in the report that examined capital outflow restrictions in 37 emerging markets from 1995-2010.
In Iceland, the krona exchange rate stabilized shortly after restrictions were imposed during the depths of the global financial crisis in November 2008. That gave officials room to ease monetary policy to help revive the economy, according to the report.
The IMF report concludes that capital control can be successful if “supported by either strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive.”
Fernandez’s Efforts
Since her re-election in 2011 when capital flight almost doubled to $21.5 billion, Argentine President Cristina Fernandez de Kirchner has tried whatever she could to keep money in the country. She implemented more than 30 measures, including blocking most purchases of foreign currencies, taxing online purchases, banning units of foreign companies from remitting dividends, and restricting imports.
Amid annual inflation of more than 28 percent, Fernandez’s controls have failed to stem the outflow of money through the nation’s widening tourism deficit, deepening a plunge in reserves from debt payments and growing energy imports.
The controls cut the total amount traded last year in the local foreign-exchange market in half from 2010, according to data compiled by Argentina’s Mercado Abierto Electronico automated trading system. Still, the robust black market for dollars shows that some Argentines are finding ways around the controls.
‘Very Dangerous’
Argentina Economy Minister Axel Kicillof said Jan. 26 the peso has reached an “acceptable level” at about 8 per dollar, a signal the central bank may continue to spend reserves to keep the rate in check. The bank sold $380 million in the official currency market to defend the price of the peso, dropping reserves to $29.1 billion.
The government also reduced some of currency controls in place since July 2012, authorizing foreign-exchange purchases for people earning a monthly wage of at least 7,200 pesos ($899). Those who qualify, less then 20 percent of the population, can buy as much as 20 percent of their average monthly salary, up to $2,000 a month.
“The problem I see in the longer run for the capital control for outflows is that it interferes with foreign direct investments, because FDI wants to take money out of the country,” Guillermo Calvo, an economist at New York-based Columbia University who was chief economist at the Inter-American Development Bank for five years until 2006, said in a telephone interview from New York. “If a country develops that reputation, it can be very negative for FDI. That’s very dangerous.”
========================================================
TUESDAY,Jan. 28


1. ARGENTINA BLASTS ‘SPECULATIVE ATTACKS’ (The Wall Street Journal)
By Ken Parks
29 January 2014
Government Says Businesses, Media Coordinating to Buy Assets Cheaply, as It Tries to Stabilize Peso
BUENOS AIRES — Argentina’s government accused businesses of orchestrating speculative attacks against emerging-market currencies including the Argentine peso, as it injected more U.S. dollars into the economy on Tuesday to try to calm nerves after last week’s devaluation.
Christina Kirchner’s cabinet chief, Jorge Capitanich, said big business and media groups frequently work together to undermine developing countries.
“The modus operandi of these speculative attacks is on all fronts with a single objective: to buy depreciated financial and hard assets,” Mr. Capitanich said. “Our message is: ‘Argentines, let’s not be naive.’ We have seen this movie repeatedly throughout our history.”
Mrs. Kirchner, attending a regional summit in Cuba, blamed Argentina’s currency woes on banks, exporters and businesses. “It looks like there are some people who want us to eat soup again, but this time with a fork,” the president posted on her Twitter account, using an expression meant to convey a swindle.
Argentina’s central bank spent about $115 million on Tuesday in a successful effort to keep the peso exchange rate steady at about 8 to the U.S. dollar, said a person close to the foreign-exchange market. During each of the past few trading sessions, the central bank has spent similar amounts to defend the currency from a more abrupt drop.
Other central banks in developing markets that have recently seen turmoil, such as Turkey and India, also intervened in their financial markets on Tuesday. Investors have worried over signs the U.S. Federal Reserve will tighten its monetary policy and over China’s slowing growth.
But in Argentina, many economists say the economy has been hurt by the high public spending, which has led to high inflation, an overvalued currency and a weakening trade surplus that threatens the government’s dwindling supply of hard currency.
After speeding up the depreciation of the peso against the dollar last year, the Kirchner administration allowed the currency to weaken 15% last week. It was the peso’s biggest drop in more than a decade and unnerved many Argentines who remember the abrupt devaluation in 2002 that came weeks after the country defaulted on $100 billion in debt.
On the black market, the peso weakened slightly to 12.30 per dollar, according to newspaper El Cronista, which tracks black-market rates, suggesting many Argentines still view the official rate as too strong.
Tuesday marks the second day of new rules that allow some Argentines to buy up to $2,000 a month for savings purposes as the Kirchner administration tries to take business away from a black market that is adding to double-digit inflation.
The government hopes that by injecting more dollars into the economy it can reduce the gap between the official and black-market exchange rates. However, banks were still struggling to adapt to the new currency system Tuesday, with most authorized buyers still unable to get their dollars. Some 184,000 people had requested permission to buy $90.2 million. But only $12.8 million had been paid as of Tuesday, the government said.
The measure — aimed at building confidence among ordinary Argentines to prevent a run on banks — could prove unsustainable as it might cost up to $757 million of reserves a month, or $9.1 billion a year, at the current exchange rate, according to estimates by Credit Suisse.
“We would not be surprised to see the limits amended, unless sales are lower than expected or the nominal exchange rate is devalued sharply again,” Credit Suisse economist Casey Reckman said in a note.
The new measure will likely continue to be a drain on Argentina’s diminishing foreign-currency reserves, which dropped to $28.7 billion on Tuesday.
2. BRAZIL’S ROUSSEFF SAYS COUNTRY WON’T OFFER HELP TO ARGENTINA (The Wall Street Journal Online)
By Paulo Trevisani
28 January 2014
Brazil Won’t Offer Help to Neighbor Because ‘It Wasn’t Asked’
BRASILIA—Brazil’s President Dilma Rousseff said Tuesday her country isn’t offering help to neighboring Argentina, which is going through an economic rough patch.
“We won’t offer any help for a very simple reason: it wasn’t asked,” she told reporters in Cuba, according to transcripts of the interview made available by her office. “President Cristina thinks she can deal with that situation,” she said, referring to Argentina’s President Cristina Kirchner.
Both women were attending to a summit of an organization of Latin American and Caribbean nations in Cuba.
Argentina has seen its currency depreciate about 15% last week to 8 Argentine pesos per U.S. dollar. It was the peso’s biggest drop in more than a decade and unnerved many Argentines who remember the violent devaluation in January 2002 that came just weeks after the country defaulted on about $100 billion in debt.
Argentina is the largest market for Brazilian exports in South America and many analysts fear that its economic problems could further slowdown Brazil, where output is already showing subpar growth.
“They have a large crop and will start to sell it,” Ms. Rousseff said of the Argentines. “I believe they will have the conditions to overcome this, at least I hope it will happen,” she said.
 
3. ARGENTINA SPENDS $115 MILLION TO STEADY PESO (The Wall Street Journal Online)
By Ken Parks
28 January 2014
Currency Closes Unchanged at 1.08 to the Dollar
BUENOS AIRES—Argentina’s central bank spent about $115 million on Tuesday to keep the peso steady against the U.S. dollar, said a person familiar with the matter, a day after the Kirchner administration loosened currency-purchase rules in hopes of cooling black-market dollar demand.
The peso closed unchanged at 8.01 per dollar on the regulated MAE wholesale currency market Tuesday after the central bank let the currency slide 15% last week in Argentina’s biggest currency devaluation since the 2002 crisis.
On the black market, the peso weakened to 12.30 per dollar, from 12.25 on Monday, according to newspaper El Cronista, which tracks black-market rates.
Tuesday marks the second day of new rules that allow some Argentines to buy as much as $2,000 a month for savings purposes as the Kirchner administration tries to take business away from a black market that is adding to double-digit inflation and fueling expectations of further weakness in the peso.
Before Monday, individual Argentines were only allowed to buy small amounts of dollars for overseas trips, which sent some people to underground currency dealers to get dollars for travel or to protect their savings from inflation that is widely believed to be running at more than 25% a year.
Now, the government hopes that by injecting more dollars into the economy it can reduce the still wide gap between the official and black-market exchange rates. However, banks were still struggling to adapt to the new currency system Tuesday, with some authorized buyers unable to get their dollars.
The new measure, coupled with the central bank’s ongoing defense of the peso, will likely continue to be a drain on Argentina’s diminishing foreign-currency reserves, which dropped to $28.9 billion on Monday. The unrelenting decline in reserves has some economists wondering if Argentina might struggle to pay its foreign-currency debts and buy enough imports to keep its economy growing.
4. ARGENTINA ON THE BRINK (The New York Times)
By The Editorial Board
Jan. 28, 2014
More than a decade after it defaulted on its foreign debts, Argentina is again facing a financial crisis caused largely by misguided government policies. The administration of President Cristina Fernández de Kirchner recently devalued the peso and relaxed some capital controls in an effort to preserve the country’s dwindling foreign reserves. The government is hoping that these steps will ease some of the pressure on the currency, which does not float freely against the dollar. But Argentina needs to do a lot more to address inflation and other underlying economic problems that have led investors and ordinary citizens to bet against the peso.
In the years after its painful default in 2002, which wiped out the savings of millions of people, Argentina enjoyed a fast growing economy thanks in part to the booming world demand for soybeans and other commodities the country exports. But Mrs. Kirchner squandered the recovery in recent years by increasing spending on wasteful subsidies and financing the government partly by printing pesos. As a result, inflation has shot up; independent economists estimate that consumer prices jumped 28 percent last year.
Mrs. Kirchner has also hurt the economy by picking fights with private businesses and investors. In recent years, she nationalized an oil company, an airline and pension funds. In 2011, Argentina implemented controls on how many pesos its citizens could convert into dollars, which helped create a black market for currency transactions and undermined confidence in the government’s economic policies. A recent poll showed that three-quarters of the country said the economy was headed in the wrong direction.
Government officials have begun taking some steps to correct past mistakes. The economy minister, Axel Kicillof, has been negotiating compensation for the oil company, YPF, that the government seized in 2012. And Argentina will put out a new inflation index next month to convince the International Monetary Fund to accept its official data again. While those are good first steps, Mrs. Kirchner and her aides will have to take much bolder steps to repair the damage that they have done to the economy in recent years.
5. ARGENTINA’S LYING PRICES SHOW CAPITAL CONTROL LIMITS: CURRENCIES (Bloomberg.com)
By Ian Katz, Katia Porzecanski, Andrea Wong and Ye Xie
Jan 28, 2014
When Argentina decided last week to ease limits on dollar purchases, it became the latest emerging-market nation to acknowledge that capital controls usually fail in masking an economy’s flaws.
Argentina allowed the peso to plunge 15 percent after the central bank began scaling back interventions in the foreign-exchange market on Jan. 22, spurring price increases of as much as 30 percent on consumer goods as international reserves fell to a seven-year low. The black-market price in Argentina rose last week to a record 12.75 pesos per dollar, compared with the official rate of about 8, according to Buenos Aires newspaper Ambito.
“Capital controls signal that a country is very worried about preserving its foreign exchange,” Steve Hanke, a professor of applied economics at Baltimore-based Johns Hopkins University and an adviser to the Argentine government in the 1990s, said in an interview. “That means bad things are in the wind.” The restrictions spawn illegal traffic in the local currency that creates “lying prices” in the economy, he said.
Restrictions on capital flows, ranging from Argentina’s tax on vacations abroad to Malaysia’s stabilizing the ringgit after the 1997 Asian crisis, have had mixed results in boosting investor confidence in a country’s economy. Capital outflow restrictions can be effective “if they are sufficiently comprehensive to slow a sudden ‘rush to the exit,’” according to a report by four International Monetary Fund researchers released this month.
Turkey Next?
“For the average country, a tightening of outflow restrictions is ineffective as net outflows increase as a result of it,” wrote Christian Saborowski, Sarah Sanya, Hans Weisfeld and Juan Yepez, authors of the IMF report.
In Turkey, pressure is building on central bank Governor Erdem Basci to raise interest rates or face the prospect of the lira plunging to fresh records and government bonds extending declines. The scheduling of an extraordinary meeting with a midnight statement tonight may signal policy makers are planning to implement capital controls, said George Magnus, an independent senior economic adviser to UBS AG.
“The odd time does suggest, to me, something that’s going to be much more market-sensitive in that it will affect the operation of markets, not just the cost of funding,” Magnus said by phone from London yesterday.
Lira Records
Yesterday’s announcement came after the Turkish lira fell to records against the euro and dollar. The lira dropped to 2.3900 per dollar before reversing its losses and breaking a 10-day slump. It reached a low of 3.2726 per euro and then rebounded. Turkey’s currency was 1.1 percent higher at 2.2590 to the dollar and up 1.2 percent at 3.0856 per euro as of 12:08 p.m. in New York today.
In Venezuela, a decade of currency controls is fueling the world’s fastest inflation among the 114 economies tracked by Bloomberg and shortages of basic goods.
The official rate of 6.3 bolivars per dollar compares with the 75-bolivar rate on the black market. Official dollars therefore are the most profitable assets in the country, allowing people who have access to them enjoy a lifestyle far beyond the reach of an average Venezuelan.
‘Limited Success’
“Capital controls to avoid excessive inflows have had limited success,” Ricardo Hausmann, a former planning minister in Venezuela who now teaches economics at Harvard University, in Cambridge, Massachusetts, said in an e-mail. “Capital controls to prevent outflows often postpone and amplify rather than moderate the need for adjustment. If they involve an emergence of a black or parallel foreign-exchange market, they lead to a dangerous macro and micro disaster.”
The IMF, influenced by then-U.S. Treasury Secretary Robert Rubin and his deputy Lawrence Summers, started to push Asian countries to open their financial markets and lift capital controls in the early 1990s. When the financial crisis started in late 1997, the IMF advised the region to cut budgets and raise interest rates to limit the currency depreciation.
Nobel laureate Joseph Stiglitz, then chief economist at the World Bank, opposed the IMF’s remedies, pushing for capital controls to stem the crisis, advice no Asian countries except Malaysia took.
Malaysia, faced with global investors selling the nation’s assets to bet on a depreciation in the ringgit, imposed restrictions in September 1998. These included making investors hold the ringgit proceeds of share sales for at least a year and banning the transfer of the local currency between offshore accounts.
‘Revitalizing’ Economy
The ringgit’s real effective exchange rate stabilized the next year, after tumbling almost 20 percent, while the nation’s foreign-exchange reserves gained following the biggest annual decline on record.
“The restrictions provided room for the authorities to accumulate reserves amid a stable exchange rate and enact policies aimed at revitalizing the economy, such as reducing interest rates,” the Washington-based IMF researchers wrote in the report that examined capital outflow restrictions in 37 emerging markets from 1995-2010.
In Iceland, the krona exchange rate stabilized shortly after restrictions were imposed during the depths of the global financial crisis in November 2008. That gave officials room to ease monetary policy to help revive the economy, according to the report.
The IMF report concludes that capital controls can be successful if “supported by either strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive.”
Fernandez’s Efforts
Since her re-election in 2011 when capital flight almost doubled to $21.5 billion, Argentine President Cristina Fernandez de Kirchner has made several attempts to keep money in the country. She implemented more than 30 measures, including blocking most purchases of foreign currencies, taxing online purchases, banning units of foreign companies from remitting dividends and restricting imports.
With annual inflation of more than 28 percent, Fernandez’s controls have failed to stem the outflow of money through the nation’s widening tourism deficit, deepening a plunge in reserves from debt payments and growing energy imports.
‘Very Dangerous’
The controls cut the total amount traded last year in the local foreign-exchange market in half compared with 2010, according to data compiled by Argentina’s Mercado Abierto Electronico automated trading system. Still, the robust black market for dollars shows that some Argentines are finding ways around the controls.
Argentine Economy Minister Axel Kicillof said Jan. 26 the peso has reached an “acceptable level” of about 8 per dollar, a signal the central bank may continue to spend reserves to keep the rate in check. The bank sold $380 million in the official currency market to defend the price of the peso, dropping reserves to $29.1 billion.
The government also reduced some currency controls in place since July 2012, authorizing foreign-exchange purchases for people earning a monthly wage of at least 7,200 pesos ($901). Those who qualify, less than 20 percent of the population, can buy as much as 20 percent of their average monthly salary, up to $2,000 a month.
“The problem I see in the longer run for the capital control for outflows is that it interferes with foreign direct investments, because FDI wants to take money out of the country,” Guillermo Calvo, an economist at New York-based Columbia University who was chief economist at the Inter-American Development Bank for five years until 2006, said in a phone interview from New York. “If a country develops that reputation, it can be very negative for FDI. That’s very dangerous.”
6. ELLIOTT REJECTS GRAMERCY’S ARGENTINA PROPOSAL AS A ‘STUNT’ (Bloomberg News)
By Katia Porzecanski
January  28, 2014
Billionaire Paul Singer’s hedge fund Elliott Management Corp. said efforts by holders of Argentina’s restructured debt to resolve a legal dispute over bonds from the nation’s 2001 default are “bizarre.”
Elliott, which has sued for full repayment on defaulted bonds in U.S. courts, will only negotiate a settlement with Argentina directly, the fund said in a letter to investors obtained by Bloomberg News. A proposal by hedge fund Gramercy Funds Management LLC called for holders of restructured debt to cede a portion of their interest payments to holdouts.
“We find this idea beyond bizarre and entirely impracticable,” Elliott wrote. “It is a stunt.”
A U.S. appeals court ruling in August blocked Argentina from making payments to restructured bondholders without settling in full a $1.5 billion claim from holdouts. Argentine President Cristina Fernandez de Kirchner has said she won’t pay holders of defaulted bonds who rejected the terms of the nation’s two debt restructurings, which imposed losses of 70 percent, any more than what other investors accepted.
Steve Bruce, a spokesman for Gramercy, declined to comment.
Concern Argentina will default on its restructured debt as a result of the litigation has helped to push the nation’s credit-default swap prices to 2,665 basis points, according to prices compiled by CMA, the highest in the world. The decision won’t be enforced until the U.S. Supreme Court decides whether to hear an appeal by Argentina. The country has until February to submit its argument for an appeal.
Good Faith
Changing the terms of the restructured notes to earmark interest payments to the holdouts would require approval from holders of 75 percent of each series of bonds. The Gramercy-led group owns more than $7 billion of the nation’s restructured bonds, or almost 30 percent, according to the group’s legal adviser, Linklaters LLP.
“The only way this dispute can be resolved is for Argentina to negotiate in good faith with holders of its defaulted bonds,” Elliott wrote. “If the Argentine government simply and at long last did what every other sovereign in need of restructuring has done and actually talked to its creditors, we are confident that this long-running saga could be resolved quickly and thoughtfully.”
7. WARY ARGENTINES SHUN OFFER TO BUY DOLLARS WITH STRINGS ATTACHED (Business Week)
By Raymond Colitt and Camila Russo
January 28, 2014
Few Argentine savers are taking advantage of the opportunity to buy dollars from the government for the first time in 18 months following the peso devaluation and easing of currency restrictions in the past week.
“I’m not interested. Between the red tape and the taxes I’m better off buying it in the street,” said Alfonso Iturriaga, a 63-year-old businessman. “It seems more like a measure to reassure people.”
With near 30 percent inflation eroding purchasing power, many Argentines are unable or unwilling to swap their pesos for greenbacks from central bank reserves that tumbled 32 percent to a seven-year low over the past 12 months. The lack of appetite reflects distrust in government policies by buyers, said Juan Curutchet, vice president of Banco de la Ciudad de Buenos Aires. Many remember when bank accounts were frozen in the wake of the nation’s $95 billion default in 2001.
President Cristina Fernandez de Kirchner on Jan. 27 eased restrictions on dollar purchases following last week’s 15 percent devaluation. Since then, banks sold $12.8 million to savers, according to the national tax agency known as Afip. That compares with $188 million the central bank sold on the official currency market yesterday.
Argentines must earn at least 7,200 pesos ($899) a month to be able to buy as much as $2,000 dollars at the official rate, which yesterday closed at 8 pesos per dollar. About 80 percent of the country’s 14.8 million workers earned less than 7,000 pesos in the third quarter of last year, according to the national statistics agency’s website. Those who qualify must obtain authorization from Afip.
‘So Expensive’
Argentines have an estimated $160 billion of undeclared assets stashed in mattresses or deposited abroad.
Some, like Iturriaga, fear increased government meddling, while others have nothing to invest after struggling to make ends meet on what they earn.
“I’d love to save in either pesos or dollars, the problem is I have nothing left at the end of the month,” said Raul Francesci, a 43-year-old shop attendant. “Things are so expensive I’d like to know how some people are able to save.’
Prior to these measures, Argentines were only allowed to buy a limited amount of currency for travel abroad and in some exceptional circumstances.
Along a 200-yard stretch on Florida, a popular shopping strip in downtown Buenos Aires, two dozen informal currency traders hustled passersby shouting ‘‘cambio: dollar, euro, real.”
Black Market
Demand for dollars on the black market rose after the rate fell from a record 13.05 last week to 12.5 yesterday, said John Garcia, who works in the doorway of a bookstore as an informal currency trader with a hip-pouch bulging with cash.
At night the 22-year-old works as a chef’s assistant.
“People expect the peso to slump again so they’re back to buying dollars,” said Garcia as he toyed with a calculator.
The traders are locally known as arbolitos, Spanish for little trees, because they line the streets and sidewalks of the city center.
Cesar Espinoza, a 30-year-old chauffeur, who swaps currencies in the shade of a newspaper stand on Florida in his free time says only tourists are selling dollars. “Argentines won’t dream of getting rid of them — they don’t trust the government.”
Curutchet said he doesn’t expect high demand for government-supplied dollars targeted at savers.
“It would surprise me to see a flood of requests to buy dollars,” Curutchet said in a telephone interview from Buenos Aires.
Options, Reserves
Dollar purchases will be slapped with a 20 percent tax, taking the effective rate to 9.6 pesos per dollar yesterday, unless they deposit them in a bank account for at least one year.
Miriam Espotron, a customer service manager at a Banco de Galicia y Buenos Aires SA branch said yesterday several customers had inquired about the dollar purchase program but no transactions were completed.
“People are evaluating — not everybody has cash available in their account to buy dollars,” Espotron said.
If the latest measures fail to shore up confidence in the peso, Argentina’s international reserves could extend their decline, Santiago Cuneo, an economist at SW Asset Management, said in a telephone interview from Buenos Aires.
“They’ll have to devalue the peso even more and that means higher prices,” Cuneo said.
8. ARGENTINA LINKS PESO CRASH WITH SPECULATORS SEEKING OIL RICHES (Platts Commodity News)
By Charles Newbery
28 January 2014
Buenos Aires (Platts)–28Jan2014/1248 pm EST/1748 GMT   Argentina blamed speculators Tuesday for promoting a sharp devaluation of the peso last week in an effort to buy the country’s energy resources at depressed prices, including its large amounts of undeveloped shale oil and natural gas resources.
“The speculative attacks that emerging markets suffer” are “attacks against governments” that are spurred by “monopoly economic groups,” Presidential Chief of Staff Jorge Capitanich said in a televised news conference.
These attacks are at times deployed “with specific communications campaigns in coordination with monopoly media groups” with the aim of “undermining the credibility and confidence of governments,” he said.
Capitanich said this leads to a depreciation of the currency so the speculators can “buy depressed assets” and impose more orthodox economic policies to boost profit potential.
The US Energy Information Administration estimates that Argentina holds 27 billion barrels of shale oil resources and 802 Tcf of shale gas. Of that, only 13,000 b/d of oil equivalent is so far in production in Vaca Muerta, a play in the southwest of the country that is thought to have the greatest production potential.
Capitanich said speculators want a weaker peso so they can buy into Vaca Muerta at lower prices in dollar terms.
“We cannot be naive as Argentines,” he said. “We have seen this movie repeatedly throughout our history.”
He spoke a day after President Cristina Fernandez de Kirchner discussed the issue of currency speculation with her Brazilian counterpart, Dilma Rousseff, in Cuba.
Capitanich said the leaders spoke about what they view as a spate of currency attacks by speculators over the past few days on Brazil and Argentina as well as other emerging economies like India, Turkey and South Africa.
CRASH IN THE PESO
The Argentine peso dropped 18% against the dollar last week, its worst decline since the country ended a decade long one-to-one peg with the greenback during a 2001-02 economic crisis.
The Fernandez de Kirchner government responded by selling dollars out of the central bank’s reserves, lifting a ban on buying dollars for savings and accusing big business and political opponents of trying to force an economic crisis.
“It appears that some people want us to eat soup again, but this time with a fork,” the president said Monday on Twitter in reference to the hard times during the 2001-02 economic crisis.
Analysts, however, were quick to point at a hole in this argument.
“Speculation always exists in a weak economy,” said Gerardo Rabinovich, an energy expert at the University of Belgrano in Buenos Aires. “When a sheep is left unprotected the wolf is always going to attack.”
He said companies are always looking for opportunities to get into the market at a low cost, but they are not creating the conditions to do so. It is the government’s mismanagement of the economy that has brought these possibilities, he said.
Argentina is suffering from a widening fiscal deficit, dwindling dollar reserves, double-digit inflation and a shrinking trade surplus. It cannot borrow abroad to ride through some of these problems because the government has failed to fully settle a $100 billion debt default from 2001, meaning that creditors could seize the proceeds.
This has left it heavily reliant on central bank reserves, which have dropped 45% to $29.1 billion from a peak of nearly $53 billion in 2011.
The government let the peso depreciate last week after years of saying it would never do so.
LOSS OF CONFIDENCE
This sudden shift in economic policy has “cut credibility in her government,” said Carlos Germano, a political analyst in Buenos Aires.
He added that people are also growing increasingly concerned about the president’s leadership capacity.
Fernandez de Kirchner took a back seat to running the economy after head surgery and a worse-than-expected result in midterm congressional elections in October. For 42 days she didn’t make a single public appearance, and then broke the silence last week. But she made no mention of the economy even as concerns swelled about the peso, inflation and dwindling dollar reserves.
“People see a government that’s not solid enough to take on the economic problems facing the country,” Germano said.
So instead of tackling the problems head on, the president and her ministers are attacking supposed speculators.
“This buys the government time to figure out what to do,” Germano said. “It also sends a signal to society, whether right or wrong, that the government is doing everything it can but forces are out there that are trying to prevent it from doing so.”
COSTLIER E&P TO IMPACT VACA MUERTA
Now adding to the country’s economic worries — in particular for the oil sector — is the currency depreciation.
“It has got more expensive for companies to invest in Vaca Muerta,” said Rabinovich.
He said the cost of investment in exploration and production is based in dollars, including for drilling rigs and supplies. But a company can only sell the output in pesos. He said raising fuel prices at the pump is out of the question.
He said on the radio Tuesday that the government will monitor service stations to ensure they sell sufficient amounts of supplies and don’t raise prices due to the devaluation.
This hits YPF hardest. The state-run company has said it will finance 80% of its $37.2 billion investment program for boosting oil and gas production 36% by 2017 out of cash flow, largely from fuel sales. It has a 50-60% share of diesel and gasoline sales.
“You need more pesos to buy a drilling rig and other supplies now, and salaries no doubt are going to rise because of the impact of the devaluation on inflation,” Rabinovich said.
The higher cost of investment in peso terms “will delay investments in Vaca Muerta,” he added.
While YPF is the only company that has put Vaca Muerta resources into production, other companies are planning to follow suit. Chevron, ExxonMobil, Shell and Total have announced multi-million and even billion dollar pilot production projects in the run-up to putting the resources into mass production.
At the same time, Argentina is betting on shale development to return it to the energy self-sufficiency lost in the late 1990s and early 2000s as production fell on low investment, few finds and limited exploration.
This has led to a surge in imports of diesel, fuel oil, gasoline and gas, and now crude.
Argentina plans to import up to 56,610 b/d of light crude supplies over the next year, the largest amount in two decades. The effort is designed to reduce imports of costlier diesel, fuel oil and gasoline supplies and free up domestic supplies of heavier crude for export.
But with the currency depreciation and a decline in dollar reserves, it may get much harder to pay for the imports, Rabinovich said.
“Imports cost a whole lot more now in pesos,” he said.
9. KBW ANALYST: FOR CITI, CONTAGION IS THE REAL RISK  (WSJ Blog)
By Maureen Farrell
28 January 2014
Citigroup has long been the most international of U.S. banks.
In recent years, that has been a good thing, as growth in emerging markets outpaced the U.S. But in recent days, that has raised questions about how much exposure Citi has to the tumult unfolding in Argentina, Turkey and South Africa.
KBW analyst Frederick Cannon says Citigroup’s exposure to Argentina, the most of any U.S. bank, should be manageable even if the country devalues its currency. In that case, Citigroup could suffer losses, but nothing to cause major issues at the bank.
The real issue for Citigroup will come if Argentina’s woes spread beyond its borders and cause investors to flee Brazil and Mexico, where Citigroup has an even larger presence.
Over the past week, the price of the Argentinian peso has fallen precipitously as emerging-market currencies have come under pressure. The country and investors around the world have been worried that the currency could continue to depreciate rapidly like it did in 2002, which caused a deep economic crisis there.
According to KBW, Citigroup is the twelfth largest bank by deposit operating in Argentina. No other major U.S. bank ranks in the top 30.
Still Citigroup’s exposure there overall is relatively small, amounting to roughly $749 million as of the third quarter of 2013 or 0.4% of the bank’s tangible common equity. Mr. Cannon calls Citi’s exposure “manageable in isolation.” Even if Citi wrote off its entire investment in Argentina based on its third-quarter figures, the bank would only take a quarterly hit of 17 cents per share.
The real risk is contagion. Citi boasts of its exposure to the emerging markets, noting that 42% of its loans are there and half of its corporate loans. As KBW notes, Citi has significantly larger exposure to Brazil and Mexico.
10. ARGENTINE GOVERNMENT REDUCES VEHICLE IMPORTS AS LUXURY TAX IMPACTS SALES (IHS Global Insight Daily Analysis)
By Stephanie Brinley
28 January 2014
Argentina is reducing the number of cars it will import in the first quarter of 2014, particularly from Brazil, while imposing a new luxury tax on imported or domestic luxury goods involving vehicles. The new tax is set at a rate of 30% on cars ranging from ARS100,000 (USD13,959) to ARS170,000, and 50% for those above ARS210,000. With the currency devaluation, the range of vehicles impacted by this tax has widened; as a result, the government may review the price ranges – the peso has lost more than 30% against the US dollar in two months. This devaluation is also likely to slow vehicle sales. This month, Argentina also lifted restrictions in place since 2011 that limited the purchase of foreign currency. The falling peso has temporarily driven up car sales as consumers look to put their money into durable goods rather than holding currency.
Significance: IHS Automotive believes that the tax on luxury vehicles will have a major impact on vehicle demand next year, primarily for the C, D, and E segments, with sales falling below 800,000 units. Our 2014 forecast anticipates 783,000 units, although sales may drop even lower given that the law was enacted in January, usually the region’s strongest month of the year. Argentina is the largest importer from Brazil, predominantly auto parts. Argentina argues that while it has a USD1-billion surplus in the trade of CBUs with Brazil, it has a deficit of USD3 billion in parts, and that gap needs to close. The authorities will continue to review the issue and should finalise an automotive agreement in the coming months. The Argentine government has been working to boost domestic manufacturing and exports, and to increase dollar inflows to tackle foreign debt, with import quotas among the measures to be implemented. The latest move was meant to account for a USD300-million reduction in foreign aid spending by the end of March; the country imported USD5 billion worth of vehicles in 2013.
11. STRAINED ARGENTINA-URUGUAY RELATIONS THREATEN TO ALTER REGIONAL TRADE FLOWS (IHS Global Insight Daily Analysis)
By Laurence Allan, Grant Hurst
28 January 2014
Commercial restrictions imposed by the Argentine government are impeding Uruguayan trade flows and are likely to make exporters more reliant on Brazil and Asia.
IHS Global Insight perspective
Significance
The Argentine and Uruguayan presidents will both be in Cuba this week, raising the possibility that the two leaders will meet to discuss ongoing bilateral diplomatic and trade difficulties. These include an Argentine ban on its exporters using Uruguay’s main port at Montevideo.
Implications
However, even if diplomatic relations become warmer, this is unlikely to result in a complete re-evaluation of Argentine trade policy, given its ongoing domestic economic difficulties.
Outlook
Argentine commercial restrictions will therefore continue to impact on Uruguay, which in turn is likely to seek to build trade ties with Brazil and emerging markets in Asia.
Uruguay’s president Jose Mujica. Montevideo, Uruguay, 26 December 2013.
Argentine president Cristina Fernández de Kirchner and her Uruguayan counterpart José Mujica will attend a summit of the Community of Latin American and Caribbean States (CELAC) in Havana, Cuba on 28–29 January, raising expectations that a damaging dispute between the two countries could be resolved. Argentina’s cabinet Chief Jorge Capitanich said that Fernández will meet regional leaders to discuss improving trade ties. Uruguay has suffered from reduced trade activity since October 2013 as a direct result of commercial restrictions introduced by Fernández’s government. Mujica’s government, in early 2014, said that relations with Argentina were at their lowest point in recent years. Although a possible meeting between the Argentine and Uruguayan heads of state at the CELAC summit, or at an upcoming MERCOSUR summit in February, could ease current problems, the wider background to the dispute probably dampens that opportunity.
Activity at Montevideo port is being seriously disrupted
In November 2013, the Argentine government imposed a de facto ban on its exporters using Uruguay’s main port of Montevideo. According to the decision, Argentine cargoes must only transit via ports whose governments are part of MERCOSUR accords related to shipping. Uruguay, although a full member of MERCOSUR, has not signed the relevant agreements. According to IHS Fairplay, the move has been rumoured since 2010 and is intended by the Argentine authorities to favour Buenos Aires port. The restriction has been interpreted by Mujica’s government as retaliation for its decision in October 2013 to allow increased production at Uruguay’s UPM (formerly Botnia) paper pulp mill, a long standing issue of dispute between the two (see Argentina-Uruguay: 19 November 2013: ).
This has had significant implications for Montevideo Port, given that more than half of its throughput is transshipment, 75% of which originates from Argentina, according to IHS Fairplay. Cargo transiting Montevideo port fell by 43% during November and December 2013, according to the Uruguayan Centre of Navigation (Centro de Navegación de Uruguay: CENNAVE). There has also been a 40% decline in trade activity at the Cuenca de la Plata container facility, according to Belgian-based logistics and port operator Kateon Natie. The move has also been unpopular among Argentine exporters, who are incurring extra costs by using alternatives to Montevideo. The Argentine Chamber of Commerce has claimed that the move damages Argentine export competitiveness, and called on the government to re-evaluate the policy.
Damaging consequences for bilateral trade
The impact on Montevideo port is only one negative side effect on Uruguay of Argentina’s current attempts to lower its trade deficit and protect its foreign currency reserves, which fell below USD30 billion on 12 January (see Argentina-Brazil: 22 January 2014: ). Argentine government restrictions on access to US dollars and on the use of credit cards abroad appear to be having a serious impact on the flow of Argentine tourists into Uruguay during the current vacation high season – Uruguay’s tourism authorities assess 10% fewer Argentine visits in the early weeks of 2014 compared to 2013. The effects of Argentina’s apparent partial relaxation of currency controls on 27 January are likely to be significant for Uruguay (see Argentina: 27 January 2014: ), with a depreciating Argentine peso hitting the competitiveness of Uruguayan exports and making Uruguay more expensive for tourists spending Argentine pesos there.
A series of stringent import procedures implemented by the Argentine authorities in 2011–12 pose a major obstacle affecting the flow of Uruguayan exports to Argentina. According to local media, the value of Uruguayan exports backed up at Argentine customs has increased from USD5 million to USD15 million since October 2013. In January 2014, Uruguayan minister of industry, energy, and trade, Roberto Kreimerman, claimed that USD32 million of Uruguayan exports were delayed at Argentine customs.
Uruguayan agribusiness, manufacturers and port operators bear brunt of dispute
Continued delays to Argentine imports from Uruguay are likely to frustrate Uruguay’s agribusiness and manufacturing export sectors (including food, paper, chemicals, and clothing), which are relatively dependent on the Argentine market. In 2011, Argentina accounted for approximately USD587 million of Uruguay’s exports, making it Uruguay’s second largest export market after Brazil. Exports to Argentina fell by 14.7% in 2012, and are reported to have declined by a further 5.6% during the first eight months of 2013.
Outlook and implications
These dynamics are likely to drive diversification of the Uruguayan export market, and Mujica’s government has already taken several steps in this direction. In 2012, Uruguay set up the Markets Diversification Fund (FODIME), aimed at helping companies find alternative export markets. This has been complimented by official state visits to Asia and Europe during 2013, both of which had the declared objectives of strengthening bilateral trade relations (see Uruguay: 29 May 2013: ). China in particular constitutes a major growth market for Uruguay, exports to which increased by 45.3% in 2013. Brazil, traditionally Uruguay’s largest trading partner, is likely to continue to be a major focus, although despite 6.4% growth in exports in 2012, exports during 2013 fell by 2.2%. The entrance of Venezuela as a full member of Mercosur is also a good opportunity for Uruguay to place its food sector products.
Given that the balance of power in terms of Uruguay and Argentina’s trade relations is strongly weighted in favour of Argentina, Uruguay is highly unlikely to invoke any meaningful retaliatory measures of its own. This was underlined by Mujica’s December 2013 offer to sell energy to Argentina to help address its power shortages. In another strategy that would potentially reduce Uruguay’s economic reliance on Argentina, Uruguay is embarking upon a USD500-million development of a deep water port, largely driven by Brazilian and Chinese interest. The project, located at Rocha on Uruguay’s east coast, is reported to be 80% funded by Brazil and will aim to increase the flow of trade between the two countries while simultaneously seeking to maximise Uruguay’s export potential with a focus on its nascent paper pulp and emerging iron mining industries.
12. FORD CONCERNED ARGENTINA, VENEZUELA MAY BITE INTO 2014 PROFIT (Reuters News)
By Bernie Woodall
28 January 2014
DEARBORN, Mich., Jan 28 (Reuters) – Ford Motor Co on Tuesday joined a growing number of multinational companies expressing concern that economic turmoil in Venezuela and Argentina could spell trouble for 2014 profits.
High inflation in Argentina and Venezuela, along with concern about how the two countries’ governments will try to steady their economies has Ford rethinking its annual forecasts for South America.
Consumer prices jumped more than 50 percent last year in Venezuela and private analysts say inflation reached 25 percent in 2013 in Argentina, fueled by weakening currencies in both countries that have rattled global financial markets.
Ford’s financial outlook first presented six weeks ago called for the company to repeat 2013’s performance in South America, when it lost $34 million before taxes, compared with a profit of $213 million in 2012. Ford’s fourth-quarter losses in South America ballooned to $126 million.
“Since December, we’re more concerned,” about company performance in South America, Ford Chief Financial Officer Bob Shanks told reporters on Tuesday as the company reported an overall annual pretax profit of $8.57 billion.
Shanks said the company is poised to respond in “real time” to the changing economic landscape in both Venezuela and Argentina.
“I think that is an area that we will continue to watch very closely,” he said. Ford will likely have plenty of company.
General Motors Co newly installed Chief Financial Officer Chuck Stevens recently said that GM’s South American operations had a second straight profitable year in 2013, but that continued volatility in Argentina and Venezuela present financial risk. More details may emerge with GM reports earnings next week.
Beyond the auto industry, U.S. consumer products companies from Colgate-Palmolive to Clorox may also take a hit on the worsening crisis, in which the Argentine government’s currency controls, by limiting access to dollars, has led a mad scramble for the U.S. currency on the black market.
The exchange rate on the black market is nearly twice the official exchange rate, said Guido Vildozo, IHS Automotive analyst based in Massachusetts. This led to people selling dollars on the black market and then buying cars at the official exchange rate, “an investment in a durable good that will maintain its value even if currency inflation continues,” said Vildozo.
This led to a short-term gain for Ford and other automakers in the Argentine market last year, but Shanks said that the company hopes that the government institutes longer-term changes that while biting into new vehicle sales will make more sense for consumers and the companies that sell to them.
Last Friday, the day after the Argentine peso had its hardest drop against the U.S. dollar in a dozen years and in the face of an expected 30 percent hike in consumer prices in 2014, Buenos Aires said it would relax currency controls it had long defended as essential.
VENEZUELA
The situation is even worse in the smaller market of Venezuela, where Shanks told reporters on Tuesday, “the government is trying manage every aspect of the economy.”
“You know that just doesn’t work very effectively,” he added.
New vehicles sales in Argentina by all manufacturers were about 900,000 vehicles last year, compared with 100,000 vehicles in Venezuela.
Shanks said a lack of access to foreign currency in Venezuela has caused Ford to cut auto output there “because we simply can’t get the currencies that we need in order to pay for the parts that we need to bring in for production.”
Last week, Venezuelan President Nicolas Maduro revamped 11-year-old currency controls under pressure to fix economic ills ranging from the highest inflation rate in the Americas to shortages of bread and milk.
However, Venezuela’s benchmark bonds fell to two-year lows when investors said the moves did not go far enough to correct policies that critics say have led last year’s inflation rate of 56 percent.
FORD NOT ALONE
Colgate-Palmolive Co derives more than 80 percent of its business outside of its North American base, including 50 percent from faster-growing emerging markets, and Latin America accounts for nearly 30 percent of Colgate’s sales.
Last year, Colgate-Palmolive said it incurred a one-time aftertax loss of about $120 million to adjust its balance sheet in Venezuela, which Morningstar said hit earning by 13 cents per share.
Colgate was joined by Avon Products Inc and Clorox Co last year in having to slash prices for its consumer goods sold in Venezuela after the country’s bolivar was devalued.
13. SLIP SLIDIN’ AWAY IN ARGENTINA: DOES PRESIDENT FERNÁNDEZ DE KIRCHNER HAVE A PLAN TO SAVE HER FOUNDERING CURRENCY? (Foreign Policy Blog)
By Daniel Altman
January 27, 2014
South America Last week, Argentina’s central bank finally abandoned its hopeless battle to keep the peso at an artificially high exchange rate versus the dollar. Immediately afterward, the Argentine government decided to allow more purchases of foreign currency by its citizens. But the transition from the country’s unsustainable currency regime is far from over — and it could get much worse.
The initial devaluation of the peso came on Thursday, Jan. 23, as the central bank abstained from the purchases it had long used to prop up the currency. A drop of more than 10 percent on Thursday was followed on Friday by a smaller dip, with the peso coming to rest at about 8 to the dollar. It had hit 7 pesos just two days earlier.
Just eight months ago, Cristina Fernández de Kirchner’s government had pledged not to devalue the peso. For years, it had been trying to make the central bank’s job easier by restricting Argentines’ sales of pesos in favor of foreign currencies. But as the bank’s reserves dwindled, the risks implied by creating demand for pesos continued to grow. Last week was apparently the end of the line.
A more gradual pullback might have been preferable, but it was healthy to embrace the inevitable sooner rather than later. With the currency falling to its real value in a competitive market, there would be no more need for restrictions on trading. So far, so good, then? Not quite.
The signs of a problem began in the black market for dollars. For the past several years, the black market has operated in plain sight to fill Argentines’ demand for dollars. Private traders sell dollars for many more pesos than the official rate to people who need them for travel, to invest, or simply because they think the peso will lose value in the future.
Before Thursday’s events, the main black market rate, known as the “blue” dollar, sat at about 11.8 pesos. On Monday, after some ups and downs, it settled around 11.7 pesos. To an outside observer, the gap with the official exchange rate looked smaller, which would have been a sign of progress. But from the point of view of an average Argentine, the gap had barely changed at all.
The reason was in the fine print. The government announced on Monday that households with monthly incomes of at least 7,200 pesos would be allowed to buy $2,000 at the official rate each month, more than enough for most Argentines (or at least those with the requisite income). But there was still a surcharge on many of these transactions. For purchases and withdrawals from businesses and banks abroad, the previous surcharge of 35 percent was lowered to 20 percent. Before, the surcharge resulted in an effective exchange rate of about 7 x 1.35 = 9.5 pesos to the dollar. After the change in policy, the effective rate was 8 x 1.2 = 9.6 pesos.
In this case, no news was bad news. The greater availability of dollars should have reduced the gap between the official and black market rates, but neither really changed. Why not?
Argentines may now be skeptical that, having started the peso’s slide, the government can also stop it. As the value of the peso drops, some businesses will be tempted to raise their prices more quickly. But with heightened inflation, a freely floating peso might fall faster as well. In the absence of a credible plan from the government for keeping prices in check — its existing price controls have hardly done the job — a downward spiral could ensue. To all appearances, uncertainty about prices and the peso is still generating demand for dollars in the black market.
So far, Fernández’s government has done little to combat it. Last week, Axel Kicillof, Argentina’s fourth economy minister in five years, and Jorge Capitanich, the cabinet chief, gave conflicting versions of the new rules for trading currencies, citing different surcharges for transactions (dramatized in this cartoon by Javier Rodríguez). On Monday, Jan. 27, Capitanich said the government would publish the names of every purchaser; he later reversed himself. Meanwhile, Kicillof promised to punish businesses that raised prices after the devaluation.
But to stabilize the peso, the government will have to fight inflation with more than rhetoric and threats. The process will not be easy, since inflation in Argentina is like the needle tracks on an addict’s arm — the ugly and unmistakable side effect of a long-term habit. For Fernández, the habit is spending.
During the global boom in commodities, Argentina’s central bank printed pesos to buy the foreign currency earnings of the country’s exporters. Rather than putting the resulting reserves into a sovereign wealth fund, the Fernández government used them to fund enormous increases in public sector salaries, infrastructure projects, and subsidies for energy and other essentials. These huge injections of cash into the economy did not come with equal growth in the production of goods and services, however, so inflation of more than 20 percent became commonplace.
If the government doesn’t rein in its spending, then prices will keep rising while the peso keeps slipping. This process is not always orderly, and any moment of panic can lead to hyperinflation and bank runs. But with less than two years left in her last term, Fernández may be willing to take the risk.
Daniel Altman is the global economics columnist for Foreign Policy. He also teaches economics as an adjunct at the Stern School of Business at New York University. He is a member of the Council on Foreign Relations and serves on the expert advisory board of Dalberg Global Development Advisors. Altman previously worked as an economic advisor in the British government and as an economics columnist at The Economist and The New York Times. He is the author of four books: the international bestseller “Outrageous Fortunes: The Twelve Trends That Will Reshape the Global Economy” (Times Books, 2011), “Power in Numbers: UNITAID, Innovative Financing, and the Quest for Massive Good” (PublicAffairs, 2010; with Philippe Douste-Blazy), “Connected: 24 Hours in the Global Economy” (Farrar, Straus and Giroux, 2007), and “Neoconomy: George Bush’s Revolutionary Gamble With America’s Future” (PublicAffairs, 2004). Altman has lived and worked on four continents and is a citizen of the Canada, the United States, and the United Kingdom. He holds a Ph.D. in economics from Harvard University.
14. ARGENTINA’S ECONOMY IS CRATERING, AGAIN (The New American)
By Bob Adelmann
27 January 2014
While Wall Street declined by three percent over global growth concerns last week, few were noting or even interested in the 11-percent decline in the Merval, Argentina’s stock market index. It hit a high of 5,970 on Tuesday, January 21, the day before the Argentina government devalued its currency. It closed at 5,337 on Monday. The peso itself has been in decline far longer, having lost nearly 35 percent of its value against the dollar over the last 12 months.
In an address to her country the day after the devaluation, Argentina’s President Cristina Fernandez, in a brilliant display of economic ignorance and hubris, announced her solution to the problem: more government spending. This time, she announced a 600-peso ($84) monthly “stipend” to students, to be paid for with more printing-press money.
This was entirely predictable: Efforts were made to grow Argentina’s economy through deficits, and inflation of the currency rose as the peso lost value, reaching 28 percent last year. As citizens tried to preserve what little purchasing power they had left, Fernandez clamped down with more than 30 different stifling capital controls. This would force those with capital to suffer the brunt of the inflation. Those controls included:
• Increased taxes on credit card purchases
• Limits on online purchases of products made abroad
• Taxes on vacations taken outside the country
• Limits on purchases of foreign currencies
• Confiscating private pension plans, converting them into pesos, and then adding them to the country’s social security fund
• Prohibiting foreign companies with a local presence from sending their profits back home
• Surcharges on airline tickets to foreign destinations
• Limits on ATM withdrawals, and only in pesos, not dollars.
The results were also predictable. Citizens who exited the country packed whatever dollars they had into the bottom of suitcases; others put them in safe deposit boxes or hid them under their mattresses. When local police went on strike for higher wages, riots broke out. That was followed by looting. Shop owners were traumatized. Dominga Kanaza, the owner of a corner grocery in downtown Buenos Aires, refused to open the shutters on her store, telling reporters, “It was scary,” and the worst situation she had seen since similar riots occurred during Argentina’s economic collapse and $95 billion default back in 2001.
Soybean farmers began to hoard their harvests rather than bringing them to market, predicting that soy would retain its value better than the peso.
When Vale, the world’s second largest mining company in the world, cancelled plans to invest $6 billion (American dollars) in a new potash mine in Argentina, things got rough. The company did the math and decided that the gap between Argentina’s official and black-market exchange rates would force it to invest real dollars into a project that would only pay back pesos in profits. Argentina’s chief enforcer, Interior Secretary Guillermo Moreno, demanded a meeting with Vale company officials at which he threatened them with jail unless the agreement was reinstated.
The last time such measures were instituted, they were called colloquially “corralito,” meaning that the free market’s operations were corralled or limited so that the government could work its will on it and on the citizens involved in it. This occurred the last time Argentina tried to resist the inevitable effects of making promises it couldn’t keep and then paying for them with phony money. The “corralito” in 2001 froze bank accounts while forbidding the withdrawal of dollars and only allowing minor withdrawals of pesos. This was instrumental in collapsing the economy.
The economy began to revive when the “corralito” was lifted by Roberto Lavagna, who served as Argentina’s minister of economy and production from 2002 to 2005. As it was lifted, the value of the peso stabilized, trade surpluses began to reflect a growing economy, and unemployment began to decline. The poverty rate dropped, and for a period of time Argentina’s economy thrived.
But with the election of former President Nestor Kirchner’s widow, Cristina, in 2007, government promises abounded, with public works programs announced that were promised to offset the impact of the worldwide Great Recession. That was the beginning of the end of the Lavagna resurgence and the beginning of the new “corallito.”
Unless and until Argentina and its citizens learn from history, it will be forced, once again, to enjoy the fruits of government intervention in the free market, running the risk of turning today’s “corrallito” into a “corralón” — a big corral of even more draconian measures, setting the stage for yet another Argentinian crisis that could equal or exceed that of 1998 through 2001.
A graduate of Cornell University and a former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently atwww.LightFromTheRight.com, primarily on economics and politics.

========================
WEDNESDAY
, Jan. 29

1. ARGENTINES JOCKEY TO COPE WITH ECONOMIC TURMOIL (The Washington Post)
By  Vicente Panetta in Buenos Aires and Luis Andres Henao in Santiago, Chile,
January 30, 2014
BUENOS AIRES, Argentina — Consumer prices are soaring, the treasury is running low on foreign currency and the peso has had its sharpest slide in 12 years. Instead of rioting, though, Argentines are falling back on tried and true survival skills to cope with the turmoil.
Inflation is at about 30 percent and there’s been a 15 percent drop in the peso’s value against the U.S. dollar over a few days. But Argentina has gone through five much more dire economic times since the 1930s.
So some Argentines are hoarding dollars, while others stockpile goods or plow their savings into real estate.
More people ride bikes now following recent increases in public transportation fares. They eat less at restaurants and cook at home. They buy cheap, pirated DVD copies of the latest films rather than go to the cinema.
Sofia Basualdo, a 43-year-old geography teacher, responded to growing inflation with a shopping spree to beat further price rises.
“I might pay one peso for a product today, but next week I’ll likely have to pay two pesos,” Basualdo said as she left a Buenos Aires supermarket pushing a shopping cart filled to the brim. “In this country, when you start smelling inflation it’s best to buy and save.”
   Many Argentines note that the current economic woes are not as bad as Argentina’s financial collapse in 2001-2002. Unemployment remains relatively low, and many people benefit from government handouts. Yet they worry the country may be at a tipping point.
“People are adopting defensive measures to survive,” said Jorge Raventos, a political analyst and former spokesman for Argentina’s foreign relations ministry. “People endure this by zig-zagging along, but it’s hard to know how much they can take before they explode.”
Although it is exceedingly difficult because of strict regulations, some people and businesses have succeeded in past years in sending their dollars out of Argentina as a hedge against inflation. Then Deputy Economy Minister Axel Kiciloff last year estimated Argentine individuals and companies had socked away up to $200 billion in undeclared currency outside the country.
But like most people, Carlos Partcha, an 80-year-old retired journalist, has taken the simpler measure of buying U.S. dollars and stashing them under his mattress — as he has done for more than a decade.
“We don’t trust anything anymore. Not even the banking institutions,” Partcha said. “I had saved in dollars, and when the banks froze deposits in 2001, I got pesos back and lost my money.”
“We’re so used to these levels of uncertainty that the Argentine has developed a sort of workout routine to deal with” economic instability, he said.
The crisis 13 years ago was so bad that one of every five Argentines was out of work and some reported going hungry. The peso, which had been tied to the dollar, lost nearly 70 percent of its value.
Banks froze deposits and barricaded behind sheet metal as thousands of protesters unsuccessfully tried to withdraw their savings. At least 27 people died in protests and looting that swept Argentina in December 2001 as South America’s second-largest economy unraveled and eventually defaulted on a debt of more than $100 billion. Argentina saw a revolving door of five presidents over two weeks.
Restoring Argentina’s sense of pride and sovereignty after that collapse has been the central goal of President Cristina Fernandez and her late husband and political predecessor, Nestor Kirchner. The presidential couple negotiated or paid off most of Argentina’s defaulted debt, nationalized the pension system, and retook control of the national airline and oil company. They also kept energy cheap through subsidies and dug deep into the treasury to redirect revenue to the poor through handouts.
For several years, Argentina enjoyed annual growth of 7 percent fueled by the high prices foreigners paid for the country’s soybeans and other agricultural commodities.
But now, Argentina suffers from a shortage of dollars, one of the world’s highest inflation rates and an inability to tap into global credit markets because of its debt default.
Argentina’s economy this year is expected to expand by no more than 1.5 percent, mainly because of lower commodity prices and waning demand from China for its agricultural goods. The government’s policy of nationalizing private firms has also spooked investors.
Inflation estimated last year at 28 percent and projected to be even higher in 2014, forces rounds of wage and price negotiations. Hugo Moyano, one of Argentina’s most powerful union leaders, recently said inflation is “eating up salaries” and “must be corrected and compensated.”
The government recently eased tough restrictions on exchanging pesos for foreign currencies after they backfired by pushing many Argentines to buy dollars on the black market.
Independent economists say the government’s pullback on currency controls is just a bandage for a wounded economy that needs to contain inflation by dialing back public spending. The government, in turn, blames banks, energy companies and big businesses, accusing them of speculating with the peso and raising prices to provoke instability.
Kicillof, now the economy minister, on Wednesday announced agreements with business leaders aimed at keeping the peso’s sharp depreciation from leading to higher prices for consumer goods. Producers of steel, aluminum, metal products, petrochemicals and plastics are to hold prices to the levels of Jan. 21 — the day before the peso’s big drop.
Amid fears of even higher inflation, Argentines are seeking to protect their wealth by buying cars and real estate.
“I’m investing in my own house, building it with my husband. That gives me security because I don’t have to pay rent that constantly goes through the roof,” said Miriam Rodriguez, 35, a maid who lives on the outskirts of Buenos Aires.  “Bricks are a good way of guaranteeing some stability.”
Rodriguez said rising prices have forced her to make other changes. She’s stopped buying clothes as well as top brands at the supermarkets, and she canceled her Internet and cable TV service. When she gets together for a dinner with friends, everyone brings their own food.
“I’m not worried about the dollar,” she said. “I don’t even have money to go trade for dollars.”
2. ARGENTINA SEEKS TO CONTROL PRICES AMID DEVALUATION (The Washington Post)
January 29, 2014
BUENOS AIRES, Argentina — Argentina’s government has announced agreements with business leaders to keep the recent sharp depreciation in the peso from pushing up prices for consumer goods.
Economy Minister Axel Kicillof said Wednesday that “there is no reason for up or down movements in foreign currency to translate into all the prices in the economy. Tariffs, taxes and salaries are not in dollars.”
Chronic high inflation is one of the main worries of Argentines, who fear the sharp drop in the Argentine peso against the dollar will heat up the rise in prices even more.
The government says producers of steel, aluminum, metal products, petrochemicals and plastics have agreed to hold prices to pre-Jan. 21 levels. That is the day before the biggest fall by the peso since Argentina’s 2001-2002 economic crisis.
3. ARGENTINA IN PRICE ROLLBACK DEAL WITH INDUSTRY (The Wall Street Journal)
By Ken Parks
January 29, 2014
*Government to Use Fines, Store Closures, Imports to Fight Inflation
BUENOS AIRES—Argentina on Wednesday said it had struck a deal with metals and plastics producers to roll back recent price increases as the government tries to prevent a currency devaluation from stoking inflation that is already believed to be running above 25% a year.
The makers of steel, aluminum and plastics will lower prices to their levels on Jan. 21, a day before the central bank engineered the biggest devaluation of the Argentine currency since the 2002 financial crisis, Economy Minister Axel Kicillof said.
“It’s not an imposition by the government, rather a voluntary agreement between the different parties,” Mr. Kicillof said at a news conference. “There is no reason for movements in the exchange rate, up or down, to directly and proportionally impact all prices in the economy.”
Consumer electronics and appliance manufacturers also agreed to cap year-to-date price increases at 7.5%. The 15% devaluation in the peso last week spurred many businesses to mark up prices on goods ranging from computers to televisions, almost all of which are imported or assembled from imported parts.
The price rollback announcement comes less than a month after price controls were applied to almost 200 basic consumer products, including meat, beer and condoms. More price accords are likely as government officials have said in recent week they are scrutinizing 38 industries to find out if producers and middlemen are raising prices in pursuit of excessive profits.
Businesses that take advantage of consumers could face fines, store closures, competition from imported goods and the withholding of government energy subsidies and soft loans, said Jorge Capitanich, President Cristina Kirchner’s cabinet chief.
“The speculative behavior of many businessmen and merchants in Argentina is antipatriotic and shameful,” Mr. Capitanich said.
The Kirchner administration has devalued the currency, ramped up price controls and tightened monetary policy to contain inflation and a loss of confidence in the currency that threaten to plunge Argentina into its deepest recession since its 2001-2002 economic crisis and default.
At its weekly auction of short-term notes Tuesday, the central bank lifted interest rates to the highest level in more than a decade, seeking to head off the risk of Argentines pulling their money out of banks to buy dollars as a hedge against inflation.
Rates on 98-day peso notes rose to nearly 26% from 20% just a week ago. The higher rates still leave savers at the mercy of inflation that many economists say is approaching a 30% annual rate.
The Kirchner administration on Monday also lifted an 18-month ban on the purchase of dollars for savings purposes to deflate a black market for dollars that was fueling inflation and expectations of more devaluations. So far, the government has authorized dollar sales for about $100 million.
However, higher interest rates, a weaker currency and more dollars haven’t taken pressure off the peso. The peso firmed slightly to 8.00 pesos against the dollar on the regulated foreign-exchange market, where the central bank has been regularly supporting the currency by selling dollars.
But on the black market the peso weakened, with the dollar fetching about 12.90 pesos compared with 12.30 pesos on Tuesday and 11.80 pesos Friday, according to newspaper El Cronista, which tracks black-market rates. That suggests a major problem for Argentine authorities: Many Argentines still see the peso as overvalued at the official rate.
In an equally worrisome sign, the central bank has lost $1 billion in scarce hard-currency reserves since Jan. 21. Reserves are now at $28.5 billion and could head lower unless a weaker exchange rate boosts exports and higher interest rates tempt Argentines to keep their dollars in the banks and not under the mattress.
A key factor in the currency’s stability will be what happens to inflation, which the government says is just 10.9% a year.
Many economists, however, say the government needs to do more beyond strong-arming businesses and raising interest rates to contain inflation, which has its roots in rampant spending financed in part by money printing. But the Kirchner administration has so far avoided the politically poisonous option of cuts to spending, especially generous energy subsidies.
“The government needs an integral plan to lower inflation, and in this case it’s doing it through price accords which on their own aren’t enough,” said Mario Sotuyo, an economist at consulting firm Economia y Regiones. “If it’s not accompanied by monetary and fiscal policies, it’s very hard to lower inflation just with [price] accords.”
Companies are in a bind because price controls would limit their profitability, while at the same time they face significant wage demands from unions that doubt the government will be able to lower inflation, Mr. Sotuyo said.
Argentina’s powerful unions and employers will start annual wage talks next month, and union bosses have already signaled they aren’t going to sacrifice workers’ purchasing power.
4. GLOBAL MARKET TREMORS: AS CURRENCIES FALL, LEADERS CAST BLAME ABROAD (The Wall Street Journal)
By John Lyons, Ian Talley, Patrick McGroarty
30 January 2014
As currencies dive across the emerging world, leaders in countries such as Turkey and Argentina are resorting to a timeworn gambit that rarely succeeds in steadying wobbly money: Blaming outside conspirators.
“The speculative behavior of many businessmen and merchants in Argentina is antipatriotic and shameful,” said Jorge Capitanich, President Cristina Kirchner’s cabinet chief, on Wednesday.
Turkey’s Prime Minister Recep Tayyip Erdogan, meantime, has vowed to “choke” market speculators. With the lira plunging, the leader blamed the “interest-rate lobby” — an alleged conspiracy of bankers and foreign media that he says seeks to stoke political and economic turmoil in Turkey.
The scramble to assign blame shows how currency declines across the emerging markets are creating new political pressures for emerging-market leaders. From Brazil to Russia, developing world currencies are dropping as investors pull money on concern that slowing growth in China and the U.S. Federal Reserve’s move to tighten monetary policy will stunt emerging-market prospects.
Other developing-world leaders resist the temptation to blame the fickleness of global capital for their currency woes. Although currencies have been hit in big Latin American economies such as Mexico, Chile and Brazil in recent weeks, their leaders have reacted with more measured tones.
Part of the reason is these countries, which have followed more conservative macroeconomic policies than countries such as Turkey and Argentina, believe they can ride out the turmoil. Brazil, for example, socked away $380 billion in reserves over the past decade. Argentina’s reserves are only $29 billion.
These countries’ leaders appear to be trying to distinguish themselves from nations such as Venezuela, which have long made international conspiracy theories a part of the regular political discourse. Venezuela’s late-President Hugo Chavez described the cancer that ultimately killed him as a U.S. plot.
His successor, President Nicolas Maduro, often blames foreign conspirators and saboteurs for the oil country’s economic woes, which include a 56% inflation rate and a currency that has plunged on the black market.
“Our economy has been unsettled by an economic war of gross speculation, by hoarding, along with a psychological war from abroad,” Mr. Maduro said in a recent televised address.
Such statements, many of his critics say, are attempts to stir up patriotic fervor to distract attention from deeper domestic problems, such as overspending, inflation and labor unrest.
In Turkey, Mr. Erdogan’s government faced mass protests last year in a country that remains divided between rural conservatives who support him, and an urban middle class and some elites who view his growing power as a threat to democracy.
The Turkish lira has fallen some 20% since mid-December, and some blame Mr. Erdogan’s push for low interest rates, which the leader said were needed to fuel growth. Turkey’s central-bank governor signaled this week the bank will tighten monetary policy, including a rise in interest rates, to stop the plunge in the lira, a challenge to Mr. Erdogan’s policy making.
“Erdogan has used the strategy of blaming outsiders in the past but this has got much worse in recent times in terms of the amount of targets and the intensity,” said Wolfango Piccoli, managing director of Teneo Intelligence, a political risk consultancy.
In South Africa, meantime, the government officials are blaming the aftershocks of the 2008 financial crisis for its economic problems, which include a big current-account deficit, slowing economy and the government’s failure to end strikes that are hurting the crucial mining sector. The bank raised interest rates on Wednesday to try to stem the declines.
When the rand swung widely after the rate increase, an official promptly blamed the volatility on poor investor math skills.
Some of consternation with the fickleness of global is understandable. Investors flooded into emerging markets in recent years amid a frenzy for developing world investing. A few years later, some of that same capital is rushing out. A common critique is that Wall Street overhyped emerging-market prospects on the way up, and is now overselling as they fall from grace.
But much of the problems faced by emerging-market nations are “largely home-brewed,” said Adam Posen, head of the Peterson Institute for International Economics and a former Bank of England official.
5. ANALYSIS-ARGENTINA TO RESTART SOY EXPORTS AS FARMERS FORCED TO SELL (Reuters News)
By Hugh Bronstein
January 29, 2014
BUENOS AIRES, Jan 29 (Reuters) – Grains powerhouse Argentina will jump-start soy exports over the weeks ahead as farmers, who have hoarded beans to protect themselves from the weakening peso and galloping inflation, are forced to sell by the time harvesting starts in March.
The country is the world’s No. 3 soybean exporter and top supplier of soymeal at a time of booming Chinese demand.
A wobbly currency and fast-rising consumer prices have prompted growers to save in soybeans rather than in pesos, drying up Argentine supply and providing a boon to U.S. exporters.
The official exchange rate is 18.5 percent weaker this month while the black market peso has slumped 22.5 percent. The Rosario soy market has virtually shut down in recent weeks as growers pile up beans on their farms to protect themselves from inflation fueled in part by the anemic peso.
With the March-May soy harvesting season approaching, farmers say they will be forced to re-start selling.
“You have structural expenses on any farm, so at some point you just have to sell your reserves,” said Alexis de Noailles, a grower in the bread-basket province of Buenos Aires.
“Most of us pay income taxes around March, for example, and they cannot be paid in soybeans,” he said. “And you wouldn’t want to wait until the last minute to sell your soybeans because there is a lot of soy in the world this year and the closer we get to March the lower prices are likely to be.”
A resumption of farmer selling is expected once the harvest begins, but has not yet been fully priced into the futures market, said Rich Nelson, chief strategist with agricultural trade consultancy Allendale Inc.
March futures on the Chicago Board of Trade may fall to $12.50 a bushel by mid-February, about 17 cents below levels today, and July futures may sink to $11.75 a bushel by the peak of harvest, down about 65 cents from today, as export volumes from both Argentina and Brazil increase, he said.
Argentina’s upcoming soy crop is seen at 53.0 million tonnes, up from 48.5 million in the previous season, according to the Buenos Aires Grains Exchange.
 “The local soybean market will come back to life when the harvest starts coming in. Farmers will need to sell 20 percent of their 2014 soy crop to pay production costs that cannot be bartered for in beans,” said farm consultant Pablo Adreani.
“You will see at least 11 million tonnes of new soybeans hit the market between now and May,” he said.
Over the months ahead big harvests are also expected in Brazil (89.0 million tonnes) and Paraguay (9.4 million), according to the U.S. Department of Agriculture and private analysts. Demand is driven by China, where beans are crushed into cattle feed for the country’s fast-growing beef industry.
Despite huge investments made by exporters in Argentine soymeal plants, idle capacity at the facilities is approaching 50 percent as growers pile beans into white, vacuum-packed plastic bags that serve as horizontal silos dotting the Pampas.
“They see soybeans as a kind of currency now, like the dollar or the euro, which represent a more reliable store of value than the peso,” said Leandro Pierbattisti, an analyst with Argentina’s grains warehousing chamber.
It is not only the farm sector that is feeling the pinch.
Years of erratic policymaking in Argentina have created a gnarl of capital and price controls that have made simple transactions – like buying a refrigerator – impossible, as  merchants are unsure what prices to charge.
“The fact that the economic team does not seem to have a comprehensive strategy, especially to deal with reducing fiscal spending, is likely to hurt the efforts to stem the decline in reserves and lower inflation,” said a recent note from the Eurasia Group consultancy.
EIGHT IS ENOUGH
Economy Minister Axel Kicillof – who engineered the 2012 nationalization of Argentina’s top oil company, YPF – has warned merchants not to hike prices. He has hinted that the government will use central bank reserves to intervene in the foreign exchange market to keep the peso at 8 to the dollar, a level he calls “adequate”.
Central bank reserves fell 29 percent last year to $31 billion. They stand at under $29 billion after the bank burned through $420 million over the last four days to hold the official peso at 8 per dollar.
Inflation is meanwhile likely to keep climbing, due in part to generous state energy and transportation subsidies at the heart of President Cristina Fernandez’s populist policy model.
Her policies, like high soybean export taxes and curbs on corn and wheat shipments aimed at ensuring ample domestic food supplies, tend to take money from sparsely-populated farm areas with crumbling infrastructure and funnel it toward her base in the vote-heavy suburbs surrounding capital city Buenos Aires.
She easily won re-election in 2011 and the race to replace her next year is wide open. Opposition candidates bet that discontent over the consequences Fernandez’s policies will pave the way for voters to embrace a more pro-investment candidate in the 2015 election. She is banned by law from running again.
Meanwhile, farmers like Alberto Pereyra in Buenos Aires province say they are preparing to take their soybeans back to market as costs mount and alternative financing runs dry.
“You can hoard crops as long as you have the financing to keep planting and producing,” he said. “That’s going to run out for most of us before March.”
6. ARGENTINA RESOLVES TO PUNISH PRICE GOUGERS (Dow Jones Institutional News)
By Ken Parks
29 January 2014
BUENOS AIRES–Argentina on Wednesday resolved to punish price gougers as it tries to prevent a currency devaluation from further stoking the second-highest rate of inflation in the Americas after Venezuela, even as the peso came under fresh pressure in the market.
“The speculative behavior of many businessmen and merchants in Argentina is antipatriotic and shameful,” said Jorge Capitanich, President Cristina Kirchner’s cabinet chief. The government will use fines, store closures and imported goods to fight price increases, Mr. Capitanich said.
The rhetoric came amid the biggest challenge to Argentina’s financial stability since its 2001-2002 economic crisis and default. The central bank allowed the peso, which is tightly regulated, to slide some 15% last week in an effort to help exporters and stop spending dwindling reserves defending the currency.
The move hasn’t taken pressure off the peso. Shortly before the end of trading on Wednesday, the peso had gained slightly to 8.00 per dollar on the regulated foreign-exchange market, where the central bank has been regularly supporting the peso by selling dollars.
But on the black market, the peso weakened to about 12.90 per dollar from 12.30 Tuesday, according to newspaper El Cronista, which tracks black-market rates. That suggests a major problem for Argentine authorities: Even after the recent devaluation, many Argentines still see the official rate as too strong.
In the past three trading sessions, the peso has fallen from 11.80 to its current level at nearly 13 on the black market. So far this month, it has tumbled from 10 per dollar–a more than 20% slide.
A key factor in the currency’s stability will be what happens to inflation, which the government says is just 10.9% a year, but which private-sector economists estimate at higher than 25%.
Businesses are in the government’s cross hairs as the Kirchner administration tries to contain inflation through price controls on almost 200 basic goods ranging from food to condoms. The government is also in talks with 38 industrial sectors to limit price increases that officials say are nothing more than attempts by producers to make excessive profits at the expense of consumers.
The government struck a pricing agreement with the steel industry this week and hopes to do the same for construction materials like cement and bricks, Economy Minister Axel Kicillof said Tuesday.
Many economists, however, say the government needs to do more beyond strong-arming businesses to contain inflation. “The government needs an integral plan to lower inflation, and in this case it’s doing it through price accords which on their own aren’t enough,” said Mario Sotuyo, an economist at consulting firm Economia y Regiones. “If it’s not accompanied by monetary and fiscal policies, it’s very hard to lower inflation just with [price] accords.”
Companies are in a bind because price controls would limit their profitability, while at the same time they face significant wage demands from unions that doubt the government will be able to lower inflation, Mr. Sotuyo said.
At its weekly auction of short-term notes Tuesday, the central bank lifted interest rates to the highest level in more than a decade, seeking to head off the risk of Argentines pulling their money out of the banks to buy dollars as a hedge against inflation.
Rates on 98-day peso notes rose to almost 26%, from 20% just a week ago. The higher rates still leave savers at the mercy of inflation that many economists say is approaching 30% a year.
“The key test will be whether authorities raise the interest rate above 30% to push real rates into positive territory for the first time in 11 years,” Daniel Volberg, an economist at Morgan Stanley, said in a video to clients.
The central bank also sold $19 million in dollar-denominated notes at yields between 2.5% and 4%. The government hopes those rates will be enough to convince Argentines to keep their dollars in the banks after it lifted an 18 month ban on the purchase of dollars for savings purposes this week. So far this week, the government has authorized dollar sales for about $100 million.
It is a high-risk strategy aimed at taking away business from a thriving black market for dollars by sacrificing scarce reserves. Some businesses are using the black-market exchange rate as a reference for pricing goods and services.
Last week, the central bank let the peso slide 15% against the dollar with a view to help exporters and to trim the gap between the official and black-market rates. It was the biggest drop in the peso since 2012 and a major political blow to a president who had long promised never to devalue.
Last week’s the devaluation also spurred businesses to mark up prices on consumer goods ranging from computers to televisions, almost all of which are imported or assembled from imported parts.
Mr. Capitanich accused special interest groups of using the media to frighten the public by calling attention to a black-market exchange rate that is used by drug traffickers, money launders and tax cheats.
“No businessman can argue today that there isn’t an exchange rate policy…that guarantees stability,” he said.
7. CONFIDENCE CRISIS TO CONTINUE CHALLENGING ARGENTINA’S ECONOMY (IHS Global Insight Daily Analysis)
By Paula Diosquez-Rice
29 January 2014
On 24 January, the Argentine authorities announced a loosening of controls on purchases of US dollars.
IHS Global Insight perspective
Significance
Argentina is having am economic confidence crisis that has been brewing for the past four years.
Implications
The risk of a major economic crisis has risen as it will be very difficult to avoid further inflationary pressures from the labour corner, and a recession in the short term.
Outlook
The 2014 economic outlook is grim, and economic authorities’ creativity will be put to the test given the markets’ lack of confidence in Argentina in a context of flat and/or slow rising soft commodities prices in the short term.
Some context
Historical data show that Argentina has experimented with its currency over the past century; sometimes this has been good for the domestic market but has usually proven detrimental for external trading. The swings in the country’s real effective exchange rate have been tied to macroeconomic crises and the erratic path of policy making. The Kirchner administration since 2003 has been no stranger to currency manipulation; in the years of the exporting commodities bonanza, the central bank intervened in the foreign exchange market to keep the peso from appreciating. In the past four years, the government has intervened to prevent “imported” extreme volatility. In June 2010, the central bank imposed a restriction on individuals purchasing foreign exchange, introducing an annual quota of USD250,000. In 2011, new foreign exchange controls were introduced and throughout 2012 the restrictions grew and Argentines were prohibited from purchasing foreign exchange for the purpose of savings. Increased controls have fuelled speculation and raised the exchange rate in the parallel market (known as the “blue” dollar in Argentina). Once the country’s foreign exchange reserves declined below the USD30 billion level when including gold holdings (a level not seen since November 2006), the parallel exchange rate moved to ARS11.3:USD1 and closed at ARS13.1:USD1 last Thursday (23 January). Furthermore, after the extreme drop of the Argentine peso last Thursday, the government announced that it would relax its foreign exchange controls a little; that is, it will consent to purchases of US dollars for the purpose of saving, which has been not allowed since July 2012. However, it will have a 20% tax that can be used as credit at the moment of filing income tax. This is intended to keep the parallel exchange rate from even further steep drops.
This move is also politically motivated. The government’s image has suffered domestically since late November 2013, as Argentina experienced a police strike that prompted several days of opportunistic looting nationwide, while electricity shortages prompted sustained power blackouts amid record high temperatures. The partial relaxation of restrictions on US dollar purchases thus looks at least partly to be an attempt to boost government popularity locally. However, the impact of that is likely to be limited, given the conditions the authorities have put on US dollar purchases.
Authorities also disclosed that their objective is to keep the official exchange rate at ARS8:USD1. This figure represents the main rate, since although there are not officially multiple rates, there are implicitly three, given the punitive taxes applied to the purchase of USD depending on the purpose: for travellers and purchases abroad there is the official one, plus a 35% tax (it was first announced that this tax would go down to 20% but this was later retracted), and now for savings it is the official one plus 20% tax.
The main problem in Argentina is the inflation rate; IHS expects that the manipulation of inflation-rate figures will continue in the short term, and only a change in economic policy could bring observed annual inflation rates back to single digits. The lack of reliable statistics has been one of the major sources of inflation acceleration, as economic agents include their own inflation estimates and not the fully observed inflation rate in the price-setting mechanism. The large increase in workers’ compensation is good evidence that price increases are much higher than suggested (up 24.6% y/y in the formal private sector, up 29.5% y/y in the informal private sector, up 22.8% y/y in the public sector) with the government succumbing to workers’ pressures to avoid new mobilisations.
One of the main determinants of the inflation rate in the current year will be the wage increases that trade unions get in 2014; before this devaluation, many opposition unions had already announced that their floor was going to be a 30% increase, and this rapid devaluation will influence those negotiations. In addition, as much as the government worked on price agreements with retailers, anecdotal evidence suggests that prices of food items are still soaring – with expectations of annual inflation rates remaining at 30%.
Outlook and implications
The events of last week, including the steep devaluation of the peso after a run up of parallel market exchange rate, show that the government continues with circumstantial policy making, and thus uncertainty surrounding future policy moves remains. This is what makes the country’s currency risk so high, and unless the prices of agriculture commodities soar, we expect more spur of the moment regulation changes in order to keep the country’s foreign exchange reserves from shrinking at a fast rate. It is too early to predict how far the government will let the peso fall, but the central bank intervention to bring it back to less than 8 pesos per dollar could be a signal that it will not let the peso free fall in one day. However, the risk of having a ARS10:USD1 by the end of the first half of the year is higher, and we will be reassessing our base scenario in the next couple of weeks. In addition, the continued intervention in the foreign exchange market shows that the government might not be ready to let the “managed floating” system go just yet.
Without a clear plan to address the country’s inflation rate, which would require the government to admit that there is an inflation problem in the first place, the confidence crisis will continue, with the memory of the 2000–01 “corralito” (which denied Argentine savers access to their bank deposits) further sharpening the crisis in confidence and influencing Argentines’ behaviour. Moreover, the steep devaluation will imply a jump in prices, which is already materialising, as producers suffering higher costs will continue to pass some of the increase on to consumers in the coming months. Price controls are only a short-term solution that could be effective under strict supervision of compliance, but when over used creates scarcity and even higher consumer prices. Indeed, erratic policy making fuels loss of credibility in the attempt to regain control of the economy’s path. The steep devaluation will not help gain competitiveness for the exporting sector, given that the inflation problem increases their costs.
For the domestic economy, the steep devaluation coupled with the uncertainty of what the government will do in terms of foreign exchange policies has meant a paralysis of economic activity; retailers were not sure how much to raise their prices, while some opted to stop selling for a time.
The question remains whether confidence can be rebuilt without the removal of all the interventionist policies in place. It would be very difficult to suddenly remove capital and foreign exchange controls. The government has for now chosen to slightly relax the foreign exchange controls to allow the purchase of US dollars for the purpose of saving, while maintaining the Central Bank’s intervention in the foreign exchange market to keep the main official exchange rate at ARS8:USD1; this is again a short-term solution to buy some time. The risk of a step-wise managed devaluation of the main exchange rate has risen, as the government may decide to let the peso go to down further and intervene to keep the rate steady for a while, then make the same move a few months later. Without effectively tackling the inflation problem, the risk of a recession in the next 12 months is high.
8. INFLATION SOARING? CURRENCY CRUMBLING? NOT NOW, I’M EATING (Newsweek)
By Leah McGrath Goodman and Karla Zabludovsky
January 29, 2014
Outside an overflowing courtroom in downtown New York, a well-heeled trader from Buenos Aires, Miguel Catella, paces the stairs under a pale winter sun, lost in thought over the plight of his native country.
“Things are out of control in Argentina,” he sighs. “We are in a constant state of panic. We are losing a great deal of money. The government is not listening to its own people.”
Inside the court, Argentina’s economic minister, vice president and a rabble of high-powered lawyers argue against an injunction by the Second Circuit Court of Appeals that would force the country to make full payment on tens of billions of dollars of bonds to a group of New York hedge funds. If the court compels them, they argue, Argentina will simply refuse to pay.
One of the three judges, Reena Raggi, is unable hide her amazement at this line of argument. “So the reason not to grant this injunction – is that Argentina is going to default?” she asks.
The short answer from Argentina’s delegation: Yes.
Fast-forward one year. As Argentina prepares to take its grievances in New York to the U.S. Supreme Court, its debt problems back home have turned into a full-blown financial crisis.
In the same way that Argentina’s legal team threatened to halt payments on its government bonds, the nation’s central bank simply decided last Thursday to cease making purchases in support of the nation’s currency – the peso – sending it into instant freefall.
“The motivation for the timing of the devaluation by the government is not clear,” said analyst Tony Volpon of global research provider Nomura Group in New York. “It is also not clear if this represents a ‘one-off’ devaluation” – or something that will snowball into even bigger trouble for Argentina.
So far, it has been nightmarish enough. The devaluation prompted the biggest one day collapse in Argentina’s currency in more than a decade and the sudden loss of its people’s already waning purchasing power, triggering a rush to buy U.S. dollars and household basics such as appliances and foodstuffs before the devaluation feeds through into the nation’s prices which are set to soar far beyond reach.
(While price accords were reached earlier this month in Argentina on certain crucial food items, mark-ups of as much as 25 percent or more have been seen across the capital for electronics, wine and other goods. Some retailers won’t sell any goods at all until the price volatility levels off.)
9. FOR ALREADY VULNERABLE PENGUINS, STUDY FINDS CLIMATE CHANGE IS ANOTHER DANGER (The New York Times)
By Henry Fountainja
January 29, 2014
Life has never been easy for just-hatched Magellanic penguins, but climate change is making it worse, according to a decades-long study of the largest breeding colony of the birds.
The chicks are already vulnerable to predation and starvation. Now, the study at Punta Tombo, Argentina, found that intense storms and warmer temperatures are increasingly taking a toll.
“Rainfall is killing a lot of penguins, and so is heat,” said P. Dee Boersma, a University of Washington scientist and lead author of the study. “And those are two new causes.”
Climate scientists say more extreme weather, including wetter storms and more prolonged periods of heat and cold, is one impact of a climate that is changing because of emissions of greenhouse gases in the atmosphere. While monitoring the penguin colony, Dr. Boersma and her colleagues also documented regional temperature changes and increases in the number of days with heavy rains.
The study, which is being published online Wednesday in the journal PLoS ONE, is one of the first to show a direct impact of climate change on seabirds. Most studies have looked at how warming temperatures affect animals indirectly, by altering predation patterns or food supplies.
William J. Sydeman, senior scientist at the Farallon Institute in California, who was not involved in the research, said the study linked changes in climate, which occur on a scale of decades, to the daily scale of life in the colony. “That’s a unique contribution,” he said.
The colony at Punta Tombo, in a temperate and relatively dry region about midway along Argentina’s coast, is home to about 200,000 breeding pairs of the penguins, which are about 15 inches tall as adults. Dr. Boersma has been working there since 1982, with long-term support from the Wildlife Conservation Society.
For this study, the researchers compiled data on nearly 3,500 chicks that they meticulously tracked by checking nests once or twice a day throughout the six-month breeding season, which starts in September.
“We knew when each chick hatched, and its fate,” Dr. Boersma said.
Typically, nearly two-thirds of hatchlings at the colony do not survive to leave the nest. In most years, the researchers found, starvation and predation — by other seabirds and small animals — caused the majority of the deaths.
But they found that heavy storms killed birds in 13 of the 28 years of the study. In two years, storms were responsible for most of the deaths. Extreme heat killed more hatchlings as well, although the effect was less pronounced.
Like other young birds, penguin hatchlings can die from hypothermia if their down gets wet and loses its insulating air spaces. The birds are most vulnerable from about a week after hatching — before that they are largely protected by a parent — to about six weeks, when they develop waterproof plumage.
“They didn’t used to have to contend with this variability in the climate,” Dr. Boersma said. “And they certainly didn’t have to contend with all this rainfall.”
Since 1987, the number of breeding pairs in the colony has declined 24 percent, Dr. Boersma said. It is difficult to calculate how much of that decline can be attributed to storms and rain, she said.
Dr. Boersma said the increasing frequency of heavy storms was most likely directly affecting other seabird species that were breeding in the region.
In fact, the same direct effect is being seen half a world away, in a terrestrial bird.
In a study of a population of peregrine falcons in the Canadian Arctic that was published last year in the journal Oecologia, researchers reported that heavy rains killed large numbers of hatchlings, and documented an increase in the frequency of such rains over decades.
Alastair Franke, a University of Alberta scientist who led the study, said he was stunned when he read Dr. Boersma’s paper. “It’s amazing that we’re seeing such similarity between the two studies,” he said.
In her work, Dr. Boersma showed that the mortality caused by storms was in addition to those from other causes.
Dr. Franke said that was one of the most interesting aspects of Dr. Boersma’s study.
“This is a double whammy for the penguins,” he said. “You’re still going to get all the starvation and predation. But now you get increased mortality from rainfall as well.”
10. PENGUINS, EVEN IN ARGENTINA, AT RISK FROM CLIMATE CHANGE, STUDY SAYS (The Christian Science Monitor)
By Noelle Swan
29 January 2014
Global climate change is killing chicks in the world’s largest colony of Magellanic penguins, according to a new report, suggesting that the threat is spreading from ice-bound Antarctica to more temperate zones.
In recent decades, extreme weather events have placed unprecedented strain on penguin breeding grounds. Heavy rains and high temperatures put penguin chicks at risk of either freezing or sweltering to death, says P. Dee Boersma, a University of Washington biology professor and director of the Magellanic Penguin Project in Punta Tombo, Argentina.
This news could mean trouble for more than just penguins. Sea birds, mammals, and people are also susceptible to such changes in climate, Dr. Boersma says. She published her findings in the open- access, scientific journal PLOS ONE on Wednesday.
“Penguins are really the ocean’s sentinels,” she says. “They are telling us that we’d better start paying attention to climate change because penguins are dying from heat and these increased storms. At the same time we’re starting to see increased numbers of people die from these same sorts of things. So these penguins are really the canary in the coal mine.”
While scientists have previously sounded the alarm that melting sea ice has depleted penguin populations in Antarctica, including the Emperor penguins made famous by the National Geographic feature film “March of the Penguins,” this is one of the first indications that global climate change could also be threatening penguins that reside in more temperate zones.
“The focus has been in Antarctica, but global warming is really impacting almost every single penguin species,” says Dyan de Napoli a penguin expert and former penguin aquarist at Boston’s New England Aquarium. “No matter where they are, every one of the 18 species are being impacted in some way.” Ms. de Napoli was not involved in Boersma’s research in Punta Tombo.
Magellanic penguins, sometimes referred to as Patagonian penguins, are social sea birds native to both the Atlantic and Pacific coastlines of South America. Like many species of penguins, the Magellenic penguins are monogamous, frequently mate for life, and share equally in chick rearing.
Biologists estimate that there are between 1.2 and 1.6 million breeding pairs around the world. The International Union for Conservation of Nature lists the species as “near threatened.”
Until recently, commercial fishing and oil pollution were considered to be the major threats facing these penguins.
“Climate change is really a new factor in terms of mortality for Magellanic penguins,” Boersma says. “It’s really these extreme weather events, which all the climate models predict are going to become more frequent and more extreme, that are killing penguin chicks.”
Boersma has been studying the flightless birds in Punta Tombo for 30 years. In that time, she has seen the both the number and intensity of rain storms increase in the historically arid region. One storm was so intense; it wiped out half of the colony’s chicks.
“Penguins like it dry,” she says, “If they get wet when they are chicks and they are covered in down, it’s like you getting wet in a down sleeping bag. It’s not warm and they die because of hypothermia.”
Excessive heat can be just as problematic for young chicks. While the average temperature for the area has not changed, the range of temperatures has expanded since 1983, with more days reaching into the upper 90s F. Boersma and her team routinely found dead chicks lying prone, with their legs extended in an attempt to cool off in the shade following hot days.
Changes in climate have also impacted the penguins’ food supply. As the climate has shifted, the penguins have been arriving in their breeding grounds later and later. However, many of the fish that they rely on for nourishment are leaving the area at roughly the same time that they did 30 years ago, Boersma says. The result is an increasing shorter breeding season.
Male and female chicks take turns sitting on their eggs and caring for newborn chicks while their mates forage for food. This year, many females were left sitting on eggs for much longer than usual while the males struggled to fill their bellies. In some cases, the males did not return until the eggs had hatched and the females were severely undernourished.
When the females were able to go out it took that much longer for them to replenish their own reserves before they were able to begin to look for food to start feeding the chicks. Newborn chicks can only survive for about seven days on their yolk reserves before they begin to succumb to starvation, Boersma says.
While many penguin species would benefit from fishery conservation and pollution control, it will take a global commitment to carbon reduction in order to address the threats posed by climate change, Boersma and de Napoli say.
“I think that there is a mistaken notion that there are millions and millions and millions of them and I don’t think people are aware of how endangered they are; 14 of the 18 penguin species are listed as threatened, near threatened, or endangered,” de Napoli says. “We’ve seen across the board, with most species, population declines of up to 90 percent in the last century, if not the last 40 years.”
Penguins in Punta Tombo, Argentina, have a new foe to contend with – global climate change. Heavy rains and high temperatures are endangering the world’s largest breeding colony of Magellanic penguins.

Photo

Carter Center on 2/13/14 will screen UNC’s Prof Charlie Tuggle’s SEARCH FOR IDENTITY film and hold a President’s panel discussion on the path-setting Carter Administration’s Human Rights Policy in Argentina.

Las Abuelas de Plaza de Mayo and the Search for Identity” – describes the heroic efforts to track down the grandchildren missing as a result of the “dirty war.”
A live webcast will be available here and will be archived for future viewing.

– painting by Alejandro Deutsch (disappeared in La Perla, Cordoba – freed by Pres. Carter’s intervention)

ARGENTINE UPDATE – Jan 24 & 25, 2014

27 enero, 2014

 

Friday Clips —–
1. ARGENTINA PESO SUFFERS STEEPEST DROP SINCE 2002 (The Washington Post)
January 23, 2014
BUENOS AIRES, Argentina — The peso is suffering its fastest fall since Argentina’s 2002 economic collapse as dwindling reserves keep the Central Bank from trying to prop up the currency by intervening in the foreign exchange market.
The 16 percent loss in the peso’s official value against the dollar over Wednesday and Thursday could worsen the country’s inflation, which is among the worst in Latin America, analysts said.
The peso fell from 6.88 per dollar on Tuesday to 7.14 on Wednesday. By Thursday’s close, it was at 8 to the dollar. On the black market, where Argentina’s currency is even weaker, the peso dropped 6 percent Thursday to 13 per dollar.
The sharp depreciation is likely due to a new government strategy of seeking a sudden devaluation instead of a gradual one, said Juan Pablo Ronderos of economic consulting firm abeceb.com.
“There was a first sign of this change on Tuesday because the Central Bank didn’t show up (to intervene) until midday, and on Wednesday and today it just disappeared from the market,” Ronderos said. “The gradual devaluation wasn’t working because the Central Bank kept on sacrificing lots of its reserves and it kept on being reflected on consumer prices.”
Analysts expect Argentina’s inflation to reach more than 30 percent this year, the second highest rate in Latin America after Venezuela.
“The sharp drop will aggravate inflation, although the impact may be mitigated by the fact that some imports will already be purchased at the much weaker black market exchange rate,” Neil Shearing, chief emerging market economist at Capital Economics in London, said in a research note.
“The bigger picture, though, is that the economic mismanagement of the past decade has once again pushed the country to the brink of a balance of payments crisis,” Shearing wrote.
Critics of the left-leaning government blame economic problems on its higher spending on social programs, expansion of business regulation and nationalization of some companies.
Argentina has been kept from global credit markets since defaulting on its debt during its 2001-2002 financial crisis. So officials have been trying to keep dollars in the country for the Central Bank to use to pay off government debts.
But the bank’s reserves have plunged to $29 billion, the lowest level in more than seven years despite increasingly restrictive currency controls meant to stem capital flight.
The controls make it nearly impossible to legally trade pesos for dollars, but many Argentines have turned to black market money changers to obtain dollars.
Many in the country are haunted by memories of the financial crisis, when banks froze deposits and the currency lost value, and they want dollars to keep in emergency stashes.
 
2. ARGENTINA REELS: A POPULIST FORMULA GOES FLAT (The Wall Street Journal)
By Ken Parks, Taos Turner and John Lyons
24 January 2014
BUENOS AIRES — Argentina devalued its peso Thursday in a move that raised fears of a financial crisis in South America’s second-biggest economy and recalled the meltdown a decade ago that sent the country on its long decline from a darling of global capitalism to economic pariah.
A slide of more than 15% in early trading Thursday forced Argentina’s central bank to step in by selling dollar reserves. The intervention narrowed the peso’s loss to 8%, but that was the biggest one-day decline since Argentina defaulted on its public debt and devalued its currency in 2002.
“The market is exploding,” said Francisco Diaz Mayer, a currency trader at ABC Mercado de Cambios.
The increasing strains in Argentina’s economy are the result of populist policies by Nestor Kirchner, the country’s late president, and his successor and wife, Cristina Kirchner. Their blueprint was simple: Use the boom in rising commodities prices for Argentinian exports like soy — and ramp up government spending to stoke the economy.
Argentina’s leaders also refused to submit their economic policies for review by the International Monetary Fund, which once saw the country as a poster child for free-market policies but was blamed by many Argentines for the peso’s collapse.
For years, the formula led to rapid growth and re-election for the Kirchners. But the strategy also resulted in inflation that is among the highest in the world, as well as unorthodox policies to contain the damage, such as price and currency controls. Argentina’s central bank tightly controls the peso.
The devaluation was a dramatic about-face for Mrs. Kirchner, who had vowed not to lower the peso, saying anyone who wanted to profit from such a free-market policy would have to wait for another government.
On Thursday morning, though, her cabinet chief, Jorge Capitanich, signaled that the administration had stepped out of the market. “It wasn’t a devaluation caused by the state. For free-market lovers, the supply and demand of foreign currency expressed itself yesterday,” he said.
The peso tumbled to 8.50 per dollar from 7.14 per dollar. The central bank then reversed course and ended up selling $100 million in reserves to stem the slide, a person familiar with the matter said Thursday.
Venezuela partially devalued its own currency on Wednesday, weakening the bolivar to about 11.3 per dollar for certain transactions, including tourism and remittances, compared with the official exchange rate of 6.3 per dollar.
Few economists expect Argentina’s move to take pressure off the peso, mostly because a weaker currency could stoke inflation further by making imports more expensive and prompting ordinary Argentines to try to get their money out of the country by any means possible.
The devaluation was a risky gambit by Mrs. Kirchner to bolster the peso and stem a sharp decline in the stockpile of dollar reserves, which the central bank has been using to buy up the currency at fixed prices that are far higher than what the peso trades for on the black market.
Argentina is starting to face a dollar crunch. Central-bank reserves fell to $29 billion at the start of this year, down from $52 billion in 2011. Even before Thursday, the central bank had been burning through an estimated $100 million a day to defend the currency, according to Elena Castro, a vice president at brokerage firm Auerbach Grayson & Co.
“The big question is if the devaluation feeds into higher prices and leads to more social tensions. Annual wage talks will start soon, and the big question is what increase the unions will ask for. That is probably going to create political and social problems,” said Carlos De Angelis, a professor of social sciences at the University of Buenos Aires.
Another sign that the move might backfire was the response on the black market, where the peso fell to 13.1 per dollar from 12.2 at the start of the session. The drop suggests that the official rate still overvalues the currency.
The devaluation could hardly come at a worse time for Mrs. Kirchner, who succeeded her husband as president in 2007. He died in 2010. Mrs. Kirchner underwent brain surgery last year. The devaluation came a day after her first public speech in six weeks.
The country was rocked by widespread looting and violence that left around a dozen dead in December. The looting started after a police strike in an interior city, but it spread to other provinces. Scenes of crowds stripping store shelves bare were reminiscent of looting during the last economic crisis.
For ordinary Argentines, the market turbulence of the past few days has revived memories of past crises and made Argentines even more wary of Mrs. Kirchner’s ability to fix the problems.
“My salary is worth less every day and inflation is unstoppable,” said Carlos Delia, a 45-year-old bank employee. “If the government doesn’t do something fast . . . we’re going to have a problem similar to the one we had in 2001.”
The Argentinian peso was one of several emerging-markets currencies hit Thursday after weak economic data out of China heightened worries about the developing world’s ability to weather the end of easy-money policies.
But the flare-up in Argentina’s currency market was the most dramatic — and serves as a warning that conditions for many developing countries have worsened since commodities prices ended their decadelong climb.
The shift is particularly dangerous to Latin American countries like Argentina and Venezuela that used the boom to embark on a spending spree, allowing inflation to surge and adopting currency controls and other unorthodox economic policies.
The Kirchners came to power in 2003 after the last economic crisis brought down former President Fernando de la Rua and set off a chaotic period that at one point saw five presidents in about a week.
Nestor Kirchner’s policies helped the economy recover and made him enormously popular. He was barred by law from seeking another re-election in 2007, so Cristina ran instead. She won election handily.
But the turnaround in commodities prices and growing strain from years of overspending that stoked inflation have gradually weakened Argentina’s economy — and Mrs. Kirchner’s grip on power.
Her ruling coalition failed to pick up enough seats in October’s midterm congressional election to change the constitution so she could seek a third term in 2015. While she still wields considerable power, her lame-duck status leaves her open to challenges from rival politicians in the ruling Peronist party.
This week, the government continued to crack down on imports and the online purchase of foreign goods in a bid to prevent a scarce supply of U.S. dollars from leaving Argentina. On Tuesday, the government started requiring people to submit tax forms before making online purchases at foreign retailers. The government then limited such purchases to two a year.
“They don’t have much of a choice any more because they’ve been burning their foreign-exchange reserves for some time and the capital flight hasn’t really stopped,” said Caglar Somek, a portfolio manager at New York frontier-markets fund manager Caravel Management.
“With limited foreign-exchange reserves, they can’t afford to keep defending the currency. They just can’t sustain it,” he added.
Critics said Argentina’s government has been slow to respond to the crisis, especially given Mrs. Kirchner’s recent absence from the public spotlight. That is a sharp turnaround for a president known for flamboyant speeches and constant Twitter messages, even about the television series “Game of Thrones.”
After a big drop in the peso Wednesday, many Argentines hoped that Mrs. Kirchner would address growing concerns about the currency and other economic problems. Instead, in her first speech since early December, the president avoided mentioning the economy and defiantly defended her policies, including the state’s role in redistributing wealth.
And rather than take steps to cut government spending and reduce inflation, Argentina has tried to underreport price increases, according to economists. The government says the inflation rate was 10.9% last year, but economists estimate it was closer to 25% to 30%.
3. ARGENTINA’S CURRENCY FALLS SHARPLY AGAINST THE DOLLAR, STIRRING INFLATION FEARS (The New York Times)
By Simon Romero
January 23, 2014
RIO DE JANEIRO — Argentina’s currency, the peso, plunged more than 8 percent on Thursday against the dollar after the country’s central bank tried to stem a decline in international reserves. The sharp decline, with the peso dropping the most since Argentina’s 2002 financial crisis, raises concerns that inflation could accelerate even further.
Since the start of the year, the Argentine peso has weakened 18 percent, ranking it among the world’s worst-performing currencies against the dollar. President Cristina Fernández de Kirchner’s cabinet chief, Jorge Capitanich, insisted on Thursday that the plunge was not a devaluation but the result of the forces of supply and demand.
Still, local news media said the peso closed at 7.75 to the dollar, after weakening earlier on Thursday to about 8.24, with the central bank intervening late in the trading session. Argentina’s international reserves have been tumbling, hitting a seven-year low last week of about $29.5 billion.
Though Mrs. Kirchner has vowed not to devalue the peso, the central bank has let the currency slide gradually in recent months. But there was a change in approach this week, said Gastón Rossi, a former deputy economy minister under Mrs. Kirchner.
“Depreciating in stages was causing the reserves to contract further,” Mr. Rossi said. “The government has said, ‘We’re deliberately not going to sacrifice the reserves anymore.’ ”
With the authorities tightening currency controls in an effort to reduce capital flight, Argentines have resorted to buying dollars illegally, in the black market. The so-called blue dollar rate reached 13 on Thursday, according to the Argentine news media.
With Argentina’s currency weakening, concern is growing that inflation could climb as imported goods become more expensive. The authorities in Argentina say inflation in 2013 was 10.9 percent, while private economists contend that consumer prices actually climbed more than 28 percent last year.
The prospect of abrupt shifts in Argentina’s economy sent tremors into the financial markets of other Latin American countries. In neighboring Brazil, which has the region’s largest economy, the currency weakened more than 1.2 percent to 2.40 reals to the dollar, and the country’s main stock index fell almost 2 percent.
4. OVERHEARD (The Wall Street Journal)
24 January 2014
Argentina is going from bad to worse. Again. The peso slid Thursday as traders said the central bank stopped defending it — a sign foreign-currency reserves may be running low.
Carmen Reinhart and Kenneth Rogoff’s history of booms and busts shows most Argentine recessions since the late 1800s were linked with financial crises rather than being part of the normal business cycle.
Exactly what Argentina’s economy looks like now is unclear. Official data show gross domestic product adjusted for inflation rose 5.6% year on year in the third quarter. But few people believe official price data. Those put year-over-year inflation in December at 10.9%. The Billion Prices Project, which collects prices from online retailers globally, says inflation was more than twice that. Another crisis-induced recession already may be well under way.
5. ARGENTINA’S CIRCULAR RUINS (WSJ Blog)
By Justin Lahart
23 January 2014
Argentina is going from bad to worse. Again.
The peso slid sharply against the dollar Thursday, as traders said the central bank stopped defending the currency – a sign it may be plumbing the bottom of its foreign-currency reserves.
It’s familiar ground. Harvard University economists Carmen Reinhart and Kenneth Rogoff’s history of booms and busts shows most Argentinian recessions since the late 19th century were associated with financial crises rather than being a normal part of the business cycle.
Exactly what Argentina’s economy looks like now is unclear, thanks to uncertainty around its economic statistics. Official figures show real gross domestic product –adjusted for inflation — was up 5.6% versus a year earlier in the third quarter. But few people believe government inflation statistics.
Those pegged the year-on-year increase in consumer prices in December at 10.9%. According to the Billion Prices Project, which collects prices from online retailers globally (and which was co-developed by the son of a former Argentine central banker and finance minister), prices were up more than twice that. Another crisis induced recession may already be well under way.
6. ARGENTINA: BAD TO WORSE (WSJ Blog)
By Chris Dieterich
23 January 2014
Trouble is brewing in Argentina, and some are wondering about the potential for the country’s woes to spill outside its borders.
Worries about the country’s thinning foreign-exchange-reserves helped spark a more than 15% decline in Argentina’s currency, the peso, on Thursday.
Turbulence in the currency market spilled over into stocks. U.S.-listed shares of energy giant YPF SA tumbled 12% Thursday, adding to an 8.9% decline on Wednesday.
“Things are rapidly coming unglued,” says Dave Lutz, head of trading at Stifel Nicolaus.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, voiced worry that Argentina’s woes may spread across the developing world:
While many investors have stayed clear of these two problem countries, we highlight the risk of contagion.
Brazil is the most exposed to Argentina with regards to trade flows, but those risks have declined. Argentina is Brazil’s third largest trading partner behind the US and China, in both exports and imports. Through 2005, Argentina was Brazil’s number two trading partner but was then supplanted by China. As a side note, China supplanted the US as Brazil’s number one trading partner in 2009. So, any collapse in Argentine GDP and/or equities should not have a huge spillover on Brazil. However, given the overall negative bias on EM in general, there will likely be some collateral impact on EM as a whole.
BBH also notes that the MSCI Argentina stock index was the best performer in the emerging world in 2013, up 64%. But things have taken an abrupt turn lower:
With a big devaluation in the works as well as a potential debt crisis, we do not see how Argentine equities can continue to perform well. We see a sharper and deeper correction ahead for this market.
Rising inflation and government controls have stirred social unrest in the country in recent months. President Cristina Kirchner failed to assuage those concerns on Wednesday, sidestepping the growing economic problems in her first public comments in six weeks.
7. ARGENTINE PESO FALL THREATENS GOVERNMENT (Financial Times)
By Jonathan Wheatley
January 24, 2014
Argentines will await the opening of currency markets on Friday with more nervousness than usual after Thursday’s 10 per cent fall in the peso against the US dollar. Analysts said the central bank appeared to have abandoned the currency to its fate and that the episode could hasten the end of the government of president Cristina Fernández de Kirchner.
“The chickens of populism have come home to roost,” said Arturo Porzecanski of the American University, a former head of emerging markets research at ABN Amro. “This is the beginning of the end of Kirchnerism in my view.”
The peso fell as much as 15 per cent in thin trading on Thursday after the central bank suddenly and silently removed its support. It recovered to close down about 10 per cent after the bank reappeared towards the close, selling about $100m, analysts said.
The bank’s late intervention left investors in the dark about how it would behave when trading reopened on Friday.
“That’s what happens in markets,” said Siobhan Morden, Latin America strategist at Jefferies in New York. “Pressure builds, and when the central bank backs away, everyone starts to panic.”
She said investors would look to data on monetary deposits in Argentine banks, due to be published on Friday with a one-week lag, for any evidence of capital flight.
The peso has come under mounting pressure since November, when Mrs Fernández announced cabinet changes that undermined confidence in her government’s ability to address problems including runaway inflation and a sharp deterioration in public finances. The currency, already struggling under a worsening trade account, has lost about a quarter of its value against the US dollar since then.
Argentina has been criticised by the International Monetary Fund for the unreliability of its data on inflation, which the government says is about 10 per cent a year but which private economists say is closer to 25 per cent.
The government is faced with either a further confidence-shattering loss of reserves or a further confidence-shattering devaluation of the peso. All the good options are gone
- Arturo Porzecanski, the American University
The country has been able to weather such high rates of inflation thanks to a comfortable trade surplus generated by exports of commodities such as wheat. Until recently, the private and public sectors were able to grant pay rises big enough to more than compensate for rising prices and the central bank’s main task was to buy dollars entering the country, printing pesos to do so and in the process expanding the money supply by more than 30 per cent a year for the past four years.
But faced with rising imports and falling exports, coupled with a surge in demand for dollars among a population that appears to have lost faith in the peso, the bank has had to defend the currency by selling dollars, running down its foreign exchange reserves to dangerous levels. Meanwhile, the government has introduced unorthodox measures to try to stop Argentines buying dollars, including restrictions on purchases by tourists, credit card purchases and, this week, internet purchases.
“It’s become clear that all those fingers in the dike are not enough,” Mr Porzecanski said. “The government is faced with either a further confidence-shattering loss of reserves or a further confidence-shattering devaluation of the peso. All the good options are gone.”
He said losing control of the currency, after the government appeared to lose control of the streets during nationwide protests last month, was a “very significant moment” for the Fernández administration.
 
8. CARRY THEORY STEAMROLLERED IN ARGENTINA (Financial Times)
By James Mackintosh
January 23, 2014
Peso plunges more than 15% in a few hours.
Argentina is a throwback to the glory days of emerging market investing. On Thursday its peso plunged more than 15 per cent in a few hours after the central bank appeared to withdraw support for a currency plagued by exchange controls, runaway inflation and made-up government statistics. Yes, it was 1997 all over again.
This time the rest of the emerging world is in a better situation. However, the Turkish lira continued falling and is down more than 6 per cent this year, with South Africa’s rand off 5 per cent. Emerging markets and the closely-linked commodity currencies of Canada and Australia were the worst performers on Wednesday on the foreign exchanges.
The intriguing question is whether investors willing to close their eyes to politics and volatility should play the carry: buy riskier currencies in the hope of pocketing enough interest to more than cover exchange rate losses.
In 2013 this carry trade worked beautifully with the peso. Argentina had the worst-performing currency, falling a quarter against the dollar (next worst was Indonesia’s rupiah, down 21 per cent). Yet, the equivalent of interest on the non-deliverable forwards used to trade pesos offshore would have more than offset the loss, leaving a total return of 20 per cent, according to Bloomberg data. Even after Thursday, interest still more than offset peso losses over 12 months.
Carry theory says countries that need to attract foreign capital have to pay a risk premium, generating a return for investors, on average.
Carry traders aim to diversify enough not to care too much when one trade goes sour. Yet, since 2007 carry has been disappointing. The FTSE FRB5 index of carry trades among the five main currencies earned 8.4 per cent a year from 2000 to 2007. Since then it has lost 4 per cent a year. What carry traders discovered over the past five years, and anyone focused on the peso has just found out, is that carry trading is like picking up pennies in front of a steamroller: every now and then you get flattened.
9. ARGENTINE GOVERNMENT ADOPTS HANDS-OFF APPROACH AS PESO SLIDES (Financial Times)
By John Paul Rathbone in London and Jonathan Gilbert in Buenos Aires
January 23, 2014
It is getting hot in Buenos Aires, and not just because the temperature is a steamy 44 degrees centigrade. On Wednesday, the Argentina peso fell to a record low; on Thursday it took another dive, dropping 15 per cent against the dollar in a day.
The sudden drop has unnerved citizens of a country with a history of abrupt devaluations and hyperinflation. Indeed, Thursday’s intra-day fall is the steepest single-day decline since the country’s 2002 economic crisis, a moment seared into the Argentine consciousness.
Nonetheless, any worries about the peso’s fall are being trumped by greater government concerns: Argentina’s fast declining international reserves. To stop an outflow of dollars that has totalled more than $1bn this year, bringing reserves at the start of the week to $29bn, the Argentine authorities appear to prefer to let the peso slide.
“This is not a devaluation initiated by the government,” said Jorge Capitanich, cabinet chief. “For those who love the market, what you [have seen] in the market is the result of the offer and demand for dollars.”
Traders corroborated the stance. “The orders to purchase dollars are the same as those over the past few days,” one trader said. “The difference is that if the central bank doesn’t appear [to supply dollars] there’s nobody who can put the brakes on.”
The government’s hands-off approach seems clear from the top down. On Wednesday, Cristina Fernández, the Argentine president, made her first public appearance in six weeks, when she unveiled a back-to-work programme for unemployed youth and defended her government’s record.
However the 60-year-old head of state, who underwent surgery in October to remove a bloodclot from her brain, made no mention of the problems more pressing on many Argentine minds, the falling currency, Argentine inflation – privately estimated at 28 per cent a year but officially recorded at 11 per cent – or a recent spate of blackouts and police protests over pay.
The following day, Mr Capitanich defended Ms Fernández’s speech, saying: “A president cannot cover all topics in one speech . . . She also didn’t speak about the record levels of tourism . . . or the automotive industry . . . or the new trains that will improve the railway network.”
All but cut off from international financial markets following its almost $100bn sovereign default 12 years ago, Argentina desperately needs to conserve its foreign reserves to make debt payments on its restructured bonds, fund public spending and pay for imports.
In that vein, the government this week continued its crackdown on imports by limiting the online purchases of foreign goods.
Although the devaluation will increase the peso value of Argentina’s agricultural exports, economists are dubious that the policy of letting the peso slide will work in isolation.
If the flight to dollars is being caused by high inflation, cutting inflation means also cutting public spending and the money-printing used to finance it – which Ms Fernández’s left of centre government is loath to do.
The steps taken so far “can give the impression that the authorities do not have a clear picture of how to manage the situation”, Luis Secco, a Buenos Aires-based economist, said.
Ms Fernández’s popularity has suffered but not collapsed. Her approval rating stands at 44 per cent, according to a Poliarquia poll released on Thursday, versus 75 per cent after she won a landslide re-election in 2011. Ratings for economic management stand at 35 per cent, versus 60 per cent in 2011.
Many economists have wondered how the Argentine economy would fare should commodity prices fall and western central banks tighten monetary policy. The strains seem to be making themselves apparent now.
Only a year ago Ms Fernández firmly rebutted calls for a weaker exchange rate. “Anyone who is hoping to make money via a devaluation whose costs the people will have to pay for are going to have to wait until the next government,” sh said. The next presidential election is in October 2015.
10. ARGENTINA DEVALUATION SENDS CURRENCY TUMBLING MOST IN 12 YEARS (Bloomberg News)
By Katia Porzecanski
January  23, 2014
Argentina devalued the peso the most in 12 years after the central bank scaled back its intervention in a bid to preserve international reserves that have fallen to a seven-year low.
The peso has plunged 12.7 percent over the last two days to 7.8825 per dollar at 3:45 p.m. in Buenos Aires, after falling to as low as 8.2435, according to data compiled by Bloomberg. The decline in the peso marks a policy turn for Argentina, which had been selling dollars in the market to manage the foreign-exchange rate since abandoning a one-to-one peg with the U.S. dollar in 2002.
President Cristina Fernandez de Kirchner, who said May 6 that the government wouldn’t devalue the peso, is struggling to hold onto dollar reserves which have fallen 31 percent to $29.4 billion amid annual inflation of more than 28 percent. Reserves are the government’s only source to pay foreign creditors. Since changing her economy minister, cabinet chief and the head of the central bank on Nov. 18, the peso has fallen 25 percent, the most in the world, according to data compiled by Bloomberg.
11. SPECTER OF DEFAULT STALKS ARGENTINA (Business Week)
By Charlie Devereux and Camila Russo
January 23, 2014
For Dominga Kanaza, it wasn’t the soaring inflation or the weeklong blackouts or even the fear that looting would spread from the outskirts of Buenos Aires that frayed her nerves. It was all of them combined. At one point, the shop owner refused to open the shutters protecting her corner grocery more than a few inches—just enough to sell soda to passersby on a sweltering summer day.
“It was scary,” says Kanaza as she yells out prices to customers. The looting broke out days earlier after police went on strike in the nearby province of Cordoba. The walkout left Cordoba to criminals, who spread mayhem all the way to Buenos Aires. Kanaza says it was like nothing she had seen since the rioting that followed the nation’s record $95 billion bond default in 2001.
President Cristina Fernández de Kirchner is running out of time to avert another crisis. The policy that Fernández and her late husband and predecessor, Néstor Kirchner, used to propel 7.2 percent average annual growth over the past decade—higher government spending financed by printing money—is unraveling. An official spokesman turned down a request for an interview with Fernández.
nflation climbed to 28 percent last year, according to opposition lawmakers who broadcast findings of economists operating clandestinely. These academics have been cowed into silence by Fernández’s crackdown on price reports that clash with government figures. The official data collectors say inflation last year was only 11 percent. The peso has fallen 26 percent in the past 12 months, its worst rout since the devaluation that followed the 2001 bond default.
Power outages like the one that plunged Kanaza’s shop into darkness have become more frequent. The power grid was starved of investment as the government kept electricity prices low to contain inflation. The International Monetary Fund, which censured Argentina for misreporting inflation, predicts the economy will grow 2.8 percent this year, about half the 5.1 percent average for developing nations.
The biggest financial problem is the loss of foreign reserves. They’ve dropped 44 percent in the past three years, to $29.5 billion, as prices for soy and wheat exports slumped and Argentines changed pesos to dollars and stashed them abroad. The government says it will shore up reserves in 2014.
STORY: Argentines Hold More Than $50 Billion in U.S. Currency. Here’s How We Know
The country remains locked out of international debt markets as it haggles with billionaire hedge fund manager Paul Singer over lawsuits stemming from the 2001 default. Argentina’s attempt to link its currency to the dollar in the 1990s throttled the economy, leading to its default. Singer wants full reimbursement on the defaulted debt his fund holds, having rejected restructuring terms that other creditors accepted. Foreign exchange reserves are the government’s main source of dollars to pay holders of $50 billion in bonds.
The country’s average bond yield of 12 percent is the highest among major developing nations after Venezuela. Trading in swap contracts that insure bonds against nonpayment shows a 79 percent probability of default over five years. “We’re seeing some sort of day of reckoning,” says Diego Ferro, co-chief investment officer in New York at Greylock Capital, which has invested in the country’s debt. “The adjustment will have to happen if Argentina doesn’t want to hit a wall before 2015.” He foresees a run on deposits, hyperinflation, and a steep drop in reserves if the government doesn’t change its policies.
In her first day back on the job in November after surgery to remove a blood clot near her brain, Fernández replaced most of her cabinet. The new cabinet has pledged to work with the IMF to improve the quality of economic data. It has started talks to settle $6.5 billion of overdue debt with key creditor nations and unveiled plans to compensate Spain’s Repsol (REP:SM) for the seizure of its local oil business in 2012.
Ferro doubts any of this will be enough to avoid another crisis. Bolder measures, such as reaching a deal with Singer to regain access to overseas markets and lifting currency controls, are needed to win back investor confidence, he says. Fernández hasn’t signaled her next move. She gave a radio address on Jan. 22, breaking a silence that began on Dec. 19.
That’s what angers Argentines like Miguel Llanes the most. While looting spread across the country and the blackouts in Buenos Aires dragged on day after day, Fernández was nowhere to be seen. Llanes, forced by the blackout to keep his curtain shop in downtown Buenos Aires closed for more than a week, finally joined protesters burning tires and garbage in the streets. “Where was the president?” he shouted. And then he raised a question that holders of $50 billion of Argentine bonds are asking, too. “How long will this last? They’ve spent all the money.”
12. ARGENTINE PESO SUFFERS STEEPEST DAILY FALL SINCE 2002 (Reuters News)
By Walter Bianchi
January 24, 2014
(Reuters) – Argentina’s exchange rate on Thursday suffered its steepest daily decline since the country’s devastating 2002 financial crisis, extending the previous day’s losses as the central bank gave up its battle against the peso’s decline.
Having shed more than 30 percent of its reserves last year, the central bank this week abandoned its policy of supporting the peso by intervening in the foreign exchange market.
The new policy set the stage for Thursday’s loss in the value of the currency and increased worries about what is already one of the world’s highest inflation rates.
The peso-dollar interbank exchange rate hit the 8 mark, down 11 percent on the day following a 3 percent decline on Wednesday. Argentina’s black market peso fell 7.25 percent on Thursday to close at 13.1 per dollar.
“Yesterday the central bank neither bought nor sold dollars, which tells you what its position is with respect to the exchange rate,” cabinet chief Jorge Capitanich told reporters on Thursday.
Central bank reserves stood at $29.44 billion.
On Thursday the bank intervened but by an inconsequential $100 million, according to local foreign exchange traders.
Due to local currency controls, the black market is the only way for many Argentines to get their hands on dollars as confidence in Latin America’s No. 3 economy falls and inflation soars. Given the country’s history of repeated financial crises, Argentines like to save in dollars.
According to private analysts, consumer prices rose more than 25 percent in 2013, although discredited official data clocks inflation at less than half that.
Unorthodox policies, from currency controls meant to stop capital flight to heavy stimulus spending unencumbered by inflation targeting, have made Argentina a no-go zone for all but the most risk-hungry investors.
Argentina’s key grains sector has cut exports as farmers hoard their crops rather then expose themselves to the swooning local currency. This has contributed to the scarcity of dollars that is debilitating the peso.
Every time President Cristina Fernandez tightens capital controls in a bid to shore up the country’s wobbly balance of payments, it increases the scramble for dollars. This in turn contributes to the fall in the value of the black market peso and higher inflation.
The new year has begun with analysts expecting a 30 percent rise in consumer prices in 2014. That would be the highest rate since 2002, when millions of middle class Argentines were pushed into poverty by a crisis punctuated by a sovereign bond default and 41 percent inflation.
13. DON’T CRY JUST FOR ARGENTINA (The Economist)
By P.W
January 23, 2014
TODAY’S plunge in the Argentine peso was the biggest since the devaluation of 2002 following Argentina’s debt default. The peso fell from 6.92 per dollar yesterday to 7.88, a decline of 12%; and at times today the fall was even bigger, with the peso at one point reaching 8.24, according to Bloomberg.
The collapse came as Argentina’s central bank stopped intervening in the currency markets.  According to Neil Shearing of Capital Economics, a London-based consultancy, the country’s foreign-exchange reserves fell from a peak of $47 billion in March 2011 to a seven-year low of $25 billion in November 2013. He says that the price of defending the peso had become too great and that the Argentine authorities “have bowed to the inevitable”.
Argentina’s plight has been largely self-inflicted. The government has mismanaged the economy. Rather than tackle inflation it has sought to fiddle the figures. Rather than deal with the causes of capital flight it has tried in vain to suppress it.
But Argentina is not alone in feeling the hot breath of the currency markets. The bond vigilantes may have given up the ghost, certainly in advanced countries where, to the surprise of many, bond markets have rallied this year, especially in the once shunned euro-zone countries of southern Europe. But currency traders remain on patrol.
Emerging economies are their main target. The Turkish lira fell again today, to a new low. The South African rand also declined sharply. Both countries have big current-account deficits, estimated by the IMF to run at 7% of GDP in the case of Turkey in 2013-14 and 6% for South Africa. Turkey has appeared especially vulnerable given the stubborn reluctance of the central bank to raise interest rates and the general loss of credibility of the government.
But the resource-rich advanced countries that did so well out of the commodities boom are also suffering. For example the Canadian dollar has been pummeled this year. Worries about slackening Chinese growth – there was a gloomy report today about the state of China’s manufacturing sector – are reinforcing the aversion to the commodity exporters that once carried all before them. One reason why Argentina did so well for a long time after its trauma of 2001-02 was that its economy was buoyed by global demand for its commodities, such as soya.
Earlier this week the International Monetary Fund issued new forecasts showing a pick-up in global growth from 3% last year to 3.7% in 2014. That was a tonic, but renewed currency turbulence suggests that all is not well in many parts of the world economy. Using the Big Mac index, we explore in more detail which currencies may be particularly vulnerable in an article in this week’s print edition.
14. ARGENTINA’S PESO: FIRST DECLINE, NOW FALL (The Economist Online)
By H.C.
Jan 23rd 2014
ON JANUARY 22nd Argentine President Cristina Fernández de Kirchner appeared in public for the first time in over a month. She may wish she had stayed out of sight. Earlier that day the official exchange rate of the Argentine peso had weakened by 25 cents to 7.14 pesos to the dollar, its biggest daily decline since the crisis of 2002. Since then things have got even bumpier. On January 23rd the peso fell by over 86 cents to 8 pesos to the dollar in the retail market, and by even more in the wholesale market. The Central Bank eventually intervened to stabilise the currency at 7.79 to the dollar, but Argentina has still seen a devaluation of more than 15% in just 48 hours.
The Argentine peso has long been heading for a fall. It has looked overvalued since at least 2011, when the government clamped down on all foreign-currency transactions in an attempt to stem capital flight. With inflation running at 25%, Argentines are desperate for access to dollars. The black-market exchange rate has at times exceeded the government’s artificial rate by as much as 70%.
In a bid to close that yawning gap, the government has been allowing the peso to devalue. The authorities allowed the peso to depreciate by only 12% in 2012 but let the currency drop by 33% in 2013. The rate of decline picked up noticeably towards the end of last year. But this strategy has not worked. The black-market rate has crept higher and higher as Argentines continue to seek out dollars to safeguard against what might come. At the beginning of this year, the gap between the official and unofficial rates remained stubbornly high.
Without any official explanation for the dramatic moves in the peso over the past two days, observers are left to guess what is going on. It is too early to say whether the sudden slump signals a real change in government strategy. But economists agree that there are two likely explanations for this week’s sell-off. The first is that government is making a more aggressive attempt to close the gap between the official and black-market exchange rates. The second is that Argentina’s dwindling Central-Bank Reserves mean that the authorities can no longer spend dollars to support the peso.
For the past two years the Central Bank has consistently liquidated reserves in order to prop up the official exchange rate. Add in the cost of energy imports and debt payments, and foreign-exchange reserves plunged by nearly $13 billion in 2013. Since the beginning of 2013 they have dipped below $30 billion to their lowest levels in seven years. In order to pay for this year’s $15 billion energy bill and settle nearly $10 billion worth of debt, the Central Bank simply cannot afford to maintain the same level of intervention it has in the past.
Although devaluation is necessary, the government’s handling of events is deeply flawed. “The government has made the grave error of devaluing without implementing a comprehensive plan to reduce inflation,” says Luis Secco of Perspectiv@s, a consultancy. Without any transparency about the government’s intentions, or any sign of tighter monetary policy, an accelerated devaluation risks only increased inflation and even greater demand for dollars on expectations of further falls in the peso.
Sergio Berensztein of Poliarquia, a polling firm, believes another risk could be that farmers will sit on their crops in anticipation of further devaluation instead of exporting them—an especially big risk for soy, which is easily stored. Tariffs on agricultural exports contributed nearly $7 billion to government coffers last year, a vital source of dollars.
Josh Rosner of Graham Fisher & Co, a research firm, does not foresee the government revealing its plan (if it has one) any time soon. “When a government is going to intervene aggressively in the economy, it is in its interest to keep people in the dark to avoid speculation.” For now all Argentines can do is sit tight and hope that Ms Fernández and the Central Bank know what they’re doing.
15. ARGENTINA ECONOMY: QUICK VIEW – THE PESO WEAKENS SHARPLY (Economist Intelligence Unit – ViewsWire)
23 January 2014
Event
With reserves dropping below US$30bn, the Banco Central de la República Argentina (BCRA, the Central Bank) decided not to intervene in the foreign-exchange market on January 22nd, and allowed the peso to depreciate by a nominal 7% in one day-the largest daily fall since the 2001-02 crisis.
Analysis
The authorities are desperately trying to stop the foreign reserves from continuing their fall. In 2013 the reserves dropped from US$43.3bn to US$30.6bn amid a weakening current account and continuing capital flight. Under its new Central Bank president, Juan Carlos Fábrega, the monetary authority appears to be changing tack. Controls are still being tightened (the government recently announced cumbersome restrictions on international internet purchases), but the Bank is clearly more prepared now to accept a more rapid nominal depreciation of the peso under the heavily managed float in order to protect the reserves from falling to dangerously low levels (import cover has already fallen from over 11 months in 2009 to 3.9 months in 2013). From Ps6.5:US$1 at the end of 2013, the exchange rate has weakened to Ps7.14:US$1 on January 22nd.
At this rate, the peso is finally also weakening in real terms, and could begin to provide a boost to manufacturing export competitiveness. However, it will also pass through into inflation, which is already above 20% and rising. A renewed weakening of the economy evident in the latest available indicators could help reduce demand-side price pressures and contribute to a much-needed adjustment. However, it will be politically difficult for the government to negotiate through a period of still-high inflation and weak (or negative) GDP growth, and there is a strong chance the government will backtrack on adjustment.
To help bolster the reserves and preclude the need for a harsh adjustment, the government is now trying to make amends rapidly with international investors and creditors. Most recently, Argentina has reopened talks with Paris Club creditors with a view to obtaining dollars in the form of new bilateral credits. But the latest negotiations will be difficult and probably lengthy, and any new credits will not come in time to reduce speculation of a sudden sharp currency devaluation, which is now rife.
16. LA SALADA: STALL STORIES (The Economist)
25 January 2014
Inside South America’s largest informal market
Ii is five o’clock in the morning, but shoppers in La Salada market in Buenos Aires are already going home. They drag rubbish sacks full of T-shirts, trainers and pirated DVDs across the car park to board waiting coaches. Some have come to stock their shops, others to fill their wardrobes. They started shopping when the market opened at 3am, and have travelled from as far as Neuquén, a Patagonian city 15 hours away.
La Salada is thought to be South America’s largest informal market. Around 30,000 wire-mesh stalls spill out of three warehouses in an unsavoury neighbourhood on the outskirts of the capital. Its administrators reckon that on Tuesdays, Thursdays and Sundays, when the market is open, more than 250,000 shoppers browse its stalls. Tens of thousands of people help keep La Salada running–selling, protecting, cleaning and supplying the market. At the Punta Mogote warehouse, where most stalls are underground, so many people faint that an ambulance is kept on site.
Hard numbers are impossible to come by but administrators estimate that vendors sell 150m-300m pesos ($22m-$44m) of goods every day La Salada is open. According to Jorge Castillo, who manages Punta Mogote, vendors pay up to $100,000 in cash for a stall measuring four square metres–more than they would for space in a former Hermès store on Avenida Alvear, the main shopping street in Buenos Aires.
La Salada has its murky side. In one bizarre case a man who bought a poodle puppy at La Salada claimed he was duped into bringing home a fluffy angora ferret on steroids. Nacho Girón, a journalist who has written a book on the market, insists that this story is itself one of La Salada’s fakes. Piracy is undeniably rife. Stalls in Punta Mogote sell copies of Tommy Hilfiger shirts for 110 pesos. At street level, vendors hawk Nike knock-offs and flimsy “Ray-Ban” sunglasses.
Mr Castillo is engagingly open about the dubious merchandise sold by some of his vendors. La Salada’s merchants, he acknowledges, may not follow the rules when it comes to intellectual property “but this is Argentina. Nothing is ever just black or white.”
Taxes are certainly a grey area. All shopping is done in cash, leaving ample room for fudging the accounts. Tax officials have trouble enforcing their writ: in one 2009 tax raid vendors from Punta Mogote lobbed thousands of eggs at agents until they fled. The police are reckoned to be more complicit, demanding bribes in exchange for ignoring contraband goods.
Given La Salada’s popularity among Argentina’s poor, the government has long understood that attacking it would be politically risky. According to Mr Girón’s book, Néstor Kirchner, a former president, privately described the market as “a social phenomenon of Argentina in crisis”. “Shoppers love us because we allow them to buy what they need and also have a little left over to treat themselves,” says Mr Castillo. “Vendors love us because we don’t take their hard-earned cash.”
That ethos stretches back to the market’s foundation in 1991 by a bunch of struggling Bolivian clothing producers. Sick of being exploited by factory bosses who paid them poorly and late, the manufacturers gathered enough money to buy the site of abandoned thermal baths. The market was an immediate hit. Mr Castillo, who had been a women’s shoemaker, began buying stands in La Salada’s second warehouse in 1994, before leading the way in opening Punta Mogote in 1999.
Ferreting out the bargains
Competition is at the heart of La Salada’s model. When the market was founded the Argentine peso had just been pegged to the dollar, making imported textiles far cheaper than Argentine-made fabrics. To succeed, vendors had to cut prices right back. Competing with imports is no longer a problem, thanks to currency controls and heavy taxes: the government’s latest wheeze is to require shoppers to pick up goods bought from foreign websites at customs offices so taxes can be collected. But with so many stalls next door to one another, competition at the market remains cut-throat. “The good and the bad of Argentina are embodied by La Salada,” Mr Girón reflects. “It is at once a display of Argentine creativity, intelligence, resilience and grit, and an exhibit of Argentine cunning and corruption.”
17. ARGENTINA’S DECEMBER TRADE SURPLUS $272 MLN VS $835 MLN (Dow Jones Institutional News)
By Ken Parks
23 January 2014
Argentina’s Trade Surplus Drops 67% in December on Lower Exports
BUENOS AIRES–Argentina’s trade surplus fell 67% on the year to $272 million in December amid a plunge in exports that month.
Exports decreased 13% to $5.45 billion last month, due to a 10% drop in volumes shipped and a 4% decline in prices, the national statistics agency, Indec, said in a report Thursday.
Imports fell 5% to $5.18 billion, as a 7% drop in volumes offset a 2% rise in prices.
The trade surplus for the full year fell to $9 billion, from $12.4 billion in 2012 partly due to rising fuel imports, Indec said.
The energy deficit–the difference between Argentina’s energy exports and imports–more than doubled to $6.2 billion in 2013.
Argentina relies heavily on exports of farm products like soybeans and soyoil to earn the foreign currency it uses to pay creditors and purchase imported goods ranging from sports cars to natural gas.
However, inflation north of 25% has spurred some Argentines to seek the safe haven of the U.S. dollar. President Cristina Kirchner has managed to stave off a full blown run on the central bank’s foreign currency reserves by limiting imports and rationing dollars for travel and trade.
Even so, reserves dropped to $29.4 billion Wednesday, their lowest level since November 2006.
18. ARGENTINA IMPOSES HEFTY TAX ON INTERNATIONAL ONLINE SHOPPING (NPR: Morning Edition)
By Lourdes Garcia-Navarro
23 January 2014
STEVE INSKEEP: Although, maybe not so many people subscribing in Argentina, that country has just imposed a heavy tax on international online shopping and it is restricting international online purchases to two per year.
NPR’s Lourdes Garcia-Navarro reports on the government’s attempt to shore-up dipping reserves of foreign currency.
LOURDES GARCIA-NAVARRO: Online shopping is supposed to be about convenience – order by your computer, sometimes tax free, and bam, it’s delivered straight to your door. But in Argentina, new rules have put in place a whopping 50 percent tax on orders above an annual $25 allowance. And you’re only allowed to order internationally twice a year. To make sure you pay what you owe the government, your goods won’t be delivered to your home, but rather to your local customs office, where it can take hours and lots of paperwork to get your boxes out.
Add this to the other economic restrictions already in place and you have an economy that analysts say is struggling. Argentines already have a quota for buying dollars that has given birth to a currency black market. Inflation has also skyrocketed, so many Argentines are struggling to even buy basic goods. Foreign credit card transactions, too, face a 35 percent tax.
Argentina though says it’s been forced to take drastic measures. The country’s hard currency reserves have fallen 30 percent in a year.
In 2001, its economy crashed and the government had to devalue the peso resulting in $200 billion default. Since then Argentina has had trouble securing international loads. It’s used its foreign reserves to service its debts.
19. ARGENTINA’S PETCHEM SECTOR INVESTING IN SHALE PLAYS TO BOOST FEEDSTOCK SUPPLIES (Platts Commodity News)
By Charles Newbery
23 January 2014
Buenos Aires (Platts)–23Jan2014/205 pm EST/1905 GMT   Argentina’s petrochemical sector plans to step up investment in developing oil and natural gas supplies from shale plays like Vaca Muerta, helping to boost feedstock supplies to expand production capacity, a senior government official said Thursday.
“This sector is getting involved in the investment process of Vaca Muerta to secure the resources that they need as raw materials,” Industry Minister Debora Giorgi said in a televised press conference.
Of the six biggest polymer and plastics producers, “at least two” have started investment plans for shale development, she said after meeting with sector representatives.
The first was Dow Chemical. It entered a partnership in September with Argentina’s state-run YPF to develop a pilot production project for shale gas on the El Orejano block. They will invest a combined $188 million in the first year to drill 12 wells for shale gas resources, targeting the Lajas, Sierras Blancas and Vaca Muerta plays.
The companies estimate peak production could surpass 3 million cubic meters/day.
With the additional supplies of gas, Giorgi said petrochemical companies would be able to increase production and expand capacity at their plants, helping to reduce imports of gas, gas-based feedstock and petrochemicals. Polymer producers, for example, have been increasing imports of ethylene as feedstock, in particular during the May-to-September cold season when gas shortages peak.
Dow plans to use the additional gas supplies from its partnership with YPF to boost gas feedstock supplies at its plants in Bahia Blanca, which have capacity to produce 700,000 mt/year of ethylene and 600,000 mt/year of HDPE, LDPE and LLDPE.
Dow buys gas-based ethane feedstock for these plants from Compania Mega, in which Dow, YPF and Brazil’s state-run Petrobras are the main shareholders. Mega processes the gas at a plant in Bahia Blanca and sells the ethane as well as supplies of butane, propane and natural gasoline to makers of petrochemicals and other finished products.
Giorgi said another two petrochemical companies are in talks to launch shale development projects, without naming them.
The target is Vaca Muerta, which holds the largest chunk of the country’s 802 Tcf of shale gas resources, according to estimates by the US Energy Information Administration.
State-run YPF has started producing the first supplies from the play, with output running at 13,000 b/d of oil equivalent, most of it light crude, in third-quarter 2013. YPF has teamed with Chevron on a $1.5 billion pilot production project, while other companies like ExxonMobil, Shell and Total are starting to drill for supplies.
YPF has said shale development will help turn around a decade-long decline in oil and gas production.
The decline coupled with rising demand has sparked shortages in a country that relies on oil and gas to meet about 90% of its energy needs.
Faced with the shortages, petrochemical producers have had to scale back production even as the country has ramped up imports of Bolivian gas and LNG, which averaged 30 million cu m/d in 2013. Argentina had been exporting as much as 20 million cu m/d of gas as recently as 2004.
Giorgi said the lack of gas and other feedstock has prevented petrochemical companies from running plants at higher capacity.
According to analysts, Brazil’s Braskem hasn’t been able to build a polyethylene plant in Argentina because of the lack of gas feedstock. Dow Chemical and Basell Polyolefins’s Petroken face the same problem for polyethylene and polypropylene products, respectively, analysts have said.
“Argentina is importing nearly $900 million worth of petrochemical products a year,” she said.
By developing Vaca Muerta and other shale plays, the petrochemical companies will have more feedstock to increase production, helping to reduce the imports, Giorgi said.
She said that by 2020 the production of shale gas should be sufficient to replace imports of gas and some petrochemical products.
20. ARGENTINA NOV OIL OUTPUT FELL 1.7% YEAR, GAS PRODUCTION SLIPS 2.1% (Platts Commodity News)
By Charles Newbery
23 January 2014
Buenos Aires (Platts)–23Jan2014/1106 am EST/1606 GMT   Argentina’s oil production fell 1.7% and natural gas output dropped 2.1% in November compared with the year-earlier period, an industry report showed Thursday.
Crude production dropped to an average of 543,218 b/d in November from 552,376 b/d in November 2012, and was down 0.6% compared with 546,753 b/d this past October, the Argentine Oil and Gas Institute (IAPG) said without specifying reasons for the changes.
Part of the year-on-year decline was a response to changes in the calculation of crude production. By government orders, natural gasoline was stripped out of the calculation of total crude production, effective January 2013. The industry group has not adjusted prior data.
Argentina’s state-run YPF produced 38% of the crude in November, trailed by BP-controlled Pan American Energy with 18%, Argentina’s Pluspetrol with 7.1%, China’s Sinopec with 6.9% and Brazil’s Petrobras with 6%, IAPG said.
Gas production, meanwhile, dropped 2.1% to 114.7 million cu m/d in November compared with 117.2 million cu m/d in the year-earlier period, and was up 0.1% compared with the 114.6 million cu m/d produced in October, IAPG said.
France’s Total produced 29% of the gas in November, followed by YPF with 26%, Pan American with 11% and Petrobras with 8.6%.
REFINING ACTIVITY
IAPG said crude processing rose 2.7% to 534,754 b/d in November from 520,911 b/d in November 2012.
Of the supplies processed in November, 9,090 b/d was imported, equivalent to 1.7% of the total processed that month. That compares with imports of 6,281 b/d in the year-earlier period.
Output of RON 95 gasoline rose 11% to 102,353 b/d in November on the year while that of RON 98 gasoline fell 11% to 29,485 b/d over the same period. Production of fuel oil rose 32% to 11,755 mt/d, while that of diesel dropped 2.1% to 202,021 b/d over the same period, IAPG said. Naphtha production fell 5.3% to 44,759 b/d over the same period.
The leading refiners are state-run YPF trailed by Shell, Axion, Oil Combustibles and Petrobras.
21. NOTICE OF AVAILABILITY OF EVALUATIONS OF THE FOOT-AND-MOUTH DISEASE AND RINDERPEST STATUS OF A REGION OF PATAGONIA, ARGENTINA (Department of Agriculture Documents)
23 January 2014
Animal and Plant Health Inspection Service
SUMMARY: We are advising the public that we have determined that a region of Argentina, consisting of the areas of Patagonia South and Patagonia North B, is free of foot-and-mouth disease. We are making that determination, as well as an evaluation we have prepared in connection with this action, available for review and comment. In addition, we have prepared an evaluation assessing the rinderpest status of South America, which includes Argentina, and have determined, based on our evaluation, that rinderpest is not present in the entirety of Argentina. We are also making that determination, as well as our evaluation, available for review and comment.
DATES: We will consider all comments that we receive on or before March 24, 2014.
ADDRESSES: You may submit comments by either of the following methods:
* Postal Mail/Commercial Delivery: Send your comment to Docket No. APHIS-2013-0105, Regulatory Analysis and Development, PPD, APHIS, Station 3A-03.8, 4700 River Road Unit 118, Riverdale, MD 20737-1238.
Supporting documents and any comments we receive on this docket may be viewed at http://www.regulations.gov/#!docketDetail;D=APHIS-2013-0105 or in our reading room, which is located in Room 1141 of the USDA South Building, 14th Street and Independence Avenue SW., Washington, DC. Normal reading room hours are 8 a.m. to 4: 30 p.m., Monday through Friday, except holidays. To be sure someone is there to help you, please call (202) 799-7039 before coming.
FOR FURTHER INFORMATION CONTACT: Dr. Silvia Kreindel, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, VS, APHIS, 4700 River Road Unit 38, Riverdale, MD 20737-1231; (301) 851-3308.
SUPPLEMENTARY INFORMATION: The regulations in 9 CFR part 94 (referred to below as the regulations) govern the importation of certain animals and animal products into the United States to prevent the introduction of various animal diseases, including rinderpest and foot-and-mouth disease (FMD). The regulations prohibit or restrict the importation of live ruminants and swine, and products from these animals, from regions where rinderpest or FMD is considered to exist.
Within part 94, SEC 94.1 contains requirements governing the importation of ruminants and swine from regions where rinderpest or FMD exists and the importation of the meat of any ruminants or swine from regions where rinderpest or FMD exists to prevent the introduction of either disease into the United States. We consider rinderpest and FMD to exist in all regions except those listed in accordance with paragraph (a)(2) of that section as free of rinderpest and FMD.
Section 94.11 of the regulations contains requirements governing the importation of meat of any ruminants or swine from regions that have been determined to be free of rinderpest and FMD, but that are subject to certain restrictions because of their proximity to or trading relationships with rinderpest- or FMD-affected regions. Such regions are listed in accordance with paragraph (a)(2) of that section.
The regulations in 9 CFR part 92, SEC 92.2, contain requirements for requesting the recognition of the animal health status of a region (as well as for the approval of the export of a particular type of animal or animal product to the United States from a foreign region). If, after review and evaluation of the information submitted in support of the request, the Animal and Plant Health Inspection Service (APHIS) believes the request can be safely granted, APHIS will make its evaluation available for public comment through a notice published in the Federal Register Following the close of the comment period, APHIS will review all comments received and will make a final determination regarding the request that will be detailed in another notice published in the Federal Register
In 2003, the Government of Argentina submitted a request to recognize the region located south of latitude 42 [degrees] south, known as Patagonia South, as free of FMD. In 2008, Argentina expanded its request to include the region immediately north of latitude 42 [degrees] south, known as Patagonia North B. These two areas are referred to below as the Patagonia Region of Argentina.
In response to this request, APHIS has conducted a qualitative risk assessment to evaluate the FMD status of the Patagonia Region of Argentina. Based on this evaluation, APHIS has found that FMD is not present in the Patagonia Region and that the surveillance, prevention, and control measures implemented by Argentina in the area under consideration as a region free of FMD are sufficient to minimize the likelihood of introducing FMD into the United States via imports of FMD-susceptible species or products. However, because of its proximity to or trading relationships with FMD-affected regions, APHIS has determined that it is necessary to impose certain restrictions on the importation of meat of any ruminants or swine from the Patagonia Region of Argentina.
Rinderpest has never been established in South America. No South American country has ever reported the disease except Brazil, which had an outbreak in 1921 that was limited in scope and quickly eradicated. Furthermore, the global distribution of rinderpest has diminished significantly in recent years as a result of the Food and Agriculture Organization Global Rinderpest Eradication Program. The last known cases of rinderpest worldwide occurred in the southern part of the “Somali pastoral ecosystem” consisting of southern Somalia, eastern Kenya, and southern Ethiopia. In May 2011, the World Organization for Animal Health (OIE) announced its recognition of global rinderpest freedom.
Based on the foregoing conclusions, APHIS has found that the Patagonia Region of Argentina is free of rinderpest and FMD.
Therefore, in accordance with SEC 92.2(e), we are announcing the availability of our evaluation of the FMD status of the region under consideration, as well as an evaluation assessing the rinderpest status of South America, for public review and comment. We are also announcing the availability of an environmental assessment (EA) entitled “Recognition of Patagonia Region in Argentina as Free of Foot-and-Mouth Disease,” which has been prepared in accordance with: (1) The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321 et seq.), (2) regulations of the Council on Environmental Quality for implementing the procedural provision of NEPA (40 CFR parts 1500-1508), (3) USDA regulations implementing NEPA (7 CFR part 1b), and (4) APHIS’ NEPA Implementing Procedures (7 CFR part 372). The evaluation and the EA may be viewed on the Regulations.gov Web site or in our reading room. (Instructions for accessing Regulations.gov and information on the location and hours of the reading room are provided under the heading ADDRESSES at the beginning of this notice.) The evaluations, as well as relevant information used in the review process, are available by contacting the person listed under FOR FURTHER INFORMATION CONTACT. Information submitted in support of Argentina’s original request for recognition may also be viewed on the APHIS Web site athttp://www.aphis.usda.gov/import_export/animals/reg_request.shtml by following the link for “Previous regionalization requests and supporting documentation.” Information submitted in support of the expanded request may be viewed on the Regulations.gov Web site (see ADDRESSES above for instructions for accessing Regulations.gov).
After reviewing any comments we receive, we will announce our decision regarding the disease status of the region of Argentina under consideration with respect to FMD and rinderpest and the import status of susceptible animals and products of such animals in a subsequent notice.
Authority: 7 U.S.C. 450, 7701-7772, 7781-7786, and 8301-8317; 21 U.S.C. 136 and 136a; 31 U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.4.
Done in Washington, DC, this 16th day of January 2014.
Kevin Shea,
Administrator, Animal and Plant Health Inspection Service.
Notice of availability.
Citation: “79 FR 3775″
Document Number: “Docket No. APHIS-2013-0105″
Federal Register Page Number: “3775”
“Notices”
22. CHANGE IN DISEASE STATUS OF THE PATAGONIA SOUTH REGION OF ARGENTINA WITH REGARD TO RINDERPEST AND FOOT-AND-MOUTH DISEASE (Department of Agriculture Documents)
23 January 2014
Animal and Plant Health Inspection Service
SUMMARY: We are withdrawing a proposed rule that would have added that portion of the Patagonia region of Argentina located south of latitude 42 [degrees] south (Patagonia South) to the list of regions considered free of rinderpest and foot-and-mouth disease (FMD). The proposed rule would also have added that region to the list of regions that are subject to certain import restrictions on meat and meat products because of their proximity to or trading relationships with rinderpest- or FMD-affected regions. We are taking this action because we have prepared an updated risk analysis relative to Argentina that is being made available in accordance with a newer process for recognizing the animal health status of regions.
DATES: The proposed rule published on January 5, 2007 (72 FR 475) is withdrawn, effective January 23, 2014.
FOR FURTHER INFORMATION CONTACT: Dr. Silvia Kreindel, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, VS, APHIS, 4700 River Road Unit 38, Riverdale, MD 20737-1231; (301) 851-3308.
SUPPLEMENTARY INFORMATION:
Background
On January 5, 2007, we published in the Federal Register (72 FR 475-480, Docket No. APHIS-2005-0096) a proposal /1/ to amend the regulations in SEC 94.1 by adding that portion of the Patagonia region of Argentina located south of latitude 42 [degrees] south (referred to below as Patagonia South) to the list of regions that are considered free of both rinderpest and foot-and-mouth disease (FMD). We proposed this because there had been no outbreak of FMD in the Patagonia South region of Argentina since 1976 and there was no evidence that there were any species infected with FMD in Patagonia South at that time. In addition, because rinderpest has never been diagnosed in Argentina and is not endemic to that region of the world, we also proposed to recognize Patagonia South as free of rinderpest. Finally, we proposed to amend the regulations in SEC 94.11 by adding Patagonia South to the list of regions that are subject to certain import restrictions on meat and other animal products because of their proximity to or trading relationships with rinderpest- or FMD-affected regions.
FOOTNOTE 1 To view the proposed rule and the comments we received, go to http://www.regulations.gov/#!docketDetail;D=APHIS-2005-0096. END FOOTNOTE
We solicited comments concerning our proposal for 60 days ending March 6, 2007. We received 45 comments by that date. Based on the comments we received and other considerations, we concluded that it was necessary to reexamine the risk analysis. We have completed an updated risk analysis covering the Patagonia South region, as well as the Patagonia North B region, in Argentina that we will be making available for review and comment. However, as discussed in more detail below, since the publication of the proposed rule, we have changed the process by which we recognize the animal health status of regions. Therefore, we are withdrawing the January 5, 2007, proposed rule and will make the new risk analysis available in accordance with the current process.
In a final rule /2/ published in the Federal Register on January 10, 2012 (77 FR 1388-1396, Docket No. APHIS-2009-0035), we removed lists of regions classified with respect to certain animal diseases and pests from our animal and animal product import regulations in 9 CFR parts 92, 93, 94, 96, and 98. The lists are now posted on APHIS’ Web site, rather than published in the Code of Federal Regulations. These lists are maintained on the APHIS Web site at http://www.aphis.usda.gov/import_export/animals/animal_disease_status.shtml. Copies of the lists are also available via postal mail, fax, or email upon request to National Import and Export Services, Veterinary Services, Animal and Plant Health Inspection Service, 4700 River Road Unit 38, Riverdale, Maryland 20737.
The regulations in 9 CFR 92.2 contain requirements for requesting the recognition of the animal health status of a foreign region or for the approval of the export of a particular type of animal or animal product to the United States from a foreign region. If, after review and evaluation of the information submitted in support of the request, the Animal and Plant Health Inspection Service (APHIS) believes the request can be safely granted, APHIS will make the evaluation available for public comment through a notice published in the Federal Register . Following the close of the comment period, APHIS will review all comments received and will make a final determination regarding the request that will be detailed in another notice published in the Federal Register .
In accordance with this process, we are announcing the availability of an evaluation of the FMD status of a region of Patagonia, Argentina, in a notice published today in the Federal Register (Docket No. APHIS-2013-0105). The concerns and recommendations of all the commenters on the January 5, 2007, proposed rule have been considered in the development of the new evaluation.
Authority: 7 U.S.C. 450, 7701-7772, 7781-7786, and 8301-8317; 21 U.S.C. 136 and 136a; 31 U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.4.
Done in Washington, DC, this 16th day of January 2014.
Kevin Shea,
Administrator, Animal and Plant Health Inspection Service.
Proposed rule; withdrawal.
CFR Part: “9 CFR Part 94″
Citation: “79 FR 3741″
Document Number: “Docket No. APHIS-2005-0096″
Federal Register Page Number: “3741”
 
23. EXPOSING THE LEGACY OF OPERATION CONDOR (NYT Blogs)
24 January 2014
In 1975, six South American military dictatorships conspired to concoct a secret plan to eliminate their left-wing opponents. Not only would the intelligence services of Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay trade information with each other and kidnap, disappear and kill their own domestic foes, they would also cooperate in identifying and killing exiles from partner countries who had taken refuge elsewhere.
By the time Operation Condor ended in the early 1980s, as many as 60,000 people may have been killed. Precise numbers are hard to come by, because of the clandestine undertaking, and in the years since, political amnesties, the destruction or decay of public records and the reluctance of survivors to revisit the trauma of their imprisonment and torture have impeded the compilation of a definitive history.
But those were only some of the challenges that the Portuguese photographer João de Carvalho Pina, 33, faced a decade ago when he began a project to document Operation Condor. The torture and detention centers themselves have also been largely abandoned or converted to conventional uses, and there was a larger overarching conceptual problem for Mr. Pina to solve: how to illustrate something that by its very nature was both abstract and hidden.
Still, Mr. Pina, who has worked for The New York Times and The New Yorker, Time, Newsweek and other magazines, kept at it, and his labors are now bearing fruit. He has a book coming out this year, and he will be exhibiting about 100 of his photographs in a multimedia show at the Paço das Artes in São Paulo beginning in late September.
From Jan. 29 through Oct. 3, he will also be one of five photographers exhibiting recent work at the Open Society Foundations in Manhattan as part of its “Moving Walls” documentary photography project. This month Mr. Pina talked with Larry Rohter by telephone from Portugal about the origins and objectives of “Shadow of the Condor.” Their interview has been edited.
Q.
You were born in 1980, as Operation Condor was winding down. What drew you in?
A.
Well, it comes from my own idiosyncrasy and my family’s history. I’m the grandson of two political prisoners in Portugal, and those memories were present from a very early stage in my life. My granddad died before I was born, but my grandmother, when we were on vacation we would listen to these amazing stories and adventures, first clandestinely for the Portuguese Communist Party and then as political prisoners. So I was born with all that baggage and had to deal with it. But my friends, they had no clue about it because in Portugal, as in Brazil, there isn’t much conversation about the subject. As a result, when I started to work in the early 2000s, I decided to go after the subject here in Portugal.
Q.
And that’s what led to your first book, “Por Teu Livre Pensamento” (“For Your Free Thought”)?
A.
Right. And in 2002 I started to work a lot in Latin America, where the political prisoner question was an issue and still is. When I made my first trip to Argentina, the military dictatorship [which had ended in 1983] was still a big thing, a big trauma. That was 2004, also the year of my first trip to Brazil. So I slowly started to understand what had been the reality in South America.
Eventually, I did go to New York to do photojournalism and documentary photography at school. This was after I had already produced my work in Portugal, and people in New York and elsewhere were slightly amazed by it. Like, “Wow, this happened in Portugal? Nobody knows about this.” That encouraged me to continue this type of work.
Q.
I’d like for you to talk about methodology, about the practical problem of trying to document as a photographer an operation that is long over and even when it was taking place was shrouded in secrecy.
A.
Well, my first concern is who do I want to represent here? What’s my goal? Who do I want to address and who do I want to talk about? That was my main goal: how do I link all six countries together? So the first thing I did was to understand the history of each country and to select victims, meaning people who survived, families of people who disappeared, which is a big issue in the region, as you know, and the places where things happened — the concentration camps, the different places where torture was practiced, the places where a person was last seen. I also had places where people think other people are buried, like in the Araguaia [River region of the Brazilian Amazon] or the Atacama [desert of northern Chile].
I wanted to show these fairly normal places, some of which are actually pretty creepy because they have been abandoned for a long time. The idea was to share those places and show the memories that are still there. So when I went there, I tried to think how a victim felt. How was it to be locked up here for three months? I tend to spend a lot of time in those places, and sometimes pictures come to me and other times I went and talked to people.
Q.
Can you give an example of a picture that came to you in a torture center?
A.
There’s a particular photograph of a floor in Chile. I was talking to someone there, who said, “Well, the survivors recognized this place because of the floor.” They could do that only because when they were walking in with blindfolds on their eyes, they could glance down and see the black and white tiles on the floor, leading to a wooden stairway. So when they walked in, they saw the floor, measured the number of steps to the stairway and said, “It’s here.” I would never think about that, but suddenly I looked at the floor, I saw the tile and photographed the tile. To me it was obvious that that was a picture.
Q.
When I see your work online, I notice that there is always comment about your unusual choice of equipment.
A.
I’m very comfortable working in medium format, with a Hasselblad with one type of film that I’ve developed with one developer for the past 15 years. So it’s a very natural language to me. One thing I particularly like about that camera is that you don’t put it in front of your face. You look down, so I can interact with the people I am photographing much easier than if I had put this huge camera in front of my eyes, and having me and them and a big camera in the middle.
And then I really love the square format. So I did the project in black-and-white film because that’s what I wanted, and also because I couldn’t afford a digital camera. So it was all for very simplistic reasons. I didn’t intellectualize it.
Q.
So you were working with a shoestring budget?
A.
The first five years of this project I did self-funded. I was very lucky that the International Center of Photography, the school I went to, has this amazing darkroom. Every time I would gather more than 100 rolls of film, I would fly to New York, they would give me access to the lab because I studied there. I would develop the film, and it would be much cheaper than sending it out to a lab in Portugal or Argentina.
Q.
In this project, you are both a creator and a curator, since you have also included archival photographs from the countries involved in Operation Condor.
A.
It was interesting, because Elisabeth Biondi, who used to be the visual director at The New Yorker, she started following this work from an early stage. One day we were looking at the pictures and she said, “Look, you have the representation of the past, you have the present, what’s going on now, but you’re still missing the past.” And I was thinking, Hell, it’s true. I should go and look at archives. And she asked, “Is that accessible?” I said I would ask around and manage something, and that’s what I did. I made two more trips to the countries involved and started asking local photographers and at courthouses and public archives.
I started looking at these amazing images — Paraguay has thousands and thousands of images from this period. Argentina, Brazil, Uruguay, all of them had either local photographers or law enforcement documenting all these things. Though a lot of them are accessible, others are secret, unknown. That was the most fascinating part: going to courthouses, explaining to judges what I’m doing, and looking at their archives for what I could reproduce. It was really incredible.
Q.
What was the reaction when you asked to see official archives, either military or civilian? Were the bureaucrats cooperative or resistant?
A.
I had a bit of everything. (Laughs.) It depended on the country and the specific situation. Paraguay was the most open, by far. I was talking to people, they’d call up the director of the archive, and he’d say, “Yeah, come on over,” and two hours later I was there, and he’d say, “Sure, do you want to start now?” To which I’d say, “Don’t I have to write a letter and get approval?” and he’d say: “What? No, you can do it.” So I came back with my tripod, and they were really, really helpful.
Q.
You mention local photographers. I imagine that for many of them the reaction was, “Great, somebody is interested, so this is not going to be forgotten.”
A.
They were all very supportive of someone interested in this subject, and photographing the present looking for the past. They all agreed that I could use some photographs free of charge. I think that people who lived through this understand very well what I am doing. It really helps that when I go there, I show them photographs I’ve already done, I tell them why I’m interested in this. No one really says no, neither victims nor the people around them.
Q.
And what qualities are you looking for in the archival photographs?
A.
I’m looking for the historical, really. Latin America has always had incredible photographers, so I know the quality and the information is going to be there. What happened in this particular place, that has or has not been documented, and how can I show this, that’s what I was after.
Q.
Those before-and-after mug shots you found in the Paraguayan archives are very powerful. They remind me a bit of the notorious photographs from the Tuol Sleng torture center that the Khmer Rouge maintained in Cambodia.
A.
I give a lot of play in the book to those pictures. They also reminded me of the Nazi period; they show people with hair and without hair. It made me think of concentration camps. They are all very scared-looking and miserable, they had pretty much all gone through torture. They have 11,000 files there, of each prisoner. My editor in Spain is saying we should go there and do a book, reproduce all 11,000 images to do a little book.
These guys were not amateurs, they knew what they were doing. The fact that it is public and very well organized, with the little resources that Paraguay has, is really amazing. The bureaucrats are always good that way. In 50 years we’ll see all the Homeland Security photos somewhere, and it will be really fascinating when they are declassified.
The Open Society Foundations’ “Moving Walls” Exhibition will open on Wednesday, Jan. 29, at the society’s New York headquarters in Manhattan, and remain on view through Oct. 3.
 
24. A SKYLARK WHO SANG TRUTH TO POWER IN ARGENTINA (The New York Times)
By Stephen Holden
24 January 2014
Bereaved but resilient, the sound of the monumental Argentine folk singer heard in Rodrigo H. Vila’s biographical documentary ”Mercedes Sosa: The Voice of Latin America” conveys eons of suffering and survival. You don’t have to understand Spanish, Sosa’s primary language, to be moved by an instrument that expressed the sorrows and hopes of the world’s poor and downtrodden with a profound empathy.
Sosa, who died in October 2009 at 74, applied her gift to the politically charged music of the Nueva Canción (New Song) movement in the 1960s that challenged dictatorships in Latin America and Europe. She was truly a voice of the people.
With her Indian features and straight black hair, she had the kind of face that might have been etched on a coin. Although her voice was lower, her purity of tone and intensity of emotion were not unlike those of the young Joan Baez, her closest American counterpart.
Despite the glorious singing heard in archival footage from various periods of her career, the film is frustratingly sketchy. Several audio and television interviews with Sosa are included, but they are haphazardly inserted and hastily introduced. The main interviewer is Sosa’s son, Fabián Matus, who reminisces informally with relatives and friends.
The lack of background information and connective tissue makes the film feel incomplete. The most intimate personal moments deal with Sosa’s depression, which once led her to stop eating.
A chronicle of her fraught relationship with Argentina’s military dictatorship and her painful exile abroad in the ’70s are recalled, often in her own words, but there is no overview.
When Sosa returned to Argentina in 1982, the dictatorship, though still in power, had weakened, and she was welcomed as a national symbol of freedom. But the story, as related in the movie, has little narrative force.
The most consistent outside voice belongs to David Byrne, who talks as if he were trying to explain the political power of folk music to a younger generation: how singing protest songs could get you jailed, tortured or killed.
Mercedes Sosa
The Voice of Latin America
Opens on Friday in Manhattan.
Written and directed by Rodrigo H. Vila; narrated by Fabián Matus; directors of photography, Mariano Cúneo, Hans Bonato and Ariel González; edited by Luciano Origlio; music by Diego Vila; released by First Run Features. At the Cinema Village, 22 East 12th Street, Greenwich Village. In English, Spanish, Portuguese and French, with English subtitles. Running time: 1 hour 33 minutes. This film is not rated.
=================================================================================================

MONDAY PRESS CLIPS 

1. THE INFLUENTIAL MINISTER BEHIND ARGENTINA’S ECONOMIC SHIFT (The New York Times)
By Simon Romero and Jonathan Gilbert
27 January 2014
BUENOS AIRES — As Argentina absorbs the shock from a sharp plunge in its currency, President Cristina Fernández de Kirchner’s mercurial young economy minister, Axel Kicillof, a scholar with rockabilly-style sideburns and an aversion to business suits, is emerging as the face of policy shifts that are sending tremors through financial markets around the developing world.
Mr. Kicillof, 42, is wielding greater influence over an array of areas, from Argentina’s oil industry to the government’s attempts to slow capital flight and improve relations with international creditors, as Mrs. Kirchner remains largely absent from the public eye after undergoing surgery in October to drain a blood clot near her brain.
The rise of Mr. Kicillof, whose writings use Marxist concepts to interpret the work of the British economist John Maynard Keynes, points to efforts by the authorities to assert greater state control over Argentina’s economy at a time when growth is slowing significantly and inflation is soaring.
”He’s the strongest economy minister Argentina has had in a decade,” said Ezequiel Burgo, the author of ”The Believer,” a book about Mr. Kicillof. ”He’s confrontational, outwardly self-confident and sometimes perceived as being arrogant, which of course makes him stand out at a time like this.”
Before advising Mrs. Kirchner on economic matters, Mr. Kicillof taught economics at the University of Buenos Aires. He rose to prominence as a deputy minister in 2012 when he directed the nationalization of YPF, the Argentine oil company then controlled by Repsol, the Spanish energy giant.
He has repeatedly justified the seizure of YPF, which Repsol had acquired in 1999, in pointed critiques of Argentina’s economic policies in the 1990s of fixing the currency to the dollar and selling state assets. In November, while reviewing Argentina’s offer to compensate Repsol for its stake in YPF, he contended that authorities had previously laid the foundations ”for the pillaging of our companies.”
Since Mrs. Kirchner named him economy minister in November, Mr. Kicillof has been thrust into the spotlight.
Paparazzi trail him around his middle-class neighborhood, Parque Chas, and a celebrity magazine has described his relatively modest lifestyle — reflected in the car he drives, a compact 2008 Renault, and his decision to forgo bodyguards on a vacation with his wife, a literature professor, and their two small children.
One columnist for the magazine Noticias went so far as to examine the psychology of Mr. Kicillof’s sideburns, questioning whether they fit within a rock ‘n’ roll tradition of chafing at authority, or within the fashions of 19th century Argentine political leaders who sought to display virility and power.
Mr. Kicillof has shown a flair for clashing with critics. In an interview published on Sunday by the pro-government newspaper Página 12, he warned against what he called ”disinformation” campaigns on social media networks that could destabilize Argentina’s financial system.
”Economic phenomena can have this magic,” he said, referring to the circumstances around some bank runs. ”They are self-fulfilling prophecies, results of a herd mentality which have no real cause.”
In a country where Freudian therapy and brooding are rooted in the popular culture, Mr. Kicillof, the son of a psychiatrist and a psychologist, accused his opponents of generating ”psychosis.”
Born to middle-class parents who prized intellectual achievement, Mr. Kicillof grew up in Recoleta, an elegant neighborhood in Buenos Aires. His father committed suicide when Mr. Kicillof was 22, according to Mr. Burgo’s book. Mr. Kicillof’s mother is a prominent psychologist. Before he became a fixture of Argentina’s political establishment, Mr. Kicillof gained notoriety as a leader of an anti-establishment student organization at the University of Buenos Aires, where he went on to earn his doctorate and lecture against orthodox economic theories as a professor.
Mr. Kicillof also gained a reputation for being obsessed with numbers in some industries. After he began requesting spreadsheets from oil companies with details of wells, investments and production, the news media here reported that industry executives began calling him Excel, after the Microsoft spreadsheet application.
While he is sometimes criticized for his leftist views by Mrs. Kirchner’s opponents, he has also led a shift in the government’s policies as Argentina seeks to regain access to global financial markets, following the country’s default on its foreign debt in 2002 during a severe economic crisis.
For instance, with Mr. Kicillof at the helm of the economy ministry, Argentina has begun discussions with Repsol over compensation for the seizure of its shares in YPF. Argentina is also trying to appease the International Monetary Fund, which censured the country in 2013 over the accuracy of its economic statistics, by releasing a revised inflation index next month.
In an attempt to obtain a $3 billion loan from the World Bank, Argentina has also settled disputes through the bank’s arbitration body with five companies claiming a total of more than $650 million. This month, Mr. Kicillof traveled to France to discuss with creditors the repayment of Argentina’s estimated $10 billion debt.
But as Argentina tries to halt a plunge in the central bank’s international reserves, Mr. Kicillof’s critics have also grown more outspoken, arguing that he helped create some of the problems he is now trying to solve.
Alfonso Prat-Gay, a former president of the central bank, called Mr. Kicillof’s recent maneuvering ”a scandal,” especially in relation to Argentina’s renewed efforts to reach an agreement with foreign creditors and the sharp fall of the peso. ”You don’t solve things with a devaluation, but with a credible economic program,” Mr. Prat-Gay told a local radio station.
Some people here believe Mr. Kicillof is out of his depth in government. Héctor Zumárraga, 68, a labor rights lawyer, said: “He’s not up to the job. He doesn’t understand that it’s not enough to know just economic theory, and we’re seeing proof of that now.”
2. CRISES SQUEEZE LATIN LEADERS (The Wall Street Journal)
By Taos Turner, Ken Parks and Juan Forero
27 January 2014
BUENOS AIRES — The leaders of Argentina and Venezuela were set to attend a conference in Cuba to debate Puerto Rican independence on Tuesday, as their countries faced their most acute economic crises in a decade.
Their trips — coming as currencies plummet and uncertainty about burgeoning economic troubles grow — seemed to underscore for many Argentines and Venezuelans the erratic governance that economists say have left both countries struggling.
The government of Argentine President Cristina Kirchner and her Venezuelan counterpart and ally Nicolas Maduro partly devalued their currencies last week, sending shudders across Latin America, and both administrations have blamed conspiracies for their economic woes. Argentina’s peso tumbled the most since the country’s 2001 default; basic goods in Venezuela are scarce.
On Saturday, Mrs. Kirchner landed in Havana three days before the start of a gathering of Latin American leaders hosted by Cuban President Raul Castro.
“Fidel invited me to lunch,” she said in a statement issued Sunday soon after her meal with the president’s brother and co-founder of the Communist state. “Very good food,” she told reporters after the meal.
Mrs. Kirchner and Mr. Maduro have expressed support for the U.S. commonwealth of Puerto Rico’s small independence movement. Mr. Maduro said he would propose that the island become the 34th member of the Community of Latin American and Caribbean States, the body of countries meeting in Havana to discuss commercial and diplomatic matters.
“Puerto Rico is not alone in its struggle for identity, for dignity, for independence, for its future,” Mr. Maduro, who was expected to arrive in Havana Sunday night, said in a speech last week.
On the streets of Argentina and Venezuela, many asked what their leaders were doing in Cuba when they were struggling with Latin America’s highest rates of inflation and the fear that things could worsen when private investment is veering toward a recovering American economy.
“Cuba?” said Alberto Gomez, an Argentine army retiree. “People are traumatized by the rise of the dollar, but the government isn’t talking about this. This is the only government we’ve had that doesn’t listen to people.”
Both governments, leaders of a leftist vanguard in Latin America opposed to the Obama administration, still retain a strong base of support.
“My opinion is that several businessmen are trying to weaken the government,” said Bruno Perez, a Buenos Aires sociology student. He was echoing Argentine Economy Minister Axel Kicillof’s comments that vested interests drove the peso down last week.
In Venezuela, the Datanalisis polling firm said in December that Mr. Maduro had just over half of his countrymen’s support in a poll that came days after he forced retailers to sell electronics goods at steep discounts to help fight inflation, a popular measure among the poor.
But the same polls showed only 26.5% of respondents believed the government’s economic policies were helping the situation (Mr. Maduro blames an “economic war” waged by Washington and Venezuelan capitalists for the troubles).
Mrs. Kirchner, who won a landslide re-election in 2011, has seen her approval rating fall fast in recent weeks, pollsters said. About 75% of those polled by the Buenos Aires pollster Management & Fit just over a week ago thought the economy was headed in the wrong direction, and 66.5% disapproved of her handling of the economy.
Of vital concern, especially to the legions of poor in both countries. is inflation, which was 56.2% in Venezuela and approaching 30% in Argentina, say economists whose data is used by multilateral lending agencies.
“The president is to blame for what’s happening and he’s off visiting Fidel,” said Jesus Rodriguez, 37, a cabdriver in Venezuela. “We accept the long lines to buy a bag of flour or milk,” he said. “We have just stood by as things have gotten worse.”
Mrs. Kirchner hasn’t elaborated over the vague measure her aides announced last week to take pressure off the country’s currency: the sale of dollars at the official 8 peso per greenback exchange rate.
Though a loosening of the currency regime, the plan carries major obstacles for Argentines: There will be a stiff 20% surcharge, and businesses are banned from buying.
Carlos Pertierra, 70, a history teacher, said the measures are unlikely to alter Argentina’s economic course, mainly because the weaker currency may stoke inflation further.
Javier Corrales, an Amherst College professor who writes frequently about Latin America, said that it is possible that, like Mr. Maduro in Venezuela, Mrs. Kirchner sees strengthening ties as beneficial to her cause.
“By choosing to go to Cuba perhaps Argentina is showing precisely how serious they think the crisis is, how much she needs external advice,” Mr. Corrales said. “And how much she wants that advice to stay secret.”
3. LETTERS TO THE EDITOR: ARGENTINA SERIOUSLY UNDERSTATES INFLATION (The Wall Street Journal)
27 January 2014
Count me among the skeptics mentioned by Mary Anastasia O’Grady in her Americas column “Argentina’s Crumbling Economy” (Jan. 13). Ms. O’Grady cites the government’s official annual inflation rate: 10.5%. She then reports an annual inflation figure of 26.4% courtesy of a Buenos Aires-based think tank (FIEL).
The Johns Hopkins/Cato Institute Troubled Currencies Project, which I direct, has been making reliable estimates for Argentina’s implied annual inflation rate since 2012. Our current estimate stands at 63% — more than double the highest rate reported by Ms. O’Grady.
Prof. Steve H. Hanke
The Johns Hopkins University
4. EROSION OF ARGENTINE PESO SENDS A SHUDDER THROUGH LATIN AMERICA (The New York Times)
By Jonathan Gilbert, Simon Romero and William Neuman
25 January 2014
BUENOS AIRES — Cities across Argentina are still unnerved by all the looting that broke out last month after police officers went on strike, protesting salaries eroded by rampant inflation. Residents fumed over blackouts that left them sweltering during a recent heat wave. Then the currency plunged this week, the steepest decline since the nation’s economic collapse in 2002, stirring fears that another major financial crisis could be around the corner.
”In 80 years, there’ve been tough times, but it’s never been as bad as this,” Irma Herrera, 80, a retired psychologist, said Friday after the government announced that it would make it easier for Argentines to buy dollars amid the financial upheaval.
”I’m not going to buy dollars when my monthly pension doesn’t even stretch to buy food,” Ms. Herrera said.
In a matter of days, Argentina has become a symbol of the economic stresses mounting in developing countries around the world. Fears are rising that the demand for commodities, a centerpiece of Argentina’s economy, is weakening in places like China, a slowdown that could threaten developing nations.
At the same time, the prospect of better returns in the United States is drawing money out of the developing world and battering currencies from Turkey to Russia to South Africa.
The worries over contagion are spreading. In Brazil, the country’s powerful automobile industry is bracing for the problems in Argentina, one of Brazil’s biggest export markets. But beyond the global forces at play, the financial swings this week have called attention to the particular challenges for some of Latin America’s most vulnerable economies.
”There’s something that’s happening all over Latin America, which is that the region is coming to the end of its commodities boom,” said Francisco Rodríguez, an economist with Bank of AmericaMerrill Lynch. ”Some countries are more vulnerable than others, and definitely the Venezuelas and Argentinas of the world are more vulnerable. Markets are getting very nervous about what will happen to them if you enter a period of a slump in commodities prices.”
This week in Venezuela, the government announced what amounted to a partial devaluation and new currency controls. On Friday, travel agents said several airlines had either stopped selling tickets over the last few days or made only a very limited number of seats available.
The airlines say they have $3.3 billion in revenues in Venezuelan banks that the government has not let them take out of the country. They worry that the value of that money, which is still in local currency, could shrink significantly.
”This is one of the high points when you speak to airline C.E.O.’s,” said Peter Cerda, regional vice president for the Americas of the International Air Transport Association. ”What keeps them up at night is exactly this. What their money’s worth today, it might not be worth tomorrow.”
On Friday, Venezuela’s government also put new limits on the dollars it promises to sell citizens traveling abroad, with a cap of $700 per trip to Florida, compared with $2,500 for travel elsewhere in the United States.
”It’s madness,” said Antonio Miglio, 42, a businessman, who flies to Orlando, Fla., every year with his family to go shopping. ”The government made this decision because of the economic crisis, but this will only make the crisis worse.”
In Argentina, the pressures have been building for years. Generous social spending after the crisis in 2002, like freezing household electricity rates and making payments to poor families, has widened Argentina’s deficit. The country has been printing money, fueling inflation. The issue has been so polemical that the government has been in a fight for years over how high inflation really is; independent economists say it reached 28 percent in 2013, while officials say it was 10.9 percent.
Argentina’s economy is still expected to grow at 2.8 percent this year, according to the International Monetary Fund, but growth has slowed significantly from recent years, and capital flight has been a longstanding problem. Given that the government has nationalized businesses like YPF, the country’s biggest oil company, some investors have pulled back, and many people here have tried to take their money out of the country.
To prevent that exodus, the authorities have tried to restrict access to foreign currency. Now, with a nearly 20 percent drop in the value of the peso just this week, the government said Friday that it would allow people to buy dollars with greater ease. The economy minister described the shift as a response to ”psychosis” in Argentina’s financial markets.
”The government is trying to find a way out of the mess it got into,” said Fausto Spotorno, an economist at Orlando Ferreres y Asociados in Buenos Aires. ”But there’s so much more to do, like tackle inflation.”
Rather than stemming the anxiety, the government’s announcement on Friday seemed to sow confusion.
”This is all improvised,” said Antonio López, 63, an administrator for an office building. ”They don’t know what they’re doing.”
The economy minister, Axel Kicillof, lashed out at financial analysts who contended that the peso might weaken further, calling them ”great liars.” In comments to an Argentine radio station, he attributed the sharp fall in the peso to a ”speculative attack” put into motion by the oil giant Royal Dutch Shell.
”The authorities in Argentina are suffering from low credibility,” said Alberto Ramos, an economist at Goldman Sachs. ”The situation can get as bad as they want to make it.”
The streets of downtown Buenos Aires were bustling but calm on Friday, with more dark humor than signs of panic. ”Great, we can buy dollars now,” said Nicolás Titaro, 61, a company treasurer. ”We just need salaries that let us.”
Other Argentines wondered whether another period of economic turmoil loomed. ”It’s always the same here, a crisis every 10 years,” said Marcelo Rosales, 50, a security guard. ”The government will not assume the political cost of dealing with this. It is only healing minor cuts with plasters.”
5. ARGENTINA EASES CURRENCY RULES TO STEM CRISIS (The Wall Street Journal)
By Ken Parks and Taos Turner
25 January 2014
BUENOS AIRES — Argentina’s government allowed its beleaguered peso to slide farther against the U.S. currency on Friday, saying it would ease limits on the purchase of dollars to stem a possible currency crisis like the one that hammered the country in 2001-02.
Economists welcomed the moves, but doubted they would work without an attack on the real source of the country’s mounting economic problems: rampant government spending and a loose money policy that has caused one of the world’s highest rates of inflation, estimated at more than 25% a year.
The devaluation and burgeoning economic crisis is shaping up as the biggest challenge to President Cristina Kirchner since she took power in 2007, succeeding her husband and predecessor Nestor Kirchner, who has since died. It also threatens the source of her power, which relies on spending and subsidies to ensure popularity.
“The president pledged not to devalue the currency, so this leaves her credibility in tatters and I think it will hurt her image,” said Nicolas Solari, a political analyst at the pollster Poliarquia.
Just this past week, the peso fell 15% and the central bank spent several hundred million dollars defending the currency, according to several economists. On Friday alone, the bank spent $160 million, according to a person familiar with the matter.
Argentina has been burning through its currency reserves, which are down to $29 billion from a peak of $52.6 billion three years ago. Too few reserves might prompt the country to default on its debts again or fall into a deep recession because it can’t buy the imports it needs to keep its economy going.
Mrs. Kirchner faces increasingly difficult trade-offs: The government needs to devalue the currency to protect dollar reserves and shore up exports, but the devaluation will cause inflation to rise farther by making imports more expensive in peso terms. Any attempt to corral inflation from the devaluation means cutting spending, which reduces economic growth and is politically toxic.
Many economists doubt the devaluation in itself will ease Argentina’s woes unless the government spends less and raises borrowing costs. Government spending as a percentage of annual economic output in Argentina has risen most years under Mrs. Kirchner, hitting roughly 40% in 2013, according to estimates from Argentine economists. And the central bank is widely seen as holding interest rates below the rate of price increases — prompting Argentines to spend rather than save.
“The problem now is that you’re devaluing the currency in an economy which inflation was already 30% and you’re doing it without a broader economic plan,” said economist Nicolas Dujovne, a former Argentine central-bank director.
Retailers throughout Argentina’s capital, including department stores such Chile’s Falabella, have already begun marking up prices on televisions, laptops and other items. On Calle Florida, a pedestrian area popular with tourists, a 55-inch HDTV set that cost around 26,000 pesos on Tuesday was selling for almost 32,000 pesos, or 23% more, on Friday.
The country’s long history of financial crises, including inflation that peaked at around 12,000% in the 1980s, makes Argentines understandably nervous. The country’s 1975 currency devaluation, caused inflation to spike to 300% from 50% within 12 months.
This week’s devaluation, coupled with rising inflation, “creates an outlook that is very similar to what Argentina faced in 1975,” said Domingo Cavallo, a former Argentine finance minister credited with controlling inflation in the early 1990s. “I’m not saying that’s going to happen now, but it is something that a lot of people are thinking about.”
When retailers don’t know how much the peso will be worth, they start withholding merchandise, assuming that it’s better to keep valuable goods in stock than to sell them, said Roberto Escobal, who runs a computer electronics store.
“The last think I want to do is have a bunch of pesos in my hands when I have no idea how much they’ll be worth,” Mr. Escobal said. “So if inflation gets worse, you start to see retailers who won’t sell goods even when consumers want to buy them.”
Mr. Escobal said today’s currency and inflation problems are nowhere near as bad they have been in previous crises, but that is little consolation now, he said. “The road to that kind of crisis starts here,” he added.
The government signaled it thought the peso had fallen far enough, suggesting the central bank might try to defend the official rate with more reserves in coming days. “The government thinks the price of the dollar has reached a level of convergence that is acceptable with our economic policy objectives,” Jorge Capitanich, President Kirchner’s cabinet chief, said in a news conference Friday.
The government got some good news Friday. Argentina’s peso firmed against the U.S. dollar on the black market, changing hands at around 12 per dollar, after finishing at 13.10 per dollar on Thursday, according to the newspaper El Cronista, which tracks black-market exchange rates.
Since October 2011, the government has allowed limited sales of dollars to businesses that need to buy imported goods and people who want to travel abroad. But the scarcity of dollars gave rise to a vibrant black market in currencies, in which Argentines pay a hefty premium to buy dollars for travel or as a hedge against inflation.
Starting Monday, Argentines — but not businesses — will be able to buy dollars at official rates. Not that access will be easy. Residents must fill out a form on the Internet, attach their tax ID number, and still pay a 20% tax on the transaction. And even then there is no guarantee they will get the money.
Many said they would closely watch on Monday to see if the government meets the demand for dollars or turns people away. A stampede to take out dollars would further drain central-bank reserves.
 
6. ARGENTINA EASES RESTRICTIONS ON DOLLAR PURCHASES, AFTER DEVALUATION (The Wall Street Journal Online)
By Ken Parks
24 January 2014
Moves Come as Government Tries to Stabilize Peso and Stem Slide in Currency Reserves
BUENOS AIRES—Argentina’s government allowed its beleaguered peso to slide farther against the U.S. currency on Friday, saying it would ease limits on the purchase of dollars to stem a possible currency crisis like the one that hammered the country in 2001-2002.
Economists welcomed the moves, but doubted they would work without an attack on the real source of the country’s mounting economic problems: rampant government spending and a loose money policy that has caused one of the world’s highest rates of inflation, estimated at more than 25% a year.
The devaluation and burgeoning economic crisis is shaping up as the biggest challenge to President Cristina Kirchner since she took power in 2007, succeeding her husband and predecessor Néstor Kirchner, who has since died. It also threatens the source of her power, which relies on spending and subsidies to ensure popularity.
“The president pledged not to devalue the currency, so this leaves her credibility in tatters and I think it will hurt her image,” said Nicolás Solari, a political analyst at the pollster Poliarquia.
Just this past week, the peso fell 15% and the central bank spent several hundred million dollars defending the currency, according to several economists. On Friday alone, the bank spent $160 million, according to a person familiar with the matter.
Argentina has been burning through its currency reserves, which are down to $29 billion from a peak of $52.6 billion three years ago. Too few reserves might prompt the country to default on its debts again or fall into a deep recession because it can’t buy the imports it needs to keep its economy going.
Mrs. Kirchner faces increasingly difficult trade-offs: The government needs to devalue the currency to protect dollar reserves and shore up exports, but the devaluation will cause inflation to rise farther by making imports more expensive in peso terms. Any attempt to corral inflation from the devaluation means cutting spending, which reduces economic growth and is politically toxic.
Many economists doubt the devaluation in itself will ease Argentina’s woes unless the government spends less and raises borrowing costs. Government spending as a percentage of annual economic output in Argentina has risen most years under Mrs. Kirchner, hitting roughly 40% in 2013, according to estimates from Argentine economists. And the central bank is widely seen as holding interest rates below the rate of price increases—prompting Argentines to spend rather than save.
“The problem now is that you’re devaluing the currency in an economy which inflation was already 30% and you’re doing it without a broader economic plan,” said economist Nicolas Dujovne, a former Argentine central-bank director. He estimated accelerating inflation for this year.
Retailers throughout Argentina’s capital, including department stores such Chile’s Falabella, have already begun emoving price tags and marking up prices on televisions, laptops and other items. Already, electronics retailers have raised prices on flat-screen televisions, expected to be big sellers ahead of this summer’s World Cup. On Calle Florida, a pedestrian area popular with tourists, a 55-inch HDTV set that cost around 26,000 pesos on Tuesday was selling for almost 32,000 pesos, or 23% more, on Friday.
The country’s long history of financial crises, including inflation that peaked at around 12,000% in the 1980s, makes Argentines understandably nervous. The country’s 1975 currency devaluation, known as the “Rodrigazo” for then finance minister Celestino Rodrigo,caused inflation to spike to 300% from 50% within 12 months.
This week’s devaluation, coupled with rising inflation, “creates an outlook that is very similar to what Argentina faced in 1975,” said Domingo Cavallo, a former Argentine finance minister credited with controlling inflation in the early 1990s. “I’m not saying that’s going to happen now, but it is something that a lot of people are thinking about.”
When retailers don’t know how much the peso will be worth, they start withholding merchandise, assuming that it’s better to keep valuable goods in stock than to sell them, said Roberto Escobal, who runs a computer electronics store.
“The last thing I want to do is have a bunch of pesos in my hands when I have no idea how much they’ll be worth,” Mr. Escobal said. “So if inflation gets worse, you start to see retailers who won’t sell goods even when consumers want to buy them.”
Mr. Escobal said today’s currency and inflation problems are nowhere near as bad they have been in previous crises, but that is little consolation now, he said. “The road to that kind of crisis starts here,” he added.
The government signaled it thought the peso had fallen far enough, suggesting the central bank might try to defend the official rate with more reserves in coming days. “The government thinks the price of the dollar has reached a level of convergence that is acceptable with our economic policy objectives,” Jorge Capitanich, President Kirchner’s cabinet chief, said in a news conference Friday.
The government got some good news Friday. Argentina’s peso firmed against the U.S. dollar on the black market, changing hands at around 12 per dollar, after finishing at 13.10 per dollar on Thursday, according to the newspaper El Cronista, which tracks black-market exchange rates.
Since October 2011, the government has allowed limited sales of dollars to businesses that need to buy imported goods and people who want to travel abroad. But the scarcity of dollars gave rise to a vibrant black market in currencies, in which Argentines pay a hefty premium to buy dollars for travel or as a hedge against inflation.
Starting Monday, Argentines—but not businesses—will be able to buy dollars at official rates. Not that access will be easy. Residents must fill out a form on the Internet, attach their tax ID number, and still pay a 20% tax on the transaction. And even then there is no guarantee they will get the money.
Many said they would closely watch on Monday to see if the government meets the demand for dollars or turns people away. The risk is clear: A stampede to take out dollars would further drain central-bank reserves.
Many economists saw the move to relax access to dollars as more style than substance–the government’s way of trying to reduce anxiety in the country by loosening, rather than restricting, access to dollars. In 2001, the government froze bank accounts as it devalued the peso, and memories of that crisis are still fresh for many Argentines.
“This is an effort to say we’re establishing confidence at this level for the peso, and trying to prevent panic. They don’t want the guy with $1,000 worth of pesos in his bank account to go to the street and trade in his pesos for dollars,” said Ryan Brier, head of Latin American research at Frontier Strategy Group, an advisory company for multinationals operating in emerging markets.
In addition to cutting spending and raising interest rates, the next best option to contain inflation is through controlling wage hikes, economists said. In coming months, Argentina’s muscular labor unions will press their annual wage demands, but any attempt by the government to limit those gains could lead to unrest.
Some economists say the early signs from the government are not encouraging. State news agency Telam tried to lay the blame for Thursday’s steep drop in the peso on purchases of dollars by the local subsidiary of Royal Dutch Shell PLC.
For years, administration officials have attacked Shell Argentina and its president, Juan José Aranguren, because of the oil executive’s public criticism of government policies that turned Argentina into a net energy importer in 2011. Shell Argentina officials didn’t respond to requests for comment.
7. ARGENTINA BRACED FOR FIRST DAY UNDER RELAXED FOREX CONTROLS (Reuters.com)
By Hugh Bronstein
Jan 27, 2014
BUENOS AIRES, – Argentina’s sudden relaxation of currency controls, long touted by the government as essential to the country’s financial health, has left investors wondering what’s next for Latin America’s crisis-prone No. 3 economy.
Shopkeepers around the country hurriedly placed new price tags over the weekend on imported items from Cuban cigars to Asia-made televisions, reflecting a more than 20 percent drop in the official peso rate over recent days.
The consumer price surge came after the government said on Friday it would lift a two-year-old ban on Argentines buying foreign currency, allowing savers access to coveted U.S. dollars while the peso was left to plummet.
Friday’s relaxation of controls came as central bank reserves fell beneath $30 billion, a level suggesting its interventions in support of the anemic peso had become unsustainable.
But allowing average wage-earners to access U.S. dollars was sure to pressure reserves as well, because the central bank is the main source of foreign exchange. The announcement on Friday ended a two-year ban on saving in the greenback.
Conditioned by previous crises to save in dollars, Argentines are obsessed with the greenback. The currency control regime ending on Monday forced people to go to the black market for dollars needed to protect them from the weak peso and fast-rising consumer prices.
The government, which consistently plays down the problem of inflation, is betting that the relaxation of controls will allow convergence of official and black-market peso rates.
The official rate ended at 8 per dollar on Friday after falling 11 percent on Thursday, its biggest one-day slump in 12 years.
“An exchange rate of 8 pesos is an adequate level,” Economy Minister Axel Kicillof said in a newspaper interview published on Sunday. “This is a reasonable level of convergence for the Argentine economy.”
The black-market peso fell 7.25 percent on Thursday to close at 13.1 per dollar. On Friday, it rose 11.97 percent to end at 11.7 per greenback.
HIGH INFLATION
Consumer prices rose about 25 percent in 2013, according to private analyst estimates. Official data, which many economists dispute, clocks inflation at less than half that rate. A new government consumer price index, ordered by the International Monetary Fund, is expected to be unveiled next month.
A price freeze imposed this month on staple foods has kept a lid on basic supermarket items. No one knows how long those prices can hold while labor unions prepare wage demands based on one of the world’s highest inflation rates.
While inflationary, President Cristina Fernandez’s policies were seen by most voters as the key to economic recovery from the 2002 debacle. She easily won re-election in 2011, promising deeper market interventions and more stimulus spending unencumbered by inflation targeting.
GRAINS TRADE PARALYZED
The effect of peso volatility on other countries’ markets should be limited by the fact that Argentina has been unable to issue international bonds since its 2002 sovereign default.
Argentina’s grains sector has held back exports as farmers hoard crops rather than expose themselves to the swooning local currency. That has contributed to the scarcity of dollars that has debilitated the peso.
The country is the world’s top exporter of soymeal and soyoil, as well as its No. 3 soybean and corn supplier at a time of booming world food demand.
The 2002 default, followed by a decade of policies such as corn export curbs, high soybean export taxes and the 2012 nationalization of the country’s top energy company, YPF , scared off investment needed to expand the grains sector and exploit Argentina’s huge shale oil and gas reserves.
If Argentina reports 30 percent inflation this year, as private analysts expect, it would mark the fastest rate since the 2002 crisis, when inflation reached 41 percent.
Consumer prices are a big worry on the street, but the issue has not sparked mass protests lately. Tensions could rise over the weeks ahead as labor demands pay increases in line with private economists’ 2014 inflation estimates.
Fernandez has mentioned neither consumer prices nor the peso’s plight in recent speeches, leaving her cabinet to announce policy changes. The next presidential election is next year, with Fernandez unable to seek a third term.
Possible candidates from the main parties offer policies that lean in a more pro-investment direction that Fernandez’s, as the outgoing leader tucks into her last two years in power.
“If the government fails to prevent inflation from accelerating it will probably hurt the chances of presidential aspirants who are aligned with the administration,” said Ignacio Labaqui, an analyst with Medley Global Advisors.
“A deeper economic crisis could provide a window of opportunity for candidates who are more business friendly.”
8. ARGENTINA DEVALUATION TRIGGERS 30% WHIRLPOOL PRICE MARKUP (Bloomberg News)
By Pablo Gonzalez and Daniel Cancel
Jan 27, 2014
A sign in the window of Quintex, a hardware store in the Wilde neighborhood of Buenos Aires, shows the effect of the peso’s biggest devaluation since 2002.
“Out of respect for our clients, this store will remain closed until our providers set their prices,” it reads.
Other shopkeepers chose not to wait to see the results of last week’s 15 percent depreciation, raising prices as much as 30 percent on appliances, electronics, wine and other goods that aren’t regulated by the government, while supermarkets seemed to abide by food-price accords reached earlier this month. President Cristina Fernandez de Kirchner left for Cuba over the weekend, days before the start of a regional summit, leaving top aides to try to contain price increases as investors raised bets on further declines in the peso.
“The first reaction has been a paralyzation of almost all the markets for goods and services tied to the official exchange rate,” Domingo Cavallo, who as economy minister in 1991 linked the peso to the dollar at one-to-one, said in a telephone interview from Cordoba, Argentina. “No one wants to sell merchandise at a price if they don’t know what the rate will be tomorrow.”
Twelve-month non-deliverable peso forwards plunged 10 percent last week to 12 per dollar, signaling the currency will weaken 33 percent over the next year from the current 8.0014. The extra yield, or spread, investors demand to hold the nation’s dollar-denominated bonds instead of Treasuries jumped 1.02 percentage point to 10.43 percentage points, the highest since September.
The government is monitoring prices in the wake of the devaluation, Cabinet Chief Jorge Capitanich said Jan. 25.
Price Abuse
“Household appliances, cars, electronics and other goods with a percentage of imported parts will be subject to a permanent monitoring by the trade secretary to guarantee their supply and reasonable price,” Capitanich wrote in messages on his Twitter account on Jan. 25. The government will act with “all the weight of the law in the cases of abuse by businesses setting prices.”
Argentines had already been coping with annual inflation estimated at about 28 percent, the highest in Latin America after Venezuela, and currency controls that restricted access to dollars at the official exchange rate.
Consumer prices had risen 3 percent in January before the devaluation, and inflation will quicken to more than 30 percent this year, according to Lorenzo Sigaut, the head economist at the Ecolatina research company in Buenos Aires.
Investor Confidence
“This surprised us all and creates serious uncertainty since you don’t know where the exchange rate is going,” Sigaut said in a telephone interview. “This is a government that continues to deny inflationary problems but now has to win the battle of expectations.”
The government is seeking to restore investor confidence by paring back some of its control of the economy, reducing support for the peso and easing some currency controls after international reserves used to pay bondholders fell to a seven-year low.
Argentines will be able to begin buying dollars again in accordance with their income at the official rate plus a 20 percent redeemable tax in a reversal of policies installed after Fernandez won re-election in 2011. The central bank raised its yield guidance for a weekly bond auction by six percentage points to about 26 percent on Jan. 24 to create more demand for pesos and try to reduce negative interest rates.
Capitanich will provide details of the easing of currency controls today, Economy Minister Axel Kicillof said in an interview with Pagina12 yesterday.
EM Rout
The peso’s plunge forms part of an emerging-market currency rout last week that was triggered in part by a deepening of the political and financial crises in Turkey and Ukraine. The lira sank 4.4 percent in the week, Russia’s ruble dropped 2.9 percent and South Africa’s rand weakened beyond 11 per dollar for the first time since 2008.
In Brazil, the real slumped 2.3 percent to a five-month low on concern that the peso devaluation will erode demand for the country’s goods. Argentina was Brazil’s third-biggest export market in 2013. Neighboring Chile and Uruguay could also be hurt, Schroder Investment Management said in a note to clients.
Capitanich and Kicillof have both said the peso has now reached an “acceptable level” at about 8 per dollar, a signal the central bank may continue to spend reserves to keep the rate in check. Argentines pay as much as 11.7 pesos per dollar on the black market.
Sales Increase
Retailers “always find a good reason to raise prices; a change in the exchange rate, it’s humid outside, any excuse,” Kicillof said on public TV yesterday. “They lie and steal.”
Electronic goods store owner Roberto Campos, 46, raised prices 20 percent last week following the peso’s decline. He was skeptical that the government will allow people to buy dollars today, saying it will probably create bureaucratic obstacles in a bid to restrict access.
Sales at Campos’s store rose about 10 percent in the wake of the devaluation as people bought before prices rose, he said. Business will probably slow in the medium-term as the government continues to let the peso slide, he said.
“This is just the beginning,” he said while staring at a computer that was updating prices on his goods to reflect the new exchange rate. “Last year there was lots of uncertainty, now the uncertainty is a reality.”
At a store owned by Chilean retailer SACI Falabella in downtown Buenos Aires, the price of a Whirlpool 80X1 model refrigerator on Jan. 24 had risen 30 percent to 27,499 pesos ($3,437) from 21,199 pesos two days earlier.
“The fridge is assembled in Argentina, but all the components are imported,” Andre Viera, a salesman at the outlet on Florida Street, said in an interview. “The lady who came in on Wednesday and said she would be back to buy it on Saturday must be suicidal.”
9. CHRONICLE OF A CRASH FORETOLD (Investor’s Business Daily)
27 January 2014
Socialism: The huge currency devaluations that hit Venezuela and Argentina last week could be seen coming a mile away. This is a warning to the U.S. about big-government spending policies financed by printing money.
The markets have given a resounding vote of no confidence to many emerging-market currencies, triggering sell-offs as far flung as Turkey, Russia and South Africa.
But nowhere were the losses as catastrophic as those in two socialist Latin American countries that have thumbed their noses at fiscal discipline, ruthlessly used printed cash to expand their states and treated their citizens as cash cows, gleefully chasing out thousands of the most productive.
Venezuela and Argentina were the driest tinder in the box for the latest conflagration. It was no surprise.
Venezuela’s bolivar currency effectively lost half its value when President Nicolas Maduro announced that airline tickets would no longer be sold at the official 6.3 rate to the dollar, but rather at 11.36.
Meanwhile, Argentina’s peso tumbled 18% in one week to 7.88 to the dollar, its biggest fall since the great default and devaluation of 2001-02.
Both governments attempted to prevent this outcome by shackling their currencies with capital controls, but they prevented nothing because the money’s not there.
With foreign reserves down to $20 billion in Venezuela’s case and $29.5 billion in Argentina’s, there is too little money left to defend the currency and pay the debts.
Based on swap rates, the market forecasts a 79% chance of default by Argentina in the next five years. And this won’t be the end of it. All forecasts point to worse to come.
Yes, everything seemed fine for years, despite Venezuela’s 30% rise in M2 money printing since 2007 or Argentina’s sixfold increase in M2 money since 2008.
That’s like falling out of an airplane and saying, “So far, so good.” Everything’s fine until the great collision with reality. Because, to paraphrase economist Herbert Stein, anything that can’t go on won’t.
Sure, governments will blame speculators, while others, like economist Joe Stiglitz, will call currency devaluations “restoratives” for balance of payments crises.
But the reality is, they are terrible events that destroy a nation’s savings, hitting small savers who cannot move money abroad the hardest.
That’s the money that becomes a nation’s seed capital for new enterprises and future economic growth.
And they inevitably lead to inflation. For 2012, Venezuela’s inflation surged to 56.1%, its central bank said. In Argentina, the rate was 28%, according to a watchdog.
These man-made disasters are due to governments spending more than they have to buy votes. In Argentina, spending rose 50% in the past decade, and in Venezuela it surged 60% in just the past year.
The numbers are so hard, and crisp and predictable, it’s astonishing anyone could be surprised by them.
And that’s what brings to mind the U.S. and its money printing — M2 money supply is up 34% since President Obama took office — to finance its multi-trillion-dollar expansion of government. Who’s minding the store?
10. CURRENCY CONTROLS IN ARGENTINA; RELAXATION THERAPY (News Analysis from Economist.com)
24 January 2014
IT HAD already been a startling week in Argentina, thanks to a 15% slump in the value of the peso on January 22nd and 23rd. But the biggest surprise came this morning, when the government announced that Argentine individuals will be permitted to buy dollars for saving purposes, a privilege in effect denied to them since 2011. Having suffered many bouts of inflation and hyperinflation over the past decades, Argentines are conditioned not to hold their own currency. Instead they have converted their savings into greenbacks, often squirrelling dollar bills away under their mattresses and in their freezers. In late 2011, with the aim of defending the Central Bank';s dwindling international reserves, the government tacitly eliminated that option.
The government made no announcement and passed no law in 2011. President Cristina Fernández de Kirchner has denied the existence of any restrictions. But from then on, all Argentines who applied to buy dollars for saving purposes were rejected by the tax agency with nebulous excuses or no explanation at all. The only place to buy dollars was the black market, where the exchange rate sometimes exceeded the official one by as much as 70%.
As of Monday January 27th, the government will supposedly lift this invisible “clamp”. Today';s announcement by Jorge Capitanich, the cabinet chief, lasted only a minute and left his audience with more questions than answers. He revealed only that the exchange restrictions will be lifted for individuals, not for businesses; and that Argentines will still need to present tax affidavits along with their requests for dollars. Those making dollar purchases for travel will be charged a 20% tax advance on such purchases, down from 35% now.
One explanation for the events of the past week is that the authorities can no longer afford to prop up the peso by using Central Bank reserves. Although the 2011 dollar restrictions succeeded in stanching capital flight, they failed to stop the fall of Argentina';s international reserves. In 2011, when the clamp was implemented, the reserves were around $47 billion. They have since dropped below $30 billion. With an energy bill of $15 billion and debt obligations of $10 billion to pay this year, the Central Bank cannot endure much more pressure.
On the other hand, letting the peso plummet as Argentines rush to swap their money into dollars could quickly lead to panic. Even if the Central Bank stops intervening, AFIP, Argentina';s tax agency, will continue to control dollar sales, meaning Argentines could still face rejection of their exchange requests without explanation. Despite this morning';s announcement several black-market exchange houses in Buenos Aires, unsure of what the next week might bring, are still hungrily buying and selling at a rate of roughly 12 pesos to the dollar, well above the official rate of 8.1.
The bigger issue, according to Daniel Marx, an economist and former secretary of finance, is how the government plans to address inflation, which he estimates at around 27% and accelerating. “The announcement was very incomplete. No mention was made of a larger plan of fiscal and monetary changes,” says Mr Marx. Freeing up the currency is all very well but without a coordinated effort to rein in inflation, devaluation may just end up fuelling price rises and further falls in the peso. This week was dramatic; Monday is shaping up to be more interesting still.
11. ARGENTINA BACKTRACKS ON DETAILS OF DOLLAR CONTROL (The Associated Press)
01/26/14
BUENOS AIRES, Argentina (AP) — Argentina’s economy minister is backtracking on details of the government’s recent announcements over the easing of currency controls.
Argentina announced Friday it was relaxing restrictions on the purchase of dollars. The decision was forced by double-digit inflation and the sharpest slide in the local peso’s value since its 2002 economic collapse, causing fears among many Argentines that it could happen again.
Economy Minister Axel Kicillof told local daily Pagina 12 in an interview published Sunday that the Argentine tax rate on credit card purchases made in dollars will not be lowered Monday from the current 35% to 20%, as he had announced.
“In the case of currency for tourism and for purchases with a credit card abroad, the 35 to 20 percent move will not be implemented this Monday,” Kicillof said. There was no word of when, or if, the tax rate on credit card purchases may be eased.
The tax for credit card purchases in dollars was issued by the center-left government late last year ahead of the southern hemisphere vacation season as one of several controls aimed at slowing the flood of greenbacks out of the country.
“Internal tourism improved a lot in Argentina and those who wanted to travel were able to,” Kicillof said. “People with a high purchasing power were able to spend in dollars without limits using their credit card.”
The tax will still be lowered for cash purchases, however. And all the other announced measures are still to take effect Monday, most notably a provision allowing Argentines to again buy pesos for personal savings, reversing a 2012 restriction.
Argentina has been kept from global credit markets since defaulting on its debt during the 2001-2002 economic crisis, so the government heavily relies on its foreign exchange reserves to meet debt obligations and finance infrastructure projects.
The reserves recently plunged to their lowest level in seven years, forcing the government to ease the currency controls. The restrictions that began in 2011 seemed only to backfire by pushing many Argentines to the black market in search for dollars, and in turn, stoking the second-highest inflation rate in Latin America after Venezuela.
After Friday’s announcement, the black market dollar weakened to 11.8 from 13 pesos, while the official rate held roughly stable at an average 8 pesos to the dollar.
Argentines are haunted by memories of the country’s worst crisis, when banks froze deposits and the currency lost value, so they have been eager to obtain dollars as protection from high inflation.
12. ARGENTINA RELAXES CONTROLS ON US DOLLARS AFTER SHARP DROP IN VALUE OF LOCAL PESO (AP Newswire (Government Feed))
By Almudena Calatrava
24 January 2014
BUENOS AIRES, Argentina (AP) – Argentina announced Friday it will relax restrictions on the purchase of U.S. dollars after the sharpest slide in the value of the local peso since the 2002 economic collapse.
Analysts said the devaluation was forced by a steady decline in the country’s foreign exchange reserves, and it helped shake markets across the world as confidence in emerging markets slipped.
Argentines will be able to freely buy dollars starting on Monday, reversing a restriction imposed in 2012, and the surcharge on the exchanges will drop as well — to 20 percent from 35.
But the brief announcement by Cabinet Chief Jorge Capitanich made no mention of many other restrictions imposed over the past three years, such as those that have make it hard for businesses to import supplies or repatriate profits.
Many Argentines also were uncertain how the measure would be applied, or how the sudden slide in the peso would affect their trips abroad.
“I’m upset at having saved for something for so long and not being able to buy everything I wanted in the U.S. just for fear of not knowing what’s next,” said Camila Fernandez, a 20-year old law student who has been planning a vacation to New York for a year. “They don’t clear up a thing. No one knows how this will be regulated.”
Many travel agencies stopped taking orders Friday pending clarification, but otherwise business went on as usual.
The original currency restrictions were meant to stem the flood of dollars out of the country, but many economists say they undermined confidence in the peso.
Foreign reserves slipped 40 percent over the past 12 months to their lowest level in seven years.
That led the government to hold back from spending more hard currency to support the peso on the official exchange market on Wednesday and Thursday as the currency tumbled 16 percent against the dollar, falling to about 8 to 1. It had been 4.4 to 1 or better when the government began imposing the series of restrictions in 2011.
Economy Minister Axel Kicillof argued that the sharp fall was fed by speculators.
“Those interests want a dollar at 13 pesos and … yesterday we had a very strong speculative attack,” he told local Radio Continental, accusing Shell Oil of offering to buy dollars at 8.40 when the peso had been trading at 7.20.
Shell Argentina President Juan Jose Arangueren denied any speculation in comments to the newspapers La Nacion and Clarin.
After Friday’s announcement, the black market dollar weakened to 11.8 from 13 pesos, while the official rate held roughly stable.
Independent economists said the effective devaluation this week will feed inflation running at near 30 percent a year. Sellers will have to raise peso prices to get the money needed to buy imported goods in dollars.
Kicillof, however, insisted, “It’s a lie from any point of view that this will carry over to prices … We hope the people understand that there have been strong movements of economic destabilization to set prices that are not prices.”
Kicillof and Capitanich said purchases on the legal dollar market still must be in line with the income a person has declared to tax authorities. And many Argentines say that what they consider legitimate requests for dollars have been refused or delayed in recent years, pushing many to the black market.
Argentina has been kept from global credit markets since defaulting on its debt during its 2001-2002 financial crisis.
As the reserves have dwindled, Argentina also has tried to renegotiate its debt with foreign creditors. It presented a formal offer this week to the Paris Club on paying some $10 billion of debt it still owes to the group of creditor nations.
This week’s developments in Argentina served as “a trigger” for a broader trend of investors shifting out of emerging markets, said Adolfo Laurenti, deputy chief economist at Mesirow Financial Holdings.
And that contributed to a sell-off in stock markets across the world on Friday. Madrid’s stock market fell 3.64 percent, partly due to companies such as BBVA and Telefonica with interests in Argentina.
Argentines are haunted by memories of the financial crisis, when banks froze deposits and the currency lost value, so they have been eager for dollars to stash in vaults or even under their mattresses in case of an emergency.
“I’m sure that the dollar is going to spike up with this measure,” said Malena Perez, 47, who owns a candy shop in downtown Buenos Aires.
She said government restrictions on imports have hurt her small business because she’s no longer able to get her hands on popular potato chip brands made in the U.S. or chocolates from Switzerland.
“I don’t trust this government. I find it hard to believe that you can buy dollars just like that,” she said.
Helped by heavy spending by the leftist government, Argentina’s economy was growing at a 7 percent yearly clip before slowing to what officials say was likely 5.1 percent growth last year, though independent analysts said it was actually less than 3 percent.
“The high pace of government spending must be slowed down, or else the reserves will continue to be squeezed and this implies feeding inflation and a loss of reserves in a short time. The peso would also continue to appreciate,” said Aldo Abram, an economist at Buenos Aires-based Exante.
13. ANALYSIS: ARGENTINE PESO DEVALUATION SPARKS TALK OF CONTAGION (Business News Americas)
24 January 2014
The currency devaluation carried out by the Argentine authorities this week has left many scratching their heads. With the Argentine peso falling to around 8 pesos to the US dollar in the space of just two days, talk of a contagion has spooked markets.
After allowing the currency to depreciate steadily in the second half of 2013, the government allowed the rate to weaken by 3.5% to 7.15 pesos per US dollar on Wednesday (Jan 22) as it ceased to intervene in the currency. The peso weakened further on Thursday to reach 8.50 before stabilizing at around 8, according to a note from investment bank Credit Suisse.
The move in the currency marked its biggest fall since the 2002 economic crisis in the country and comes just days after Venezuela moved to further weaken its currency and introduce a dual currency system, with speculation continuing that Argentina could be set to introduce a similar system.
It also comes following a seven-month period which has seen currencies fall across the region relative to the US dollar as expectations of a tapering of stimulus by the US Federal Reserve spooked markets and led to sharp outflows of fund out of regional markets.
An appearance on Friday morning by cabinet chief Jorge Capitanich to announce a relaxation of some currency controls was only a tad less pitiful than the school kid-like impatience of economy minister Axel Kicillof as they attempted to claim credit for the moves, with many remembering that it was President Cristina Fernández herself who pointedly stated in the past that no devaluation would take place under her watch.
Another interpretation is of course possible, that is, the country is rapidly running out of international reserves and could not afford to carry on with its bizarre economic experiment.
ANALYST VIEWS
Alberto Ramos at Goldman Sachs, talking to BNamericas, noted that “the authorities seem to have lost the grip on the currency dynamics,” suggesting that the ARS could overshoot in the short term. “The economy needs a weaker currency, but that is taking place on top of a very weak macro picture,” added Ramos.
According to Rafael De La Fuente, chief LatAm economist at investment bank UBS, the moves are a “reflection of the fact that they are running out of reserves and are now faced with conflicting objectives.”
Talking to BNamericas, De La Fuente explained, “On the one hand they want to keep a stable exchange rate as an anchor for inflation,” which has led to the introduction of capital controls and currency intervention. “On the other hand they continue to run a very large and widening fiscal deficit, which in the absence of higher taxes and funding for the government they have tended to monetize those deficits, leaning on the central bank to print money.”
In a note to clients, Tony Volpon, Nomura’s fixed income strategist, said that the devaluation was “the inevitable result of an unsustainable mix of monetary and fiscal policies.”
Bulltick Capital markets’ head of research, Alberto Bernal, was more positive however, pointing out to BNamericas that “it is good policy to bring the shadow exchange rate and the official rate closer. The faster they do it and take the pain, the better.”
CONTAGION?
The sharp devaluation also triggered talk of contagion following recent events in Turkey, Ukraine and Venezuela with market view split.
“Greater exchange rate volatility could open up a series of political and economic uncertainties. Developments in Argentina have generated knock-on effects in Brazil, and the risk of contagion across EM has now become more real,” said Volpon.
At SocGen the views were even stronger. According to Benoit Anne, head of emerging market strategy at the investment bank, “Global emerging markets (GEM) are now trading in full-blown panic mode”, adding that “In any case, that panic mode has now spread to all regions and all asset classes including-until recently resilient-hard-currency debt.”
According to Ramos, however, “most of what is going on in Argentina is home brewed. This is an idiosyncratic story that has very little connection to global developments.
De La Fuente was in agreement, noting that the “type of balance of payments and fiscal crisis that you are seeing unfold in Argentina and in Venezuela is very much a traditional emerging markets crisis,” which most emerging market economies have moved away from. “This is self inflicting pain without question.”
With such polarized views in the market, only the coming days will tell if Argentina’s economic experiment will be allowed to continue.
However, uncertainty is never a good sign in financial markets and as JP Morgan’s Vladimir Werning noted, “Unfortunately, authorities have not signaled whether the decision to stop guiding the official FX level through spot intervention represents either (a) a formal end to the long-standing crawling-peg regime or (b) a temporary deviation from it which will end once the market reaches an (undisclosed) new preferred level.”
14. ARGENTINA PEELS BACK CAPITAL CONTROLS AS PESO, FX RESERVES SINK (Market News International)
By Charles Newbery
24 January 2014
BUENOS AIRES (MNI) – Argentina Monday plans to lift a ban on buying dollars for savings, a move seen aimed at shoring up the peso and foreign currency reserves after a massive plunge in the currency this week, senior government officials said Friday.
“We have decided to authorize the purchase of dollars for savings,” Chief of Staff Jorge Capitanich said in a very brief televised press conference.
Capitanich, who was accompanied by Economy Minster Axel Kicillof, sought to downplay concerns about the dive in the exchange rate.
“The government considers that the price of the dollar has reached a level of convergence that is acceptable for the objectives of our economic policy,” he said.
The announcement reverses the government’s October 2011 decision to bar dollar purchases for savings which came just after President Cristina Fernandez de Kirchner won a second four-year term. She also took other steps to stem capital flight that more than doubled to $21.5 billion in 2011 from 2010, leading to a decline in foreign reserves that the government relies on to make debt payments and finance imports.
Capitanich said the federal tax bureau will authorize individuals to purchase dollars if their declared incomes are in line with the amount they seek.
At the same time, the government will cut the withholding tax on dollar purchases to 20% from 35%. This means that when somebody seeks authorization from the tax bureau to buy dollars for savings, they pay the official exchange rate plus a withholding tax of 20% that can be credited against future payments of income or wealth taxes.
The announcement came a day after the peso plunged 8.9% to 7.5272 to the dollar on the wholesale market from 6.912 Wednesday, the worst decline since Argentina scrapped a one-for-one currency regime that was in place from 1991 until 2002, when a severe economic crisis forced the government to abandon the system. The central bank has since used a managed floating system in which it intervenes in the market by buying or selling dollars to set the rate.
However, the central bank stayed out of the market Wednesday, allowing the peso to drop 0.5% to 6.912 from 6.8763 the previous day, according to central bank data.
The depreciation accelerated Thursday, tumbling to as low as 8.60 at some banks before the central bank, after an emergency board meeting, stepped in to the market in the last hour of trading. It sold $100 million of its foreign reserves to shore up the peso.
 
On the black market, where most residents have had to turn because of the dollar-buying ban, the peso plunged to 13.10 Thursday from 12.15 Wednesday, for a gap of 70-75% with the official rate.
Kicillof, after hesitating to speak during the less-than-five-minute briefing, took the microphone to attack opponents who he said want a return of the pro-market measures and one-for-on currency peg of the 1990s.
“The same people who said during 10 years that the peso was worth one dollar now want to convince us that it is worth 13 pesos,” he said. “You can make your own conclusions.”
Economists warn that the government is facing tough challenges, largely stemming from its policies of monetary expansion and its failure to return to global markets or clamp down on inflation, which private economists say could surpass 30% this year after averaging 20-25% annual since 2010.
The government has not fully settled a $100 billion default from 2001, with around $20 billion still in arrears. This has left Argentina without access to global markets, meaning it must rely on the limited domestic market and foreign reserves.
While the reserves expanded after the country emerged from a 2001-2002 economic crisis to reach a peak of nearly $53 billion in 2011, they have since declined because capital flight and imports – in particular energy – are rising faster than the inflow of dollars from exports, foreign investment and loans from overseas development banks.
Dollar reserves have tumbled 45% to $29.3 billion, the lowest since November 2006.
The trade surplus narrowed 24% to $8.75 billion in the first 11 months of 2013 from $11.58 billion in the year-earlier period, led by a 25% rise in energy imports and a 22% decline in fuel exports.
Economist Federico Sturzenegger said on radio Friday that by easing the capital controls, the gap between the official and black-market exchange rates should narrow, which should allow the government to focus on deeper issues like reducing tax pressure and cutting inflation.
But it will not be easy.
With inflation of 30% and a fiscal deficit, Carlos Melconian, another economist, said on radio that the government “is playing with fire.”

========

ARGENTINE UPDATE – Jan 23, 2014

23 enero, 2014

ARGENTINE UPDATE – Jan 22, 2014

22 enero, 2014

ARGENTINE UPDATE – Jan 20, 2014

22 enero, 2014

ARGENTINE UPDATE – Jan 17, 2014

18 enero, 2014
1. ARGENTINA’S PESO HITS NEW LOW IN BLACK MARKET (The Wall Street Journal)
By Taos Turner
January 16, 2014
*Peso Slips to Around 11.55 to the U.S. Dollar
BUENOS AIRES—Argentina’s currency weakened to a new low against the U.S. dollar in the black market Thursday, as residents here continued to seek out the greenback as a hedge against double-digit inflation.
The peso slipped to around 11.55 to the dollar, compared with Wednesday’s record low of about 11.20 pesos, according to local media sites that track the black market.
In contrast, the peso weaken to close at about 6.77 pesos to the dollar on the regulated wholesale currency market.
Argentina severely limits the sale of the dollar and other currencies to people and companies to protect its dwindling foreign currency stocks. That has led some Argentines to buy foreign currency in the black market, where they pay a hefty premium.
The peso’s rapid decline is raising concern about inflation and overall economic growth this year, economists say. A weaker peso tends to fuel inflation, in part by increasing the cost of imports.
The gap between the official exchange rate and the black market also can lead people and businesses to raise prices in expectations of higher inflation or a possible currency devaluation.
With inflation running at more than 25% annually, according to economists, many people expect their savings to lose value if they don’t convert it into a more stable currency such as dollars.
2. ARGENTINA, INFLATION AND THE TALE OF “CRISTINA’S” TOMATOES (Financial Times)
By Jonathan Guthrie
January 16, 2014
The tomato once enjoyed a quiet life in Argentina, mixed with lettuce and onion or grated carrot in a traditional accompaniment to a juicy steak. No longer. Today, it is at the centre of an economic ruckus involving a supermarket worker, President Cristina Fernández and her ministers.
Here’s the short version: the classic round tomato – whose price see-saws with seasonal swings in supply – is one of 100 products currently subject to a government-imposed price freeze. To buy a kilo, Argentines need just 11.50 pesos ($1.70).
All OK. But then the head of a supermarket chain warned there may soon be a shortage – like the ones last August and October – and key figures in the government began contradicting one another over a tomato import strategy designed to keep prices down.
Already under fire for thinking another round of price accords will stem unofficial inflation of more than 28 per cent, the government – which champions import substitution and promotes domestic industry – is courting controversy merely by considering the possibility of tomato imports. Provincial officials and producers have cried foul.
The tomato imbroglio was enjoying a brief respite this week, until a worker at a Jumbo supermarket in Buenos Aires pulled a stunt that turned all eyes back on the fruit. The worker labelled a bag of round tomatoes “Cristina’s” to avoid a mix-up with other types of tomato not included in the price freeze – a provocative act in a country so politically polarised.
Bad times for the tomato. Worse times for the economy. The central bank has seen its forex reserves fall to less than $30bn, their lowest level in seven years. That’s despite a myriad of haphazard policies, including a dollar clamp, import restrictions and a rapid depreciation of the peso.
The government needs forex reserves for debt payments, expected to be at least $6.2bn this year, and for energy imports. The latter totalled around $13bn last year, according to business paper El Cronista, and the energy trade deficit was $6.5bn (even though the government expropriated oil company YPF in a bid to recover Argentina’s “energy independence”).
Any good news? The state-run airline, nationalised in 2008, cut its deficit last year, its president said on Thursday. But it was still $247m in the red. Surely, it’s time to give the tomato a break and address rather more pressing issues.
3. QUESTIONS RISE AFTER ARGENTINA’S FERNANDEZ GOES THROUGH LONG PERIOD OUT OF THE PUBLIC EYE (Fox News)
January 16, 2014
BUENOS AIRES, Argentina –  A puzzling silence has descended around Argentine President Cristina Fernandez.
It’s been 37 days since she last spoke in public. And she hasn’t posted any message to Twitter since Dec. 13, when she fired off a typical volley of 20 tweets.
That’s feeding speculation in Argentina about her health and questions about who’s running the country.
Members of Fernandez’s administration dismiss the questions. They say she’s continued to meet with officials.
Defense Minister Agustin Rossi said Thursday that “the president is totally in command.”
Fernandez was long known for nearly daily speeches and constant tweets. But she was silenced for six weeks late last year when she underwent surgery to remove a blood clot. She returned to work in mid-November.
 
4. PREMIER DECIDES ON FALKLAND OIL PLATFORM WITH ROCKHOPPER (Bloomberg News)
By Brian Swint
January  16, 2014
Premier Oil Plc (PMO) and Rockhopper Exploration Plc (RKH) decided on an oil platform for the Sea Lion discovery off the Falkland Islands as they prepare to pump the first crude off the South Atlantic archipelago.
The partners will use a tension leg platform, or TLP, with an integral drilling rig, London-based Premier said today in a statement. It will cost less than an alternative plan to build a floating production, storage and offloading facility, it said.
TLPs are moored, floating platforms used for production offshore and can operate in water depths of more than 300 meters (980 feet). Premier and Rockhopper, seeking to develop oil off the islands that Margaret Thatcher fought to keep British in 1982, pushed back a final investment decision on the project until next year, with first crude coming in 2018 or 2019.
Sea Lion is the first discovery off the Falklands, an archipelago also claimed by Argentina. Premier and Rockhopper plan to spend about $5 billion to bring the field to production and will also explore for more oil in the region.
“We are pleased to have reached another significant milestone in the commercialization of the Sea Lion field,” Rockhopper Chief Executive Officer Sam Moody said in a separate statement. “The tension leg platform provides operational and commercial advantages over the FPSO alternative and it was worth taking the extra time needed to evaluate the option.”
Premier dropped 6.5 percent to 288 pence in London trading, the lowest since June 2010, after publishing 2014 production forecasts that missed analyst estimates. Rockhopper fell 1.9 percent to 153 pence.
5. ARGENTINA OFFERS TO SWAP LOCAL PESO BONDS FOR NEW DEBT (Dow Jones Institutional News)
By Ken Parks
16 January 2014
BUENOS AIRES–Argentina is offering investors who own 17.5 billion Argentine pesos ($2.6 billion) in bonds that come due later this month the opportunity to swap that debt for new bonds maturing in 2019 in a move that could allow the government to avoid increasing the money supply at a time of rising inflation.
The federal government first issued the five-year bonds, known as the Bonar 2014, to banks and insurance companies in exchange for guaranteed loans the government made to those financial institutions during an economic crisis in 2001.
The swap is aimed at reducing the interest rates and extending the maturity of the public debt, the Economy Ministry said Thursday.
The Bonar 2014 was recently trading 0.1% higher in Buenos Aires at 103.80 pesos Thursday afternoon.
“The fact that it’s not down implies that the swap will be well received or that it was previously negotiated with the bondholders,” said Francisco Marra, a trader at Bull Market Brokers.
A spokeswoman for the Economy Ministry didn’t respond to an email and phone call seeking comment.
“The most important issues are the degree of acceptation and if the government can avoid having to print all of that money at the end of the month,” said Nicolas Dujovne, who was chief economist at local bank Banco Galicia and now runs his own consulting firm.
Argentina is widely believed to sport the second highest rate of inflation in the Americas after Venezuela. Most economists say inflation rose more than 25% last year, compared with heavily questioned government data that put the gain in consumer prices at just under 11%.
Critics of President Cristina Kirchner’s economic policies blame inflation on high government spending financed in part through money printing. The money in the hands of the public and in checking accounts grew 25% on the year in 2013, according to central bank data.
Juan Carlos Fábrega, the central bank’s new president, said last month he hopes to slow growth in the money supply during 2014.
Rising inflation and the steady decline in Argentina’s international reserves–the pile of foreign currency the country relies on to pay creditors and its import bill–have put pressure on the peso.
The government tightly controls the formal exchange rate by limiting the amount of foreign currencies like the U.S. dollar that Argentines can legally purchase for travel or to pay for imports. But the authorities have little control over a currency black market that caters to Argentines looking to buy additional dollars for overseas vacations or to protect their savings from inflation.
The peso traded at 6.77 to the dollar on the regulated wholesale market Thursday, compared with a record low on the black market of around 11.40 to the dollar. The persistent and widening gap between the two rates has fueled currency speculation and started to influence how some businesses set prices, with an eye on the black market rate as a reference.
The bond swap is scheduled Friday. The government is offering to exchange the Bonar 2014 for five-year bonds that carry an annual floating interest rate equal to the benchmark Badlar rate plus 2.50%. The Bonar 2014 that matures Jan. 30 pays Badlar plus 2.75%. Badlar, the interest rate that private banks pay on wholesale deposits of more than 1 million peso, is currently around 21.5%.
The swap isn’t a bad deal for banks because the new bonds would be a hedge against movements in the cost of wholesale deposits, and the capital requirements for holding government bonds are lower than for loans, Mr. Dujovne said.
“There are reasons to think the acceptance rate will be 50% or higher,” he said.
6. ARGENTINA ECONOMY: THE PESO AND FOREIGN RESERVES CONTINUE THEIR SLIDE (Economist Intelligence Unit – ViewsWire)
16 January 2014
Argentina’s strict foreign-exchange controls remain in place, but the government seems unable to reduce demand for dollars, which has increased in recent months as speculation regarding peso devaluation persists. The stock of international reserves has now fallen below the psychological barrier of US$30bn, while the official and black-market exchange rates continue to depreciate rapidly. The monetary authority has tightened policy to help rein in demand, but results have not yet been felt.
On January 15th international reserves fell to US$29.9bn, their lowest level since November 2006. The stock of international reserves has decreased by 7% (US$2.3bn) since Juan Carlos Fábrega replaced Mercedes Marcó del Pont as president of the Banco Central de la República Argentina (BCRA, the Central Bank) in November. The fall is mainly the result of the government’s efforts to control the peso’s slide. On January 15th the black-market exchange rate (the so-called dólar blue) reached a new record of Ps11.21:US$1, from Ps10:US$1 at the start of the year.
The fall in the peso’s value has been driven by seasonal factors, including Argentines travelling abroad during the southern hemisphere summer and the payment of the annual salary bonuses in December. However, uncertainty about exchange-rate policy going forward is also playing a role: amid a growing risk of some sort of currency crisis, local investors are expecting a faster depreciation of the official exchange rate and are keen to dollarise their assets even at a black-market rate that is substantially over the official exchange rate.
Dollar bond sales to stem demand are not enough
In recent weeks, the so-called dólar Bolsa (stock market dollar), which is an exchange rate derived from trade in dollar-denominated bonds on the Buenos Aires Stock Exchange, has also gained relevance as a benchmark. This operation had been banned by the former interior commerce secretary, Guillermo Moreno, but since December, when the ban was lifted, demand for dollar-denominated bonds at the Buenos Aires Stock Market has risen briskly. Investors buy the bonds in pesos and are allowed to sell them after just 72 hours to legally obtain dollars. The dólar Bolsa trades at less of a premium to the official rate than the dólar blue, but it has been weakening sharply amid growing demand. By mid-January the dólar Bolsa was at Ps9.96:US$1, versus an official rate of Ps6.76:US$1.
The dynamism of the dólar Bolsa trade has prompted the authorities to intervene through the sale of dollar-denominated bonds in an effort to contain demand and curb this parallel rate’s rise. In the first two weeks of January, the social security agency, ANSES, which inherited financial assets previously held by private pension funds when the latter were privatised in 2008, has sold a variety of dollar-denominated bonds from its portfolio to help contain demand. Yet so far, ANSES’s intervention has failed to prevent the dólar Bolsa from continuing to weaken, accompanying the depreciation of the dólar blue.
In an effort to narrow the black-market premium and to stop the fall in foreign reserves (the drop in reserves in the past year was the result in large part of the persistent need to sell dollars into the foreign-exchange market to meet unrelenting demand in the heavily managed system), the pace of depreciation of the official exchange rate has also quickened ever since Mr Fábrega’s arrival at the head of the Central Bank. In the two months between mid-November and mid-January, the managed official exchange rate weakened by a rapid 11% in nominal terms. Nevertheless, instead of decreasing, the gap with the black-market rate has grown, from 53% at the end of 2013 to 66% two weeks later.
Interest rates on the rise
In a significant change in policy stance that began around mid-2013 but has become more obvious since late last year, the authorities have also allowed a rise in local-currency interest rates in an effort to discourage demand for dollars. Interest rates on Central Bank short-term notes rose by 260 basis points in the first two weeks of 2014, while the stock of Central bank notes has increased, demonstrating the government’s intention to mop up liquidity. For its part, the BADLAR (the benchmark interest rate on large short-term private bank deposits) climbed to 21.7% by mid-January, up from 20.4% at end-2013 and from 16.6% in mid-2013.
Reflecting its attempts to rein in demand, the Central Bank has also put forward a more prudent monetary plan for 2014. The Bank expects private M2 (a proxy for money supply, which includes M1 plus private-sector savings accounts) to grow between 23.5% and 27.9% in 2014 (below the inflation rate). This suggests a shift in policy priority from economic growth towards control of inflation, which has been fuelled in recent years by expansionary fiscal and monetary policies and is the root cause of Argentina’s current competitiveness and balance-of-payments difficulties.
In this context, the Central Bank’s decision to allow higher interest rates and to rein in money supply growth could represent an inflexion point. Two major problems remain. First, fiscal policy remains expansionary and will be difficult to tighten amid a large burden of transfers and subsidies and persistently high wage demands. Second, economic growth is slowing amid deepening policy uncertainty, putting the Central Bank’s newfound commitment to (much-needed) monetary tightening into doubt.
In the short term, inflation will remain high, the peso will continue to depreciate, reserves will continue their steady decline and the economy will remain weak. If the authorities do not maintain their commitment to adjustment in this difficult context, the economic outlook will continue to worsen.
7. ARGENTINE POET WAS A NOTABLE LEFTIST (The Washington Post)
By Almudena Calatrava
16 January 2014
Juan Gelman, a renowned Argentine poet and left-wing activist who was awarded the prestigious Cervantes Prize, died Jan. 14 in Mexico. He was 83.
Argentine President Cristina Fernandez announced the death and declared three days of mourning in his native country. He also was widely mourned in Mexico, where he lived for more than 20 years before his death of undisclosed causes.
Mr. Gelman’s life and work were deeply affected by personal loss suffered during Argentina’s 1976-1983 military dictatorship. Government forces kidnapped and killed his son and daughter-in-law among tens of thousands of suspected leftists who were “disappeared” across Latin America in that era.
“I died many times, and with each report of a murdered or disappeared friend, the pain of those lost became greater,” he said during his acceptance speech of the Cervantes Prize in 2008.
“The wounds are not closed yet. They beat in the underground of society like an uncured cancer.”
Juan Gelman was born May 3, 1930, in Buenos Aires. His father was a Russian leftist who became disillusioned with Joseph Stalin’s regime and settled in Argentina.
The younger Gelman joined the Communist Youth Federation at 15. He left the party in the 1960s to become part of an organization that would evolve into the Montoneros guerrilla group, which he quit in 1979 in opposition to its militarism.
In those years, he published the books of poetry “Gotan” (1962) and “Colera buey” (1962-1968).
Mr. Gelman was abroad at the time of the 1976 coup, but his 20-year-old son, Marcelo, and his 19-year-old wife, Maria, who was seven months pregnant, were seized. He never found the remains of his daughter-in-law, but in 1990 he was able to identify his son’s remains.
For years, he tried to track down his granddaughter, who had been adopted after her parents were killed in prison. In 2000, he found Macarena in Uruguay. After learning that she was related to the poet, she changed her last name to Gelman.
Mr. Gelman, who was tall and wispy and spoke in a soft, raspy voice, lived in a roomy, well-lit apartment stacked with bookshelves in the Mexico City neighborhood of La Condesa. He received numerous awards including the Juan Rulfo prize in 2000, and the Reina Sofia poetry award and the Pablo Neruda Iberoamerican poetry prize, both in 2005.

ARGENTINE UPDATE – Jan 15, 2014

17 enero, 2014
Wednesday
1. SUPREME COURT BARS RIGHTS SUIT AGAINST DAIMLER IN CALIFORNIA: RULING MAKES IT HARDER TO SUE FOREIGN CORPORATIONS IN U.S. COURTS OVER OVERSEAS EVENTS (The Wall Street Journal Online)
By Jess Bravin and Brent Kendall
Jan. 14, 2014
The Supreme Court on Tuesday made it harder to sue foreign corporations in U.S. courts over events that happened abroad, throwing out a California lawsuit alleging human-rights violations in Argentina by German auto maker Daimler AG
The court unanimously ruled that U.S. courts lack jurisdiction over the suit, which alleged a Daimler subsidiary in Argentina was complicit in human-rights abuses that government forces committed against the company’s workers during that country’s so-called Dirty War, beginning in the mid-1970s. Daimler denied the allegations.
The ruling was the latest in a string of high-court decisions limiting liability in U.S. courts for human-rights abuses and other offenses that occurred outside the U.S.
Last year, for instance, the court dismissed a suit filed in the U.S. by Nigerian nationals seeking to hold Royal Dutch Shell PLC liable for complicity in alleged human-rights abuses in Nigeria, under an 18th-century federal law known as the Alien Tort Statute.

The plaintiffs in Tuesday’s case, 22 Argentine residents, invoked that statute, among other legal theories, in their lawsuit against Daimler. The suit alleged that Mercedes-Benz Argentina alerted the country’s security forces that some of its auto workers were “subversives.”

 

In 2011, a federal appeals court in San Francisco had permitted the suit to proceed, taking the view that Daimler’s American operations, including its Mercedes-Benz sales in California, created enough of a connection between the U.S. and events in Argentina to expose the auto maker to liability in federal court.

 

Not so, Justice Ruth Bader Ginsburg wrote for the high court. Exposing Daimler to liability in such circumstances would violate the U.S. Constitution’s due-process guarantee, she said.
“Daimler’s slim contacts with the state hardly render it at home there,” she wrote. Therefore, it could not be liable in California for “claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in California.”
The same logic, she added, barred similar suits in any U.S. court. Otherwise, “if a Mercedes-Benz vehicle overturned in Saudi Arabia injuring a driver and passengers from Norway, the injured persons could maintain a design-defect suit in California,” she said.
“We are very pleased with the Supreme Court’s unanimous conclusion that Daimler is not subject to jurisdiction in California in this case,” the company said in a statement. “The plaintiffs’ accusations are groundless, and today’s opinion concludes the prolonged litigation in the United States.”
“We are disappointed in the decision and are exploring other avenues for justice,” said Terrence Collingsworth, an attorney for the plaintiffs.
A corporation generally can be sued in a U.S. state for actions that took place beyond its borders if the company’s principal place of business is in the state, or it is incorporated there, the court said in its decision.
“These bases afford plaintiffs recourse to at least one clear and certain forum in which a corporate defendant may be sued on any and all claims,” wrote Justice Ginsburg.
Justice Sonia Sotomayor voted to dismiss the Argentine suit, but on narrower grounds. She wrote separately that the majority was too concerned with the relative size of Daimler’s global operations to those in California, an approach she feared was too friendly to big business.
The majority view treats “small businesses unfairly in comparison to national and multinational conglomerates,” Justice Sotomayor wrote, likening the approach to “the concept of…’too big to fail.'”
2. JUSTICES RAISE BAR FOR SUING FOREIGN COMPANIES (The New York Times)
By Adam Liptak
January 14, 2014
WASHINGTON — The Supreme Court on Tuesday made it harder to sue foreign companies in American courts, prompting a justice in a concurrence to accuse the majority of creating “a new rule of constitutional law that is unmoored from decades of precedent.”
In a second decision, the justices unanimously ruled that an antitrust case brought by Mississippi’s attorney general could not be moved from state court to federal court.
The first case, Daimler AG v. Bauman, No. 11-965, arose from abuses committed during Argentina’s so-called Dirty War, which occurred from 1976 to 1983. Twenty-two residents of Argentina, contending that Daimler’s Argentine subsidiary had collaborated with state security services in killings, torture and other abuses, sued Daimler in California. The suit was proper there, the plaintiffs said, in light of business conducted in the state by an American subsidiary of Daimler that was incorporated in Delaware.
The Supreme Court unanimously rejected the contention, though for sharply different reasons.
Justice Ruth Bader Ginsburg, writing for eight justices, said the link between what happened in Argentina and Daimler’s connections to California was too slender. Even assuming the American subsidiary could be sued in California for all purposes and its contacts with the state could be imputed to its corporate parent, Justice Ginsburg wrote, “there would still be no basis to subject Daimler to general jurisdiction in California, for Daimler’s slim contacts with the state hardly render it at home there.”
“Exercises of personal jurisdiction so exorbitant, we hold, are barred by due process constraints,” she wrote.
The decision is the latest in a series of cases cutting back on the ability of American courts to hear cases asserting corporate complicity in human rights abuses abroad. In April, in Kiobel v. Royal Dutch Petroleum Company, the court limited the sweep of a 1789 law that had been used to address such abuses.
Justice Ginsburg wrote that Tuesday’s decision was informed by attentiveness to “risks to international comity” and “considerations of international rapport,” suggesting that it would be preferable to bring such suits where the conduct occurred or where the plaintiffs or defendants are primarily based.
In a concurrence, Justice Sonia Sotomayor said the majority’s analysis was “wholly foreign to our due process analysis.”
“In recent years, Americans have grown accustomed to the concept of multinational corporations that are supposedly ‘too big to fail’; today the court deems Daimler ‘too big for general jurisdiction,’ ” she wrote.
Still, she said that the result reached by the court was correct and that allowing the suit “would be unreasonable given that the case involves foreign plaintiffs suing a foreign defendant based on foreign conduct, and given that a more appropriate forum is available.”
Justice Ginsburg responded that this approach lacked a governing principle and that Justice Sotomayor “favors a resolution fit for this day and case only.”
Justice Sotomayor wrote that the majority’s approach, which took account of the proportion of the American subsidiary’s sales in California, was novel, wrong and counterproductive.
“The majority announces the new rule,” she wrote, “that in order for a foreign defendant to be subject to general jurisdiction, it must not only possess continuous and systematic contacts with a forum state, but those contacts must also surpass some unspecified level when viewed in comparison to the company’s ‘nationwide and worldwide’ activities.”
Justice Sotomayor said this would “produce deep injustice” in four ways. It will, she said, cut back on the ability of states to adjudicate disputes involving companies that do substantial business within their borders. It will put small, local businesses at a disadvantage. It will treat individuals and companies differently. And it will, she concluded, “shift the risk of loss from multinational corporations to the individuals harmed by their actions.”
In Tuesday’s second decision, Mississippi v. AU Optronics Corporation, No. 12-1036, Justice Sotomayor wrote the court’s unanimous decision. The case concerned a 2005 law, the Class Action Fairness Act, that allows some big suits involving many plaintiffs to be moved out of state courts thought to be hostile to corporate defendants.
Under the law, “mass actions” involving the claims of 100 or more people, may be transferred to federal court in some circumstances.
The question for the justices was whether an antitrust suit brought by Mississippi against a manufacturer of liquid-crystal displays qualified as a “mass action” because it sought, among other things, restitution for the state’s citizens.
Justice Sotomayor wrote that the suit did not qualify because the state was the only named plaintiff. Trying to determine whose interests it represents, she wrote, would require “unwieldy inquiries” and create “an administrative nightmare that Congress could not possibly have intended.”
3. SUPREME COURT EXTENDS PROTECTIONS FOR MULTINATIONAL COMPANIES (The Washington Post)
By Robert Barnes
January 14, 2014
The Supreme Court on Tuesday extended protection for foreign companies from lawsuits in the United States over conduct that took place in other countries.
The justices threw out a case from California that sought damages from Germany-based Daimler AG for its alleged complicity in atrocities committed in Argentina’s “dirty war” against leftists from 1976 to 1983.
The company manufactures Mercedes-Benz automobiles and has a subsidiary, Mercedes-Benz USA, that does business in California and other states. The U.S. Court of Appeals for the 9th Circuit said the large number of Mercedes vehicles sold in California provided enough of a link for the lawsuit to go forward.
But Justice Ruth Bader Ginsburg, writing for the court, said those connections were too tenuous to mean the company could be sued in California over allegations that actions by employees in Argentina aided state security forces in killings, kidnappings and torture.
The company has called those allegations “groundless.”
Ginsburg said that under the arguments of the plaintiffs — Argentines who say they or their relatives were harmed in the dirty war — California is a “place where Daimler may be sued on any and all claims against it, wherever in the world the claims may arise.” Such a view is “so exorbitant” that due process is violated, she said.
The decision is one in a series of rulings in recent years in which the justices have restricted the role of U.S. courts in hearing legal disputes involving foreign companies over human rights violations or product liability when the alleged problems occurred overseas.
The case revealed a split among some of the judiciary’s leading liberals. Ginsburg mentioned Circuit Judge Stephen Reinhardt, who wrote the appeals court decision, in criticizing the appeals court for reversing a district judge’s decision dismissing the suit, which was filed in 2004.
“The Ninth Circuit . . . paid little heed to the risks to international comity its expansive view of general jurisdiction posed,” Ginsburg wrote. “Other nations do not share the uninhibited approach” of the appeals court, she said.
And there was a split among the liberals on the Supreme Court. Justice Sonia Sotomayor joined the rest of her colleagues in agreeing that the case against Daimler should be dismissed. But she criticized Ginsburg’s opinion as going too far and creating a “new rule of constitutional law that is unmoored from decades of precedent.”
She said there were more narrow ways to rule against the plaintiffs that would not have been so protective of the foreign corporations in future cases.
“In recent years, Americans have grown accustomed to the concept of multinational corporations that are supposedly ‘too big to fail’; today the court deems Daimler ‘too big for general jurisdiction,’ ” Sotomayor wrote.
The case is Daimler AG v. Bauman.
In a second case in which Sotomayor wrote the opinion, the court ruled that Mississippi’s attorney general may keep a consumer-protection case he filed against makers of liquid-crystal displays in state court rather than federal court.
The 2005 Class Action Fairness Act allows large suits involving many plaintiffs to be moved from state courts, deemed more hospitable to plaintiffs, to federal courts, where companies are thought to have the edge.
One of the determining factors in moving the case is whether there are more than 100 named plaintiffs. But the court determined that although Mississippi is filing the suit on behalf of its citizens, it is the only named plaintiff and, thus, the case is not a “mass action” under the terms of the law.
The ruling in Mississippi ex rel. Hood v. AU Optronics Corp. was unanimous.
4. ARGENTINA: TOP-END CAR TAX STARTS TO BITE (Financial Times)
By Jonathan Gilbert
January 14, 2014
Tough times for consumers in Argentina. Thanks to a 35 per cent tourist tax, many are swapping the white sands of Uruguay and Brazil for local beaches during January’s summer holidays (though the head of the federal tax agency found his way to a five-star hotel in Rio).
And now car-makers have begun to release prices under the impuestazo, a whopping new tax on top-end models.
In another move to protect dwindling dollar reserves it uses for debt payments and energy imports, the government slapped a two-tier tax on luxury cars. It hopes to cull demand, force dealers to reduce imports and halt the narrowing trade surplus.
The measure hit consumers this month. It levies a 50 per cent tax on cars worth more than 210,000 pesos ($30,000 at the official rate, which is 62 per cent lower than the black market rate) and 30 per cent on models valued at more than 170,000 pesos ($25,000).
The result? Enrique Vitale, a sales executive at a BMW dealership in Pilar, just outside Buenos Aires, told beyondbrics that no cars have been sold there yet in January (compared to more than 20 in October).
As manufacturers experiment with the tax in a bid to keep the market active, prices of some models have rocketed. A Honda Accord V6 is listed at more than 700,000 pesos ($105,000), nearly double what it cost last month. The price of a BMW 328i has risen by 64 per cent to $117,000.
Argentines are used to eye-watering price tags. Government restrictions mean there’s a near ban on importing iPhones (though the vice-president was caught tweeting with one). Most people escape to Miami to buy them and hope to avoid paying the 50 per cent customs duty on their return.
But even that’s cheaper than purchasing one of the few that make it to stores in Buenos Aires. High taxes mean one retailer, with a stock of just 10, is selling the iPhone 5 for 13,299 pesos ($2,000).
Argentines bought nearly a million new cars in 2013, a record. But the car dealers association expects sales of at least 120 top-end models hit by the impuestazo to plunge by half this year. And there’s bad news for consumers setting their sights lower.
As Carlos Cristófalo, a car industry expert in Buenos Aires, told beyondbrics: “In the medium term, the measure will also affect cheaper cars as manufacturers – compensating for the loss of high-profit sales of premium models – are forced to increase prices.”
Some in the sector have grown tired of state intervention, to say the least. In a separate move last month, the government told car traders to reduce imports by 27.5 per cent over the first trimester of 2014. The president of the car import chamber’s response? “First the tax and now this. The government’s telling us how to live.”
5. ARGENTINE BANKER DEFENDS HANDLING $4 MILLION IN LITERALLY DIRTY MONEY (Herald Democrat)
By Andrew Zajac and Charlie Devereux
14 January 2014
BUENOS AIRES – U.S. federal agents who seized more than $4 million in U.S. banknotes shipped from Alfredo Piano’s Buenos Aires bank uncovered what they claimed was a cache of dirty money.
Piano, 82, said many of the $100 bills were filthy, yes – and others had been ravaged by fire, water and even dogs.
Piano’s banknotes became the subject of recent scrutiny in federal court in Washington, where the bills were named defendants in a lawsuit called U.S. v. $4,245,800 in Mutilated United States Currency. In it, the U.S. alleged that the tattered cash that Piano’s Banco Piano had tried to exchange at face value was likely the proceeds of criminal activity.
Piano argued that his bank’s role is to help Argentines get new greenbacks when their old ones get burned, ripped or, in some cases, sent through the washing machine. Hashing out whether the bills fell under the government’s figurative, criminal definitions of dirty and laundered, or merely Piano’s literal ones, took an 18-month legal proceeding and insights from Argentine money-hoarders, the Secret Service and an arm of the U.S. government called the Mutilated Currency Division.
Mounting the defense of his clients’ money, Piano argued that Argentines are world-class stashers of cash dollars, and that misfortune will naturally befall some of the paper money that people hoard in mattresses, walls and holes in the ground.
“Argentina leads the world in the problem of deteriorated dollars,” Piano said in an interview.
Many Argentines don’t trust their peso thanks to inflation and state controls on foreign-currency purchases, and often avoid banks after their government forcibly converted dollar accounts to pesos after the country’s record $95 billion default in 2001. That puts Argentina among the countries where the dollar is the rainy-day standard, from Afghanistan and the former Soviet states to Venezuela.
The exotic and often rough travel itinerary of U.S. banknotes creates a challenge for the Treasury and Federal Reserve, which have a hand in producing, exchanging and tracking the circulation of more than $1 trillion worth of paper money. There’s also the Secret Service, whose job is to guard not only the president but also the nation’s financial and payment systems.
The U.S. government retires more than four billion notes each year, the Fed says. The cash often comes in from abroad, where half to two-thirds of U.S. currency circulates, most of it in $100 bills, it says. In October, the U.S. introduced a new $100 bill with additional security features.
When someone like Piano presents damaged bills for exchange, the Treasury writes a check for the face value of the mutilated currency, typically provided that more than half a given note can be accounted for.
That’s great if you happen to tear a C-note while arguing over the check at a sushi bar. The problem is that it also provides an opening for criminals. Imagine if Walter White in “Breaking Bad” had burned holes in his meth income – several stacks of hundreds, say – so he could put in for a check or wire transfer from the U.S. Treasury equal to his ill-gotten profits.
That’s one method used by real money launderers, and what the U.S. believed customers of Banco Piano were doing from August 2010 to mid-October 2011 when it sent several parcels of damaged notes, mostly hundred-dollar bills, to the U.S. by way of the bank’s U.S. representative, Bank of America.
When bills from Banco Piano arrived at the Mutilated Currency Division, part of the Treasury’s Bureau of Engraving and Printing, U.S. examiners were skeptical.
“Lawful retailers, both in the United States and those overseas that accept American dollars, very rarely engage in transactions that involve $100 bills only,” Secret Service Special Agent Warren Buckley wrote in a May 2012 filing in federal court in Washington, requesting a warrant to seize the cash.
Many notes sent by Piano’s bank were burned and water- damaged in ways that often signal illegal activity, Buckley wrote. His affidavit cited a Bureau of Engraving and Printing materials-technology expert who said many notes were burned in the same place, suggesting that a “common mechanism” was used.
“BEP experts consider it highly suspicious when two different mutilated bills, each submitted for redemption at a different time in different packages, have remarkably similar or the same burn marks and charring pattern,” Buckley wrote.
There were partial bills, too. “A total of 1,831 fragments constituted two, or very occasionally three, pieces of the same $100 notes, usually as identified by each having the same serial number, but sometimes by being taped together,” he wrote.
Buckley’s evidence persuaded U.S. Magistrate Judge Alan Kay to authorize the seizure of 17 parcels submitted by Banco Piano. The sum confiscated was more than twice as large as any other seizure cited by Buckley in his request.
Piano said his family bank had been sending such cash to the U.S. – lately $2 million to $3 million a year – for six decades. He figures the size of the shipments eventually attracted officials’ attention. Bank of America declined to comment on the proceedings.
On several recent unannounced visits to Banco Piano’s main branch in downtown Buenos Aires, its be-suited, white-haired chairman was found at the front counter, where he waited on retirees as well as workers from China and Africa.
The bank, with more than 30 branches in Argentina, helps foreign workers send remittances home, gives advances on pensions and exchanges foreign currency, Piano said. The government of Argentina, where the dollar buys roughly 60 percent more pesos on the black market than at the official rate, has called Piano to talk about how to narrow the spread between rates.
One customer approached the counter to trade in a handful of notes that he said his daughter ran through the laundry in her jeans. The 5 or 10 percent that Banco Piano charges to exchange such currency for new notes accounts for about 1/10th of its business, Piano said.
Argentina, which the CIA says is the world’s 33rd-most populous nation, had at least $50 billion in U.S. cash – about one of every nine dollars then circulating abroad, the U.S. Federal Reserve estimated in a 2006 report.
“There’s nowhere to save dollars, so people bury them in the ground in a box, or put them in the attic,” Piano said. “I have a client who has a normal looking living room, but inside the bricks there are bills – he must have $1 million or $1.5 million in there.”
Piano said “a huge amount of wet bills” came in after floods in La Plata earlier this year. He produced a sheet of paper showing handwritten columns listing dozens of customers and the amount each sought to exchange.
“There’s lots of people who have dogs,” he said. “They have puppies that begin to play and tear everything.”
As for burn marks, he said: “In a person’s house they catch fire and burn. It can be from fires, all sorts of things.”
Brian Leary, a Secret Service spokesman, and William Miller, a spokesman for U.S. Attorney Ronald Machen, declined to comment on the matter.
In laying out Banco Piano’s case that the money had legitimate origins, Piano’s lawyer, Matthew Herrington of Steptoe & Johnson LLP, cited the 2006 Fed study, which also reported that since the 1970s, U.S. dollars have been “increasingly used for settling current transactions and as a unit of account” in Argentina.
U.S. federal authorities telephoned several of the people on Banco Piano’s exchange lists to check their stories, Herrington said. One man contacted by U.S. officials “had $60,000 built into his wall and he had a pipe burst,” Herrington said in an interview.
The man didn’t immediately realize that his stash might be at risk and when he opened the wall to check, Herrington said, “of course, the money’s all molded up.”
On November 25, a year and a half after the bills were seized, U.S. District Judge Emmet Sullivan approved a settlement reached between the two sides. It called for returning about $4 million to the bank.
Banco Piano agreed not to contest the forfeiture of $202,600. Much of that was apparently used in so-called 2-to-3 fraud, in which a pair of bills, usually hundreds, are cut into thirds and presented to the bank, two pieces at a time, in exchange for a total of three bills of the same denomination, according to Herrington.
Piano said his clients wouldn’t try such a scheme, knowing the bills would be so closely scrutinized by U.S. authorities.
“They can say what they like but we don’t do that,” Piano said. “It makes no sense. If the client knows where it’s going – they’ll never get away with it.”
Banco Piano agreed to record the serial numbers of worn bills turned in for redemption, Herrington said.
Piano shrugged off the loss, grateful that he recovered the majority of his money.
“Among millions and millions of dollars, $200,000 is nothing,” he said.
6. SUPREME COURT TOSSES HUMAN-RIGHTS SUIT AGAINST MERCEDES-BENZ (Forbes)
January 14, 2014
The U.S. Supreme Court today ruled that the oft-overturned Ninth Circuit Court of Appeals had once again gone too far when it allowed a lawsuit in California against  Mercedes-Benz Mercedes-Benz parent DaimlerChrysler over its supposed collaboration in Argentina’s “Dirty War” in more than 20 years before.
In a 9-0 decision penned by liberal Justice Ruth Bader Ginsburg — not known for her aggressive defense of corporations — the high court held that California’s courts do not have so-called “general jurisdiction” over Mercedes even though the German company considers the Golden State one of its most important markets. Plaintiffs, including family members of victims of Argentina’s “dirty war,” relied on California’s “long-arm” statutes to sue in that state even though neither the plaintiffs nor the company were based there.
The decision, when combined with other recent cases rejecting lawsuits by foreign plaintiffs in U.S. courts, further restricts the ability of plaintiff attorneys to forum shop for the court systems most friendly to their claims. The Supreme Court last year threw out a New York lawsuit by Nigerian plaintiffs against Royal Dutch Shell Royal Dutch Shell over human-rights abuses in that country, and has rejected securities lawsuits by foreign plaintiffs against overseas companies as well as a lawsuit against Goodyear GT +0.36% by parents whose child was killed in a bus accident in France.
Ginsburg’s decision drew strong criticism from Justice Sonia Sotomayor, who accused the majority of deciding a question that wasn’t before the court. Sotomayor agreed Mercedes wasn’t subject to “dirty war” claims in California, but would have justified that holding based on the court’s prior decisions restricting lawsuits by foreign plaintiffs over foreign causes of action. (Her concurrence, which reads more like a dissent, itself drew several tart comments from Ginsburg including one footnote accusing Sotomayor of misreading an important Supreme Court precedent.)
In this case, Ginsburg wrote, the German parent of Mercedes didn’t have the required contacts with California to give that state’s courts general jurisdiction over the company for all claims regardless of where they arise. For many years jurisdiction was limited to the geographic boundaries of a court’s district, but that doctrine broke down with the historic 1945 decision International Shoe v. Washington. After International Shoe, courts were supposed to inquire into a company’s contacts with the forum state.  If they were “systematic and continuous,” the court may have specific jurisdiction to hear a claim arising from the company’s activities in that state; if the company was based in the state or had its principal place of business there, then it could also be subject to general jurisdiction even over claims that arise elsewhere.
The Ninth Circuit went too far by assigning general jurisdiction to DaimlerChrysler even though it did business in California through a Delaware subsidiary, the court held. It didn’t set out clear rules for determining such disputes in the future, but the extent of business elsewhere in the world would be a factor.
“If Daimler’s California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA’s sales are sizable,” Ginsburg wrote. “Such exorbitant exercises of all-purpose jurisdiction would scarcely permit out-of-state defendants” to structure their affairs to avoid liability.
Ginsburg also noted that the Ninth Circuit’s ruling was threatening to “international comity,” or mutual respect of the law, because “other nations do not share the uninhibited approach to personal jurisdiction advanced by the Court of Appeals in this case.”
Whille Daimler Chrysler was a clear win for business, the court rejected another appeal with strong corporate interest. In Mississippi v. AU Electronics, the court upheld a lower-court decision allowing the Mississippi Attorney General to file a lawsuit on behalf of his state’s citizens even though it appeared to fall under  a federal law steering cases involving 100 or more plaintiffs into federal courts, which many businesses consider more fair and predictable than state courts. Since Mississippi is the only plaintiff, Sotomayor wrote for a unanimous court, the case isn’t covered by the Class Action Fairness Act. Congress considered, and rejected, including state lawsuits under CAFA, the court ruled.
7. DAIMLER WINS AS U.S. SUPREME COURT REJECTS HUMAN-RIGHTS SUIT (Reuters News)
By Greg Stohr
January 14, 2014
The U.S. Supreme Court gave multinational companies a stronger shield against lawsuits, throwing out a case against Daimler AG (DAI) over a company unit’s alleged collaboration in torture and killings in Argentina.
The justices today said the parent company didn’t have enough ties to California to give courts there the authority to hear the case. The ruling, which was unanimous in its outcome, adds to a line of Supreme Court decisions that have cut the options available to people trying to sue multinational corporations in American courts.
Daimler’s Argentine Mercedes-Benz unit was accused of collaborating with state security forces during the “Dirty War” from 1976 to 1983. Mercedes-Benz Argentina allegedly identified workers seen as union agitators, knowing security forces would then kidnap, torture and in some cases kill the people. The company denies the allegations.
The plaintiffs’ accusations are groundless, and today’s opinion concludes the prolonged litigation in the United States,” Daimler which is based in Stuttgart, Germany, said in an e-mailed statement.
The ruling puts new limits on what lawyers call “general jurisdiction” — the power of courts to hear suits against a defendant no matter where the alleged wrongdoing took place.
The decision in most cases restricts that power to states where a company is incorporated or has its principal place of business, said Andrew Pincus, a Washington lawyer who has argued for limits on suits against multinational corporations. Other than in those two places, “there’s almost never going to be general jurisdiction over anybody,” said Pincus, a lawyer at Mayer Brown.
Former Employees
Daimler was sued by a group of former employees and representatives of deceased workers. They argued that the company had sufficient contacts with California because of billions of dollars in sales through its Mercedes-Benz USA unit. A lawyer for the group didn’t respond to e-mails requesting comment.
In her opinion for the court, Justice Ruth Bader Ginsburg said Daimler’s “slim contacts with the state hardly render it at home there.”
Ginsburg said the plaintiffs’ reasoning would subject Daimler to court cases anywhere Mercedes-Benz had significant sales. “A corporation that operates in many places can scarcely be deemed at home in all of them,” she wrote.
8. NEW MEMO: KISSINGER GAVE THE “GREEN LIGHT” FOR ARGENTINA’S DIRTY WAR (Mother Jones)
By David Corn
January 14, 2014
Only a few months ago, Henry Kissinger was dancing with Stephen Colbert in a funny bit on the latter’s Comedy Central show. But for years, the former secretary of state has sidestepped judgment for his complicity in horrific human rights abuses abroad, and a new memo has emerged that provides clear evidence that in 1976 Kissinger gave Argentina’s neo-fascist military junta the “green light” for the dirty war it was conducting against civilian and militant leftists that resulted in the disappearance—that is, deaths—of an estimated 30,000 people.
In April 1977, Patt Derian, a onetime civil rights activist whom President Jimmy Carter had recently appointed assistant secretary of state for human rights, met with the US ambassador in Buenos Aires, Robert Hill. A memo recording that conversation has been unearthed by Martin Edwin Andersen, who in 1987 first reported that Kissinger had told the Argentine generals to proceed with their terror campaign against leftists (whom the junta routinely referred to as “terrorists”). The memo notes that Hill told Derian about a meeting Kissinger held with Argentine Foreign Minister Cesar Augusto Guzzetti the previous June. What the two men discussed was revealed in 2004 when the National Security Archive obtained and released the secret memorandum of conversation for that get-together. Guzzetti, according to that document, told Kissinger, “our main problem in Argentina is terrorism.” Kissinger replied, “If there are things that have to be done, you should do them quickly. But you must get back quickly to normal procedures.” In other words, go ahead with your killing crusade against the leftists.
The new document shows that Kissinger was even more explicit in encouraging the Argentine junta. The memo recounts Hill describing the Kissinger-Guzzetti discussion this way:
The Argentines were very worried that Kissinger would lecture to them on human rights. Guzzetti and Kissinger had a very long breakfast but the Secretary did not raise the subject. Finally Guzzetti did. Kissinger asked how long will it take you (the Argentines) to clean up the problem. Guzzetti replied that it would be done by the end of the year. Kissinger approved.
In other words, Ambassador Hill explained, Kissinger gave the Argentines the green light.
That’s a damning statement: a US ambassador saying a secretary of state had egged on a repressive regime that was engaged in a killing spree.
In August 1976, according to the new memo, Hill discussed “the matter personally with Kissinger, on the way back to Washington from a Bohemian Grove meeting in San Francisco.” Kissinger, Hill told Derian, confirmed the Guzzetti conversation and informed Hill that he wanted Argentina “to finish its terrorist problem before year end.” Kissinger was concerned about new human rights laws passed by the Congress requiring the White House to certify a government was not violating human rights before providing US aid. He was hoping the Argentine generals could wrap up their murderous eradication of the left before the law took effect.
Hill indicated to Derian, according to the new memo, that he believed that Kissinger’s message to Guzzetti had prompted the Argentine junta to intensify its dirty war. When he returned to Buenos Aires, the memo notes, Hill “saw that the terrorist death toll had climbed steeply.” And the memo reports, “Ambassador Hill said he would tell all of this to the Congress if he were put on the stand under oath. ‘I’m not going to lie,’ the Ambassador declared.”
Hill, who died in 1978, never did testify that Kissinger had urged on the Argentine generals, and the Carter administration reversed policy and made human rights a priority in its relations with Argentina and other nations. As for Kissinger, he skated—and he has been skating ever since, dodging responsibility for dirty deeds in Chile, Bangladesh, East Timor, Cambodia, and elsewhere. Kissinger watchers have known for years that he at least implicitly (though privately) endorsed the Argentine dirty war, but this new memo makes clear he was an enabler for an endeavor that entailed the torture, disappearance, and murder of tens of thousands of people. Next time you see him dancing on television, don’t laugh.

[Note: Kissinger has issued after these memos were released, statements disclaiming these charges.]

 
9. POPE WITH THE HUMBLE TOUCH IS FIRM IN RESHAPING THE VATICAN (The New York Times)
By Jason Horowitz And Jim Yardley
January 13, 2014
VATICAN CITY — Less than a year into his papacy, Pope Francis has raised expectations among the world’s one billion Roman Catholics that change is coming. He has already transformed the tone of the papacy, confessing himself a sinner, declaring “Who am I to judge?” when asked about gays, and kneeling to wash the feet of inmates, including Muslims.
Less apparent, if equally significant for the future of the church, is how Francis has taken on a Vatican bureaucracy so plagued by intrigue and inertia that it contributed, numerous church officials now believe, to the historic resignation of his predecessor, Pope Benedict XVI, last February.
Related Coverage
Francis Looks to the Developing World in Appointing New Cardinals JAN. 12, 2014 Francis’ reign may not ultimately affect centuries-old church doctrine, but it is already reshaping the way the church is run and who is running it. Francis is steadily replacing traditionalists with moderates as the church prepares for a debate about the role of far-flung bishops in Vatican decision-making and a broad discussion on the family that could touch on delicate issues such as homosexuality and divorce.
In St. Peter’s Basilica on New Year’s Eve, Francis, dressed in golden robes, hinted at the major changes he had already set in motion. “What happened this year?” he asked. “What is happening, and what will happen?”
To some of the scarlet-clad cardinals seated in rows of gilded armchairs at the New Year’s service, the answer was becoming clear. Cardinal Raymond L. Burke, one of the highest-ranking Americans in the Vatican, found his influence diluted. Another conservative, Cardinal Mauro Piacenza, was demoted. Among the bishops, Archbishop Guido Pozzo was sidelined.
To some degree, Francis, 77, is simply bringing in his own team and equipping it to carry out his stated mission of creating a more inclusive and relevant church that is more sensitive to the needs of local parishes and the poor. But he is also breaking up the rival blocs of Italians with entrenched influence in the Roman Curia, the bureaucracy that runs the church. He is increasing financial transparency in the murky Vatican Bank and upending the career ladder that many prelates have spent their lives climbing.
On Sunday, Francis made his first mark on the exclusive College of Cardinals that will elect his successor by naming prelates who in many cases hail from developing countries and the Southern Hemisphere. He pointedly instructed the new cardinals not to consider the job a promotion or to waste money with celebratory parties.
“It was an important year,” said Secretary of State Pietro Parolin, the Vatican’s second-ranking official and one of only four Vatican officials Francis will make a cardinal in February. Asked in a New Year’s Eve interview about the personnel changes, he replied that it was only natural that the Argentine pope should prefer to have “certain people who are able to advance his policy.”
Interviews with cardinals, bishops, priests, Vatican officials, Italian politicians, diplomats and analysts indicate that the mood inside the Vatican ranges from adulation to uncertainty to deep anxiety, even a touch of paranoia. Several people say they fear Francis is going department by department looking for heads to roll. Others whisper about six mysterious Jesuit spies who act as the pope’s eyes and ears on the Vatican grounds. Mostly, once-powerful officials feel out of the loop.
“It’s awkward,” said one senior Vatican official, who, like many others, insisted on anonymity for fear of retribution from Francis. “Many are saying, what are we doing this for?” He said some officials had stopped showing up for meetings. “It’s like frustrated teenagers closing the door and putting their headphones on.”
Francis remains tricky to define, a doctrinal conservative whose humble style and symbolic gestures have thrilled many liberals. On Christmas, the destitute poured into an ancient church in Rome for a holiday lunch sponsored by a Catholic lay organization. The group’s founder, Andrea Riccardi, once a liaison to the church when he served as an Italian government minister, expressed hopes for change, but also wariness about Vatican officials ignoring the pope’s agenda.
“You hear people talk about it in the corridors of the church,” Mr. Riccardi said. “The real resistance is to continue business as usual.”
Four days earlier, Francis met with the Curia in the Sala Clementina, the 16th-century reception hall in the Apostolic Palace, to deliver one of the most important papal speeches of the year. Benedict used his last such Christmas address to denounce same-sex marriage. Francis used his first to castigate his own colleagues in the Curia.
He warned the men in red and purple skullcaps and black cassocks arrayed around him that the Curia risked drifting “downwards towards mediocrity” and becoming “a ponderous, bureaucratic customhouse.” He also called on the prelates to be “conscientious objectors” to gossip.
Not New to the Battle.
It was a pointed rebuke of the poisonous atmosphere that had troubled Benedict’s papacy, and for which the former secretary of state, Cardinal Tarcisio Bertone, was often blamed. And it was a reminder that Francis, if a new pope, was not new to the machinations of the Curia, having tangled while in Argentina with a powerful conservative faction.
“He was not an ingénue coming out into the world,” said Elisabetta Piqué, an Argentine journalist who has known Francis for more than two decades and whose recent book, “Francis: Life and Revolution,” documented his past clashes with Rome. “He had had almost a war with this section of the Roman Curia.”
Now Francis talks disparagingly of “airport bishops” who are more interested in their careers than flocks, and warns that priests can become “little monsters” if they are not trained properly as seminarians.
He is dismantling the power circle of Cardinal Bertone, who led a ring of conservatives centered on the city of Genoa. In September, Francis demoted Cardinal Piacenza, a Bertone ally, from his post running the powerful Congregation for the Clergy.
To some it was an indication that the new pope could act with a measure of ruthlessness. Several Vatican officials said that Cardinal Piacenza’s greatest transgression had been undermining his predecessor, a Brazilian prelate close to Francis who appeared with him on the balcony of St. Peter’s after his election.
Francis also removed a top official of the Vatican City government, although arranging a soft landing pad. Others were less fortunate.
As a priest, Guido Pozzo led a Vatican commission tasked with bridging the schism between the church and traditionalists critical of the Second Vatican Council. In November 2012, Cardinal Bertone elevated him to the rank of archbishop and Benedict appointed him to run the church’s charity office. Francis, who is much less interested than Benedict was in appealing to the schismatic conservatives, has since sent Archbishop Pozzo back to his former post.
Another is Cardinal Burke. In 2008, Benedict installed his fellow traditionalist as president of the Apostolic Signatura, the Vatican’s highest court, and the next year appointed him to the Congregation for Bishops. The post gave Cardinal Burke tremendous sway in selecting new bishops in the United States.
In December, Francis replaced him with a more moderate cardinal. “He’s looking for places to put his people,” said one official critical of the pope.
Another Vatican conservative took offense at Francis’ disdain for elaborate dress. And speculation that Francis might convert the papal vacation home of Castel Gandolfo into a museum or a rehabilitation center has also raised alarms. “If he does that,” said an ally of the old guard, “the cardinals will rebel.”
For now, the resistance is not gaining traction. “The Holy Spirit succeeds also in melting the ice and overcoming any resistance,” Secretary of State Parolin said. “So there will be resistance. But I wouldn’t give too much importance to these things.”
Francis also has empowered a group of eight cardinals representing five continents to spearhead reform of the Curia. He has hired secular consultants and set up a special commission to oversee the Vatican Bank. And while he has spoken infrequently on clerical sexual abuse, he has formed another commission “for the protection of minors.”
He may also delegate some of the powers traditionally held by the office of secretary of state by creating a new papal enforcer, who would wrest power away from Curia bureaucrats.
“This is a very real possibility,” said Cardinal Donald Wuerl, the archbishop of Washington, who replaced Cardinal Burke on the Congregation for Bishops.
Shunning Italian Politics
For years, Italian politicians have courted the Vatican, and vice versa, as both Pope John Paul II and Benedict encouraged Italy’s prelates to speak out on issues that concerned the church. Francis’ distaste for directly involving the church in politics has now threatened that old link between Italian prelates and Italy’s conservative politicians.
“Today, the Italian bishops are keeping silent,” said Pier Ferdinando Casini, a prominent politician who once met with cardinals and even popes but has yet to meet Francis.
The Vatican remains a disproportionately Italian institution, with Italy boasting the biggest bloc of cardinals even as it now accounts for only 4 percent of the world’s Catholics. Vatican employees are overwhelmingly Italian, with lifetime job security, sometimes extending for generations.
Perks abound. On a recent afternoon inside the Vatican’s department store, bargain hunters shopped for tax-free wine, cigarettes, Ferragamo clutches and North Face jackets beneath clocks reading the time in New York, Vatican City and Tokyo.
The Italian problem, as many non-Italian cardinals called it, loomed over the conclave that elected Francis in March. An undue Italian influence was blamed for suspicious accounts and mismanagement of the Vatican Bank and the gossip mongering that fueled an embarrassing scandal centered on leaks of Benedict’s private letters.
“What is necessary is that at this stage that the culture becomes less Italian,” one senior Vatican official said, “particularly as people work towards greater transparency and meritocracy.”
Off the Career Track
Francis, whose father was an Italian immigrant, and whose second language is Italian, does have key Italian allies, including Secretary of State Parolin and two other Curia department prefects he named as cardinals on Sunday. But analysts say his passing over of traditional Italian powerhouses, such as Venice, where the archbishop is close to Cardinal Bertone, shows that he is trying to break the established career track in the Italian church.
Francis is also tinkering with the once mighty conference of Italian bishops, which he sits atop in his role as bishop of Rome. Popes have traditionally appointed the president of the Italian conference, but Francis may introduce elections, as happens in other bishops’ conferences.
Under Benedict, the conference’s president, Cardinal Angelo Bagnasco, jousted for influence in Italian politics with Cardinal Bertone, whom Francis has largely sidelined. But the pope also recently removed Cardinal Bagnasco from the powerful Congregation for Bishops.
In a recent Saturday homily, Francis warned an audience that included Cardinal Bagnasco of the danger of becoming a “smarmy” priest. Succumbing to worldly temptations, he added, made for “priest-wheeler-dealers, priest-tycoons.”
The New Year’s Eve Mass at St. Peter’s ended with a procession of priests escorting Francis out of the basilica, followed by the thousands of the faithful. In the emptied church, the cardinals and bishops rose from their seats, shook hands with dignitaries and milled about around St. Peter’s tomb.
Cardinal Piacenza collected his umbrella from a prayer bench. Archbishop Pozzo made his way to the door. Asked about the changes underway in the Curia, he replied, “It’s been a surprising year!”
Not far away, Cardinal Burke blessed a few stragglers and declined to comment without permission from his “superiors.”
Weeks earlier, Cardinal Burke seemed poised to be the most prominent voice of resistance to Francis’ reign, telling a Catholic television network that he was not “exactly sure why” the pope “thinks we’re talking too much about abortion” and other culture war issues. When it came to changes in the Curia, he bemoaned “a kind of unpredictability about life in Rome in these days.”
At roughly the same time, Francis gave an interview to the Italian newspaper La Stampa. The pope spoke again about “tenderness” and opening up the church. But he also added: “Prudence is a virtue of government. So is boldness.”
It was a telling point. On Dec. 15 Cardinal Burke returned to his boyhood parish in Stratford, Wis., to celebrate a special Mass. Dressed in the tall miter cap and traditional pink for the Christmas season, he spoke about his dairy farm roots but disappointed some of his parishioners by making no mention of Francis or the events happening in the Vatican.
“I was hoping he would,” said Marge Pospyhalla, who attended the Mass. “But, no, we did not get that.”
His silence said enough. The day after the Mass, Francis took Cardinal Burke off the Congregation for Bishops.
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

ARGENTINE UPDATE – Jan 14, 20

17 enero, 2014

Some key documents from Carlos Osorio at the National Security Archives re the disappearance of the Deutsch Family in 1977

Some of you have written asking for the documents. Here they are.
The memo mentioned below under “DEUTSCH FAMILY STORY FOR PRESIDENT CARTER”
title is dated September 13, 1977.

The Timerman and the Deutsch cases were raised by Carter when Videla met
him on September 9, 1977 during the Panama Canal signing in Washington. We
have not been able to actually get a memo of the conversation of the
Videla-Carter meeting. [Has anyone done this? ]

We have the notes Carter scribbled before meeting many presidents. I am
attaching the notes on meeting Videla where one can see Timerman and the
Deutsch family mentioned [See attached Carter notes.pdf.]. Whenever
discussing these cases, the embassy would always raise the President’s
interest in them.

[See also this memo:
http://www2.gwu.edu/~nsarchiv/NSAEBB/NSAEBB299/Doc7%20-%200000A619.pdf

Included in our briefing book here:
http://www2.gwu.edu/~nsarchiv/NSAEBB/NSAEBB299/index2.htm]

=====================================================
TUESDAY
1. ARGENTINA’S CRUMBLING ECONOMY  (The Wall Street Journal)
By Mary Anastasia O’Grady
January 13, 2014
On a visit to Buenos Aires in November I noted a sense of foreboding hanging over the city. With the economy in a stall, consumer prices rising and capital fleeing the country, portenos from every walk of life seemed to be bracing for a storm — and resigned to the hardship it would bring to this harbor city.
The city infrastructure looked defeated too: The wide boulevards and grand 19th-century buildings are now tired and grungy and the streets smelly. Angry graffiti and tattered posters deface walls, adding to the general feeling of lawless decay. It takes a long time to destroy a nation’s wealth but a decade of kirchnerismo — government by President Nestor Kirchner and now his widow, Cristina — seems to be doing the job.
In recent weeks things have gotten worse. The way out also looks more difficult. Three big developments in December raised the specter of descent into full-blown chaos. The first occurred when the police in the provincial capital of Cordoba suddenly walked off the job to protest low salaries. Hooligans took the work stoppage by law enforcement as an invitation to sack the city. More than 1,000 stores were looted and two people killed.
The national government could have helped Gov. Jose Manuel de la Sota, who is not an ally of Mrs. Kirchner. But it was unresponsive, instead suggesting that the violence was part of a plot to destabilize the president. His back against the wall, the governor gave the police a 33% salary hike. They returned to work. But police in 20 other provinces learned a lesson. Strikes across the country followed and so did looting and violence. Look for more pressure on public-sector wages.
Behind the difficulty in paying provincial employees a decent wage is the same old problem that brought Argentina to its knees in 1989: inflation. According to the Foundation for Latin American Economic Research (FIEL), based in Buenos Aires, inflation for December was 3%, driving the total for 2013 to 26.4%. Food and beverage prices were up 28.9%, FIEL says, despite “repeated freezes” mandated by the government.
The government claims annual inflation is 10.5%. But there is widespread distrust of official figures. In 2011 one of Mrs. Kirchner’s henchmen fired the head of the institute charged with measuring the price level because he didn’t like its inflation findings. Even the International Monetary Fund took note. In February 2013 it censured Argentina for its failure to divulge accurate inflation data to the public.
Money-printing by the central bank has Argentines selling pesos whenever they can. Capital controls in effect since 2011 make that harder than it used to be but not impossible. They have accelerated capital flight. More sellers than buyers drives down the price of the peso where it trades freely. While the official exchange rate is now 6.6 pesos to the dollar, it now takes almost 11 pesos to buy a dollar in the black market.
The weakening exchange rate reflects a dramatic decline in the central bank’s international reserves, which were down by about 30% in 2013. But kirchnerismo has also destroyed capital by signaling investors that there is no sanctity of property rights or contracts. The capital-intensive energy business has been hit especially hard. The 2012 expropriation of the Spanish multinational Repsol’s share of the Argentine oil company YPF is one example. Chevron recently decided to make an Argentine investment but many other investors are staying out.
Rate freezes have curbed power-company investment, resulting in more frequent electricity outages. Last month as summer temperatures soared, large parts of Buenos Aires experienced blackouts for days at a time.
When riots, looting, blackouts and soaring inflation descend on a nation, free people look to their leaders to restore calm and order. But Mrs. Kirchner is lying low. Perhaps it is because in December investigative reporters at the Argentine daily La Nacion broke a series of stories alleging that she and her husband, who died in 2010, got rich off a public-works scheme in Santa Cruz, their home province.
The reporters allege that a Kirchner-family frontman took control of a handful of Santa Cruz construction companies and subsequently secured a series of overpriced public-works contracts. La Nacion further alleges that the same contractor gave the Kirchners sizable kickbacks by laundering the money through hotels in Santa Cruz owned by the first couple. Mrs. Kirchner has denied all this and said that the charges come from fascists.
After 10 years of Kirchner rule, the executive branch now controls most of the judiciary. Calls for transparency are unlikely to go far. On the other hand, an inflation spiral creates a short fuse, and a population that feels as powerless as Argentines do today will eventually make itself heard.
2. ARGENTINA APPROVES 500,000 TONS OF WHEAT EXPORTS; GOVERNMENT CLEARS EXPORTS OF 500,000 METRIC TONS OF WHEAT FROM DEVELOPING CROP, 50,000 TONS OF FLOUR (The Wall Street Journal Online)
By Ken Parks
January 13, 2014
BUENOS AIRES—Argentina’s government authorized exports of 500,000 metric tons of wheat from the developing crop and 50,000 tons of flour, after suspending exports of the grain late last year when production shortfalls led to a surge in bread prices.
Argentina heavily regulates the wheat and corn markets to shield consumers from high international prices for both key foodstuffs. Argentines consume about 6.5 million tons of wheat a year and the developing 2013-14 crop is expected to produce about 9.2 million tons, according to government estimates.
The government could authorize an additional one million tons of wheat for export depending on how the harvest plays out, economy minister Axel Kicillof said in a news conference Monday.
“If the harvest is better than expected all surplus above what the domestic market needs will be exported as soon as we are sure there aren’t any speculative moves to hurt Argentines’ stomachs through higher bread prices at bakeries,” Mr. Kicillof said.
The government will review the wheat crop and exports on a monthly basis, he said.
Argentina produced about 8.2 million tons of wheat in the 2012-13 season, compared with some private sector estimates that initially forecast a harvest of 12.5 million tons. Tight wheat supplies toward the end of 2013 pushed up flour and bread prices, which led the government to suspend wheat exports and introduce price controls on some types of generic bread.
Food prices are a sensitive issue in Argentina, where many economists say annual inflation has been running at or above 20% for more than four years. The government’s consumer-price index has been steady for years at about 11%.
Wheat exports could provide a small boost to Argentina’s shrinking foreign currency stocks, which fell to a fresh seven-year low of about $30 billion last Friday. Argentina relies on that money to pay its creditors and buy imports. Exports of farm goods like soybeans and soymeal are key contributors to those reserves.
The shipment of 1.5 million tons of wheat could generate export revenues of about $800 million, depending on global prices for the grain, Mr. Kicillof said.
“The last surplus kernel of wheat will be exported,” he said.
3. ARGENTINA’S TROUBLES PUSH INVESTORS AWAY (The Wall Street Journal Online)
By Ken Parks
January 2014
Investors are pulling out of Argentina’s currency and bonds as its financial situation deteriorates.
After a stellar 2013, the country’s government bonds have fallen sharply over the past week, as a deep drop in the value of the peso and dwindling foreign-exchange reserves are raising questions about the country’s ability to pay future debts.
The financial warning signs are spooking investors, many of whom recall the economic and social turbulence that preceded Argentina’s 2001 debt default.
Few investors anticipate a repeat of the events of that year, when the collapse of Argentina’s government and subsequent suspension of bond payments sent shudders through global financial markets. But many investors are worried enough that they are keeping their distance from the roughly $149 billion in outstanding bonds issued by Argentina’s federal government.
On Friday, the price of Argentina’s benchmark bonds maturing in 2017 slipped 4.6% to 87 cents on the dollar, a two-month low. The country’s bonds returned 19% last year.
The reversal in the performance of Argentina’s debt underscores the risks that come with high yields. Funds that made big bets on Argentina in 2013 were among the top performers in an otherwise poor year for emerging-market bonds. But investors are coming to understand that yields are high for a reason — Argentina’s finances are becoming more precarious by the day.
Some see record lows hit by the peso this week as a sign that Argentina’s financial problems are entering a new phase.
“Things are taking a turn for the worse in Argentina,” said Cathy Hepworth, managing director and emerging-market portfolio manager at Prudential Fixed Income, which manages $26 billion in emerging-market debt. “The government is unable to control the peso.”
Prudential holds Argentine bonds in portfolios it manages for clients.
The peso weakened to close at about 10.80 to the dollar Friday, just short of its record low of 10.93 earlier in the week, on the black market, where many Argentines exchange currency to avoid state controls. The government sets the official exchange rate at 6.66 pesos per dollar.
Bond investors are watching the peso as a bellwether for Argentina’s foreign-exchange reserves, the pile of currency the government uses to make payments on dollar-denominated debt. A weaker peso will drive up the cost of imports and leads to higher inflation, both drains on state coffers. Economists estimate inflation is north of 25%, one of the world’s highest rates.
Some analysts say government currency reserves, already at a seven-year low of $30.2 billion, will fall by up to a third this year. That may leave Argentina without enough dollars to make an estimated $8 billion in bond payments and interest due in 2015.
How bad state finances get will depend largely on trade, the biggest contributor to Argentina’s currency reserves. The government is forecasting its trade surplus will rise to $10 billion this year due to what is expected to be a record soy crop.
But with global soybean prices dropping, Argentine farmers may not bring in as many dollars as expected. Meanwhile, Brazil’s sluggish economy could curb demand for cars and other goods from neighboring Argentina, and energy imports are seen exceeding exports for the fourth consecutive year.
The worsening trade terms and weakening peso put the government in a bind. Further restricting imports to save dollars only would hurt an economy that many analysts think will struggle to grow after expanding about 3% in 2013.
“People are quite worried about Argentina, and rightly so,” said Jorge Mariscal, chief investment officer of emerging markets at UBS Wealth Management, which oversees over $1.4 trillion. Mr. Mariscal said he tells clients to stay away from Argentina.
Some investors say the outsize returns on Argentina’s debt make its worsening finances worth braving, noting Argentina hasn’t missed a payment since restructuring its debt in 2005.
In December, local energy producer YPF Inc. sold $500 million in bonds and received orders worth almost four times that.
“This is just a part of being involved in Argentina,” said Rohit Gadkar, portfolio manager at Trea Capital in Barcelona. His $55 million 3G Opportunities Fund returned 4.4% last year on Argentina bets.
Argentina’s bonds helped the Edmond De Rothschild Emerging Bonds Fund, with 139 million euros ($190 million) in assets, return 5.4% last year. Over the past few weeks, the fund has sold two-thirds of its holdings in the country to book profits while prices were high, said portfolio manager Jean-Jacques Durand.
But Mr. Durand said he would buy them again if prices fell further. “Argentina may be able to stabilize its reserves,” he said.
4. BRAZILIAN SEMICONDUCTORS – ARGENTINA TO THE RESCUE! (Financial Times)
By Samantha Pearson
January 13, 2013
The Eike Batista yard sale is not over just yet, it seems.
Brazil’s former richest man is expected to conclude as early as this week the sale of his 33 per cent stake in the country’s treasured semiconductor venture, SIX Semicondutores. The buyer is Argentine billionaire Eduardo Eurnekian, head of the holding company Corporación América. Corporación América confirmed it was in the final stages of buying the stake after Eurnekian visited the site of the half-finished semiconductor plant in Brazil’s Minas Gerais state on Monday. Eike’s EBX group did not respond to requests for comment.
For Eurnekian, the deal puts him one step closer to becoming the
‘king’ of Latin America’s fledgling semiconductor industry.
It is also his third investment in Brazil since winning airport
concessions in the northeastern city of Natal and Brazil’s capital,
Brasília, in 2011 and 2012 respectively. The company did not say how much Eurnekian planned to spend on SIX but Eike’s stake alone is estimated to be worth around $30m.
For Brazil, though, the sale comes as somewhat of a mixed blessing. According to local media, Brazil’s trade and industry minister Fernando Pimentel has been looking for someone to buy out Eike ever since his empire started to implode. The semiconductor factory is Brazil’s first and it has been widely celebrated as a sign that the Latin American country is capable of excelling at high-tech industries. It was the result of a joint venture in 2012 between Eike, IBM and Brazil’s state development bank BNDES.
Eurnekian’s investment in the plant will therefore help realise Brazil’s semiconductor dream, allowing the factory to finally begin output in the first quarter of next year.
But it wasn’t meant to be this way. Eike, the government’s ‘poster child’ of Brazilian capitalism at the time and the go-to-guy for everything from gold mines to shipbuilding, was meant to be in charge. Now the plant will essentially be a bi-national venture – Eurnekian would be able to import basic chips from Brazil and fine-tune them for clients at his existing plant in Argentina, according to one person close to the deal.
There has long been a sometimes jovial, sometimes not so jovial, rivalry between the two countries. Just wait until Brazilian taxpayers realise they are helping to make an Argentine billionaire even richer . . .(BNDES will continue to support the venture for the time being).
There is also poor old IBM to consider. Just as Argentina’s currency slumps to a new low amid widespread economic chaos, the US company finds itself being led into a new production partnership in the country. Thanks Eike.
5. GUEST POST: TIME TO GET SERIOUS AT THE IDB (Financial Times)
January 13, 2014
By Arturo C. Porzecanski of American University
The Inter-American Development Bank is the oldest regional development institution, established in Washington DC in 1959 to help address the economic and social needs of Latin America and the Caribbean. However, the bank has not always made decisions that are in the best interests of its shareholders – or of the people in the region. The time has come for the Latin American and Caribbean shareholders of the IDB to join the ongoing effort to strengthen and professionalise the bank, especially by raising its lending standards.
The root of the problem is that the balance of decision-making authority at the IDB favours the 26 shareholding countries that borrow from the bank, ranging from Argentina to Venezuela, rather than the countries which are also stockholders but do not borrow from the IDB – the US, Japan, Canada and others mostly from Europe. When the executive directors from Latin America and the Caribbean vote as a bloc, which they almost always do, they muster the more than 50 per cent board majority needed to approve the loans that their governments have requested from the bank’s staff. This unusual ownership structure, which puts Latin American governments in the IDB’s driver’s seat, invites conflicts of interest, collusion and self-dealing.
Therefore, even though the US is by far the IDB’s principal stockholder, and its 30 per cent capital contribution is the highest such US stake in any multilateral bank, its clout is relatively limited. It is only when the IDB needs to raise more capital from its non-regional shareholders – the ones with deep pockets – that the borrowing countries court the US and the other stakeholders with promises to take steps to depoliticise and improve the institution.
For example, in 2010, as part of the process to secure approval for the IDB’s ninth general capital increase, its board of governors passed a series of reforms intended to strengthen the bank’s strategic focus, development effectiveness and efficiency. One of the measures mandated the preparation of a yearly, confidential “macroeconomic sustainability assessment” for each borrowing country, with a favourable judgement becoming one of the prerequisites for the maintenance of countries’ access to IDB loans – to avoid throwing good money after bad.
It was agreed that unsustainable macroeconomic conditions would be understood to exist in a country when, whatever their cause, there was a strong likelihood that within the next two years it would experience an inability to fulfil public debt obligations; a shortage of foreign exchange for the normal functioning of the economy; the need to rescue financial institutions; or a prolonged and destabilising inflationary process.
Argentina and Venezuela are two countries that have been experiencing deepening economic problems during recent years. Economic policies in both have featured populist fiscal, monetary, income-redistributing, and other investment-unfriendly measures which have degraded their creditworthiness, led to the rationing of dollars via stringent capital controls, and generated sustained, double-digit inflation – recently, around 25 and 55 per cent, respectively. One would expect, therefore, that the IDB would have scaled back lending to both these countries, because they are paragons of macroeconomic unsustainability.
According to the IDB’s strategy document drafted three years ago, Venezuela had the green light to receive approvals for $900m in loans per annum during 2011-14. In the past three years, however, the IDB has granted loans to Venezuela for a mere $520m in total – one-fifth of the amount originally on offer. This is consistent with the country failing to get a passing grade.
In the case of Argentina, in contrast, the IDB’s staff and board of executive directors have kept approving loans despite opposition from donor countries, led by the US. During 2011-13, loan authorizations for Argentina averaged $1.3bn per annum, the same pace as during 2008-10. Despite deteriorated economic fundamentals, the IDB’s strategy document on Argentina dated November 2012 actually envisioned annual approvals as high as $1.5bn through 2015. It is no wonder that a report by the IDB’s independent Office of Evaluation and Oversight recently concluded that the staff’s macroeconomic sustainability assessments “have suffered from confused objectives and a non-transparent process, in addition to inherent problems of methodology.”
The time has come for the management and the borrowing countries at the IDB to get serious about their commitment to strengthen the bank’s lending standards, including by cutting back sharply on new credit to risky member-clients like Argentina.
As it is, Standard & Poor’s has recently penalized the IDB for its excessively large exposure to just five nations which account for about 70 per cent of its loan and guarantee book – among them to Argentina, which S&P rates as CCC+ because it is teetering on the edge of renewed default. Under a conservative credit policy, every dollar that is not lent to Argentina would free up several dollars that the IDB could lend to needy but responsible countries elsewhere in the region. The IDB’s stand-alone credit rating is a notch below AAA, according to S&P, so the bank’s reputation and ultra-low-cost funding are also at stake every time the bank throws good money after bad.
Prof. 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.
6. ARGENTINA APPROVES 1.5 MLN TONNES IN 2013/14 WHEAT EXPORTS (Reuters News)
By Hugh Bronstein
January 13, 2014
BUENOS AIRES, Jan 13 (Reuters) – Argentina’s 2013/14 wheat crop should come in at 9.2 million tonnes, 1.5 million of which will be approved for export, the economy minister said on Monday as the government seeks to control fast-rising consumer prices.
The government’s previous wheat crop estimate was 9.0 million tonnes. The increased forecast was attributed to higher-than-expected wheat yields and good soil water reserves.
Economy Minister Axel Kicillof told reporters that the 1.5 million tonnes of approved 2013/14 wheat exports will start with the immediate shipment of 500,000 tonnes. The balance of 1 million tonnes will be approved for export gradually, he said.
“We are not doing this with tax revenue in mind, rather to defend the price of a product that is so basic and important for average Argentines,” Kicillof said at a news conference.
Argentina’s international wheat and corn shipments are regulated to ensure domestic food supply and combat consumer price increases estimated by private economists at more than 25 percent per year. Discredited government statistics clock inflation at less than half the private estimates.
Argentina will wait until the end of 2013/14 corn planting before announcing the amount approved for export, Casamiquela said. Farmers in Argentina have seeded 82 percent of the 5.716 million hectares planned for the 2013/14 season, according to the ministry’s latest report.
Argentina’s main crop, soybeans, is not subject to export quotas but rather to a 35-percent export tax. As of the end of last week the government said 86 percent of the 2013/14 soy crop had been planted.
Argentina’s hold on wheat exports caused neighbor Brazil to purchase more wheat from the United States than from Argentina in 2013. Lawrence Pih, the chief executive of Brazil’s biggest flour-milling group, Moinho Pacifico, said Argentina released too little wheat on Monday to change that dynamic.
“The volume approved was below the amount bought by Brazil,” he said. “About 700,000 tonnes were already purchased.”
Millers are trying to convince the Brazilian government to wave a 10 percent tariff on U.S. wheat imports that does not apply to Argentina, a member of the Mercosur trade block

Seguir

Recibe cada nueva publicación en tu buzón de correo electrónico.

Únete a otros 61 seguidores