Archive for the ‘ARGENTINE UPDATE’ Category

ARGENTINE UPDATE – May 7, 2014

11 mayo, 2014

1. REPSOL SELLS MOST OF REMAINING YPF STAKE FOR $1.26 BILLION (The Wall Street Journal Online)
By Ilan Brat
7 May 2014
Sale Follows Argentina’s Compensation Agreement With the Spanish Oil Giant
MADRID—Spain’s Repsol SA said Wednesday it has sold nearly all of its remaining stake in Argentina’s largest oil and gas company, YPF SA.
In a filing with Spain’s market supervisor, the Spanish oil major said it had sold 11.86% of YPF to Morgan Stanley & Co. LLC for $1.26 billion and will be left with a less than 0.5% stake in YPF.
The sale, which was expected, comes after Repsol early this year agreed to end a legal conflict with Argentina that started in 2012 after the South American country expropriated a majority stake in YPF, eventually leaving Repsol with about 12% of the company.
Argentina has agreed to compensate Repsol with government bonds worth about $5 billion.
Repsol recently chose to refrain from renewing the two seats it held on YPF’s board, a signal that it didn’t intend to remain a big shareholder in the company.
2. SPAIN’S REPSOL SELLS YPF STAKE TO MORGAN STANLEY (The Washington Post)
May 7,2014
MADRID — Spain’s Repsol oil and gas company says it has sold an 11.86-percent stake it owned in Argentina’s YPF energy company to Morgan Stanley for 900 million euros ($1.25 billion), effectively leaving it without a stake in a company it once controlled.
Repsol SA told Spain’s market regulator Wednesday the stake represented 46.6 million shares. It said it now owns less than 0.5 percent of YPF.
Repsol recently accepted a $5 billion offer from Argentina as compensation for the country’s seizure of Repsol’s controlling stake in YPF in 2012.
Argentina claimed Repsol did not do enough to develop YPF’s resources — claims strongly denied by Repsol.
3. ARGENTINA STRIKES A DEAL WITH ENERGY FIRM REPSOL: WILL INVESTMENT FOLLOW? (The Christian Science Monitor)
By Stephen Kurczy
May 6, 2014
President Kirchner’s unpredictable policy decisions, and the uncertainty about her successor, mean investors find the Argentine market opaque and risky.
Argentina’s government says that its recent $5 billion settlement with Spanish oil major Repsol SA will clear the way for new energy investment.
Our correspondent says otherwise, based on speaking with top economic analysts and former government financial officials in Buenos Aires. Rather, multinational companies are still playing a game of wait-and-see with Argentina, even as local stock market investors are making bets that the nation will see the upside once multinationals do regain confidence in the protectionist South American nation.
“The agreement with Repsol is not enough to attract foreign investment,” says our correspondent in the Argentine capital. “Caution will continue to rule.”
That caution is based in large part by Argentina’s 2012 expropriation of Repsol’s controlling stake in Argentinian oil company YPF SA. The government approved a settlement with Repsol on April 24 for half the company’s initial request for $10.5 billion in compensation.
Cabinet Chief Jorge Capitanich said the settlement would “open the door for increased energy investment,” as reported by Bloomberg News. Mr. Capitanich also said the government will need a total of about $149 billion of investment for infrastructure projects over the next decade.
But rare is the multinational firm that has dared to invest in Argentina since the expropriation, and none have stepped forward since the settlement. Chevon Corp last year made a $1.24 billion pilot investment to develop shale deposits of Vaca Muerta in western Argentina with YPF. Chevron followed up last month with another $1.6 billion investment in the project. YPF also attracted a modest $188 million in September 2013 from Dow Chemical to jointly develop Vaca Muerta.
4. REPSOL’S $1.26BN YPF STAKE SALE ENDS ARGENTINE ENTANGLEMENT (Financial Times)
By Tobias Buck in Madrid
May 7, 2014
Repsol has drawn a final line under the Spanish energy group’s ill-fated entanglement in Argentina, with the sale of its remaining 12 per cent stake in YPF for $1.26bn.
The move comes two years after the Argentine government nationalised Repsol’s majority stake in YPF, setting off a protracted legal and political battle that only ended in February this year. The settlement involved a $5bn compensation package for Repsol, which in turn agreed to drop its legal challenge in front of an international arbitration panel.
Repsol executives said at the time that the settlement would also allow the group to finally divest its remaining minority stake in YPF, which it had kept throughout the dispute in order to maximise its leverage.
The compensation deal and YPF sale, coupled with other possible divestments, give Repsol the ability to spend as much as $10bn on acquisitions. It is looking in particular to expand in North America, and has recently looked at assets and companies in Canada, though so far without making a deal.
The group said in a regulatory filing on Wednesday that it had sold almost its entire shareholding to Morgan Stanley, in a transaction that will realise a pre-tax gain of $622m. Repsol still has a small holding of YPF shares, less than 0.5 per cent of the total, which it is planning to sell at a later date.
The Spanish group reports first-quarter results on Thursday. It expects to receive the Argentine dollar-denominated bonds that underpin the $5bn compensation package the same day.
5. REPSOL SELLS $1.3 BILLION YPF STAKE FOR ARGENTINA EXIT (Bloomberg News)
By Will Kennedy
May 7, 2014
Repsol SA (REP) sold almost all its remaining stake in Argentina’s YPF SA (YPF), marking a final break with the company two years after the government seized 51 percent of the country’s leading oil producer.
Repsol sold 12 percent of YPF through Morgan Stanley (MS) for $1.26 billion, realizing a pretax gain of $622 million, the Madrid-based company said in a statement today. Spain’s largest oil company, which reports first-quarter earnings tomorrow, retains a stake of less than 0.5 percent after the disposal.
President Cristina Fernandez de Kirchner ordered the nationalization of YPF in April 2012, alleging parent company Repsol had failed to invest enough in maintaining oil production. Argentina and the Spanish producer, which had called the seizure illegal, agreed on a $5 billion compensation package earlier this year.
Armed with the cash from Argentina and the proceeds of today’s deal, Repsol plans to spend as much as $10 billion acquiring oil and gas production assets, mainly in developed countries, Executive Chairman Antonio Brufau has said.
Repsol shares, up 7.3 percent over the past year, advanced 0.4 percent to 19.39 euros in Madrid trading by 9:11 a.m.
Last week, Repsol appointed Josu Jon Imaz San Miguel as chief executive officer, a post Brufau gave up while continuing to head the board. Imaz, who had been in charge of the refinery division, will pursue growth through acquisitions, the company said when it announced the appointment.
Argentina plans to issue as much as $6 billion in sovereign bonds to meet the compensation payment. The Spanish company has said it intends to monetize the securities within a couple of years.
6. ELLIOTT BEMOANS ‘RADIO SILENCE’ AS BONDS SOAR: ARGENTINA CREDIT (Bloomberg News)
By Camila Russo and Katia Porzecanski
May 6, 2014
At a time when billionaire Paul Singer’s Elliott Management Corp. is bemoaning the unwillingness of Argentina to negotiate a debt settlement, the nation’s defaulted bonds are soaring.
 
The securities have jumped as much as 20 percent to 53 cents on the dollar since the end of February, part of a surge in Argentine assets as the nation takes steps to shore up foreign reserves and repair ties with the International Monetary Fund, Exotix Partners LLP said. Argentine bonds issued in two exchanges since its $95 billion default in 2001 jumped 11.8 percent in that span, five times the emerging-market average.
The gains in the restructured notes are boosting optimism among holders of defaulted debt that they will receive a bigger payout in the event of an accord with Argentina, said Exotix and Caracas Capital Markets. While Elliott said last month that Argentina has responded to efforts to negotiate a resolution to their decade-long legal battle over defaulted debt with “radio silence,” newspaper Ambito Financiero reported Feb. 20 the government is weighing options to solve the dispute.
“The rally after the policy shift helped the untendereds and they should continue to catch up,” Stuart Culverhouse, an economist at Exotix, said by telephone from London. “People are seeing it as offering upside if Argentina reopens.”
Bonds Surge
Under the same terms offered by Argentina in its 2005 and 2010 swaps, current holders of the defaulted debt would receive 65 cents on the dollar, according to Exotix. In the prior restructurings, about 93 percent of the bonds were swapped at about 30 cents on the dollar at the time.
The securities in the restructuring include bonds due in 2017 and 2033 and warrants linked to economic growth. On average, prices for those securities have rallied 4.2 cents on the dollar since the end of February, buoyed by President Cristina Fernandez de Kirchner’s decision to devalue the peso, revamp economic data at the request of the IMF and compensate Repsol SA for Argentina’s seizure of its stake in oil producer YPF SA.
The extra yield investors demand to own Argentine bonds over U.S. Treasuries narrowed one basis point to 779 basis points at 11:30 a.m. New York time.
Ambito Financiero said Argentina is taking proposals from UBS AG, Goldman Sachs Group Inc. and HSBC Holdings Plc to settle with creditors, which may include swapping the bonds for new notes and buying the untendered debt from the holdouts.
Argentina’s Economy Ministry press official Jesica Rey didn’t respond to a telephone message from Bloomberg News seeking comment.
Legal Case
While Argentina hasn’t reopened the swap, Congress approved a bill in September that lets the government give investors who haven’t tendered a chance to do so. Two months later, Argentina’s Economy Ministry created a restructuring unit to assist and advise on public debt policies and participate in negotiations with creditors.
The moves came after holdout creditors led by Elliott won a case in the U.S. Court of Appeals in August that requires the country to pay owners of the defaulted bonds in full when it makes payments on $24 billion of restructured debt. Argentina is asking the Supreme Court to review the ruling, which roiled its markets on concern the nation would renege again.
The legal dispute has also kept the country from selling bonds overseas since its 2001 default. Elliott says it has $1.7 billion in unpaid judgments.
“‘Radio silence’ is the best description for the current regime’s response to our frequent requests to negotiate a resolution,” New York-based Elliott said in a letter to investors obtained by Bloomberg News. “We have no choice but to pursuing legal actions to enforce our claims.”
Bond Exile
If the lower-court order stands and Argentina obeys it, the defaulted bonds would be worth as much as 150 cents on the dollar, including accrued interest, said Russ Dallen, the head trader at Caracas Capital Markets. If the ruling is overturned, Argentina would still have an incentive to reach an agreement with holdout creditors to regain access to bond markets.
“Argentina needs to re-access international capital markets and the government knows that,” he said in an e-mail.
Hernan Yellati, the head of research at BancTrust & Co., said Argentina probably won’t reopen the swap until a new president takes office after elections next year. He favors Argentina’s restructured dollar bonds due in 2028.
“A payment to the holdouts will take some time,” he said by e-mail. “It’s something that won’t be dealt with until the next government.”
The run-up in the defaulted bond prices indicates investors are becoming optimistic Argentina will reach a settlement, said Caracas Capital’s Dallen.
“Remember that these are worthless at the moment. I mean, they pay no interest and are essentially defaulted, orphaned debt,” he said. “For them to have a bid means that someone thinks that they are going to get at least 50 cents.”
7. BRAZIL AND ARGENTINA SEEK TO EXTEND CAR PACT FOR ANOTHER YEAR (Reuters News)
By Alonso Soto and Anthony Boadle
May 6, 2014
BRASILIA, May 6 (Reuters) – Brazil and Argentina plan to extend a key bilateral auto pact for another year, but the neighbors still have to agree the extent of duty-free car trade between them, Trade Minister Mauro Borges told Reuters on Tuesday.
Cars make up half the trade between the two countries and renewal of the auto agreement is crucial to restore trade volumes and help close widening gaps in their external accounts.
Last year both countries failed to reach an agreement on the amount of cars and auto parts that can enter each country free of tariffs, based on a formula known as “flex”.
Authorities and business groups are meeting in Brasilia this week to set a new flex limit that would allow the car pact to be extended for another year.
“We have an initial understanding to extend the pact for 12 months, but we need to change the flex to give more comfort to the Argentinians,” Borges said. “However, this cannot be a flex that lowers the volume of trade.”
Previous flex rules that expired last year allowed Brazil to export $195 worth of cars and auto parts free of tariffs for every $100 that Argentina sent in the other direction.
Argentina has proposed to lower the flex to $130 worth of exports for every $100 of imports, which would reduce its deficit with Brazil, the world’s No. 4 auto market.
Brazil is holding out for a higher flex limit, but sees Argentina’s proposal as legitimate, Borges said.
A scarcity of dollars in Argentina has curbed Brazilian exports of cars, home appliances and other manufactured goods, reducing Brazil’s trade surplus last year to its lowest in over a decade. The auto sector makes up about half of the $36 billion in annual trade between Argentina and Brazil.
Trade relations between both countries have been tense over the last two years as Argentina slapped restrictions on imports to shield its shrinking trade surplus and made it hard for Argentine businesses to access dollars to pay for imports.
In the first three months of the year, Brazilian exports to Argentina have dropped 13 percent compared to the same period last year, especially sales of cars and auto parts.
The drop in exports to Argentina and lower sales in Brazil have prompted the local car industry to fire hundreds of workers across assembly lines.
Borges said that the extension of the deal and a series of measures to facilitate credit flows between the two countries should help Brazilian producers and provide liquidity to Argentine importers.
He added that the Brazilian government is also seeking ways to stimulate local banks to provide more car credit to Brazilian consumers as loan default rates drop.
Brazil has long been a source of cash for automakers such as Italy’s Fiat SpA, Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.
8. REPSOL EXITS ARGENTINA WITH $1.26 BILLION YPF STAKE SALE (Reuters News)
By Tracy Rucinski
May 7, 2014
* Repsol sells 11.86 percent of YPF to Morgan Stanley
* Says to make $622 million pretax capital gain
* Sales follows Argentine compensation for 2012 YPF seizure
* Repsol shares flat
MADRID, May 7 (Reuters) – Spanish oil major Repsol bid farewell to 15 years of business in Argentina with the sale of a stake in energy firm YPF to Morgan Stanley for $1.26 billion on Wednesday.
The sale, together with a $5 billion settlement with Argentina over its 2012 expropriation of a 51 percent stake in YPF from Repsol, opens a new chapter for the Spanish oil company that is likely to focus now on upstream investments.
Madrid-based Repsol is seeking acquisitions in exploration and production as it tries to increase hydrocarbons output. YPF had accounted for over half of Repsol’s production.
“We see the (YPF) divestment as a sensible move … and the realization of material cash will add to expectations that Repsol may be near to reinvesting proceeds in an acquisition opportunity,” said Deutsche Bank analysts, who have a “hold” rating on Repsol shares.
In a regulatory filing on Wednesday, Repsol said it would make a $622 million pretax capital gain from the sale of the 11.86 percent stake, which leaves it with under 0.5 percent of YPF.
Repsol Chairman Antonio Brufau has said the company would look for growth in OECD countries, with analysts tipping the United States, Canada and Norway as possible target markets.
It will also seek out assets that offer instant cash flow to compensate for the loss of its cash generating liquefied natural gas (LNG) business, sold last year under pressure from credit rating agencies to shore up capital, analysts said.
The LNG division’s absence from Repsol’s profit and loss account as of Jan. 1 is expected to weigh on the company’s first-quarter results, due to be released on Thursday.
Repsol had already removed YPF’s contribution from its profit and loss calculations in 2012 and took a 1.3 billion euro ($1.81 billion) writedown on its stake in 2013.
The company still needs to monetize $5 billion in dollar-denominated Argentine bonds that it is soon set to receive for the YPF settlement.
Repsol is already in touch with UBS, JP Morgan, Goldman Sachs and Deutsche Bank over the imminent sale of a first tranche of the bonds worth $1.5 billion, newspaper Expansion reported on Wednesday, citing unnamed financial sources. Repsol declined to comment on the report.
Analysts had estimated in February that the Argentine settlement and potential sale of the 12 percent stake in YPF would add some 3.5 euros to Repsol’s shares, which were trading around 18.60 euros at the time.
Repsol’s shares had a muted reaction to news of the YPF stake sale on Wednesday, trading flat at 19.31 euros, with analysts saying the price may already have partially reflected hopes for closure in Argentina.
Morgan Stanley may now sell the 11.86 percent YPF stake on to other investors after paying Repsol $26.90 per share, a source with knowledge of the matter said.
YPF American Depositary Shares closed on Tuesday at $28.18, implying a discount of about 4.5 percent for Morgan Stanley on the deal. ($1 = 0.7177 Euros)

ARGENTINE UPDATE – Apr 29, 2014

1 mayo, 2014


2. ARGENTINA PRESIDENT SIGNS LAW TO PAY REPSOL $5 BILLION FOR YPF SEIZURE (Platts Commodity News)


3. ARGENTINA ECONOMY: QUICK VIEW – ECONOMIC DATA DISAPPOINT (Economist Intelligence Unit – ViewsWire)


4. BRAZIL’S MANTEGA: WORKING TO BOOST AUTO TRADE WITH ARGENTINA (Dow Jones Institutional News)
5. ARGENTINIAN BIODIESEL EXPORTS SHOW MODEST DECLINE IN MARCH: CARBIO DATA (Platts Commodity News)
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1. ARGENTINA FOREIGN RESERVES SEEN RECOVERING ON EXPORT INFLOWS (Market News International)
By Charles Newbery
28 April 2014
 
Argentina’s foreign currency reserves likely will continue to gain this week on steady inflows from agriculture exports, leading to a decline in interest rates.
 
The central bank boosted reserves 3.3% in the first 24 days of April to $27.9 billion, recovering from an eight-year low of $26.7 billion at the start of the month, as farmers stepped up exports of soybeans and other crops from a large harvest, feeding dollars into the country.
 
The central bank has been using reserves to service the debt and cover rising energy imports as domestic oil and natural gas production continues a decade-long decline on weak investment, maturing reserves and few finds. Indeed, Argentina is poised in early May to import one million barrels of light crude from Nigeria, the first large shipment in two decades.
 
The government has said it will increase purchases of crude instead of diesel and other derivatives, which are more expensive and hence weigh heavier on trade accounts. The trade surplus shrank to $79 million in the first two months of this year from $800 million in the year-earlier period.
 
The central bank wants to build reserves to keep the exchange rate steady at around 8 per dollar.
 
Most economists expect the central bank could be successful in this strategy, helped too as a hike in local interest rates reduces capital flight by encouraging more savings in pesos. The central bank devalued the peso by 20% in January and has raised interest rates to nearly 30% since then.
 
Alejandro Vanoli, president of the Argentine National Securities Exchange, said last week he expects more stability this year, making it possible for the central bank to reduce interest rates to help spur lending and consumption.
 
“The economy has improved since January,” he said.
 
However, most economists warn that when crop export inflows slow in the second half of this year there could be more pressure on the peso to depreciate.
 
While the devaluation and interest rate hike has boosted investor confidence, Capital Economics warned in a note to clients last week that this newfound pragmatism may not be enough to avert a recession this year and possibly a balance of payments crisis.
 
It said concerns remain of a chronic shortage of foreign currency and rampant inflation, which private estimates suggest could surpass 35% this year.
 
The London-based economic research consultancy warned that government expenditures still must be scaled back to reduce pressure on the exchange rate and foreign reserves. And more needs to be done to encourage private investment to increase dollar inflows, it said.
 
But with President Cristina Fernandez de Kirchner trying to ride out her last two years in office, the changes may not be as deep as needed.
 
Capital Economics forecasts further devaluations this year and greater risks of financial and economic problems if export revenues are to decline on a fall in global commodity prices. Much of the economic boom between 2003 and 2011 was thanks to record prices for soybeans, the country’s biggest export.
 
The government will report March supermarket and shopping mall sales Monday, followed Wednesday by consumption of public services and construction activity for the same period.
 
Banks, financial markets and government offices will be closed Thursday for Labor Day and Friday for a bank holiday.
 
 
 2. ARGENTINA PRESIDENT SIGNS LAW TO PAY REPSOL $5 BILLION FOR YPF SEIZURE (Platts Commodity News)
By Charles Newbery
28 April 2014
 
Buenos Aires (Platts)–28Apr2014/1035 am EDT/1435 GMT   Argentinian President Cristina Fernandez de Kirchner Monday signed into law a bill to pay Repsol $5 billion for the government’s 2012 seizure of the Spanish company’s controlling stake in YPF. The law, which gained final congressional approval in the lower house April 24, authorizes Fernandez de Kirchner’s administration to pay Repsol the compensation for the 51% stake it took from Repsol.
 
Argentina will pay the company in three government bonds, according to a decree signed by the president and her chief of staff, Jorge Capitanich, and Economy Minister Axel Kicillof, who also sits on the board of YPF.
 
Opponents of the payout say that Argentina will pay more than $5 billion given that the dollar-denominated bonds will mature in the future and pay above-market interest rates.
 
Opposition Congressman Francisco De Narvaez, a millionaire businessman with presidential ambitions, said that Repsol “scored” with the agreement and Argentinians “lost.” ‘It’s a lie that they are going to pay only $5 billion,” de Narvaez said Monday on local Radio Mitre. “We are going to wind up paying for years an amount that nobody knows.” Supporters of the payment package, which has gained the approval of Repsol’s board and shareholders, said this will help YPF to broaden its access to foreign financing and partners. YPF needs billions of dollars in funds as well as expertise and technology to develop the country’s shale resources, estimated at among the world’s largest. The US Energy Information Administration says the country holds 27 billion barrels of shale oil resources and 802 Tcf of shale gas, far more than the proven oil and gas reserves of 2.5 billion barrels and 12 Tcf, respectively.
 
YPF has arranged a shale partnership with Chevron to invest as much as $16 billion, while smaller ones are in play with Dow Chemical and Argentina’s Petrolera Pampa. Others are under discussion with Pluspetrol, the third-biggest oil producer in Argentina, and Malaysia’s Petronas.
 
YPF is seeking to turn around a 6% annual slide in oil and gas production that has led a national decline over the past decade, leading to shortages and a surge in energy imports.
 
  
3. ARGENTINA ECONOMY: QUICK VIEW – ECONOMIC DATA DISAPPOINT (Economist Intelligence Unit – ViewsWire)
28 April 2014
 
Event
 
The latest available data point to further trouble for policymakers. According to external-trade data released on April 25th, the trade surplus plummeted in the first quarter of 2014, to just US$120m-down from US$1.5bn a year earlier and the lowest surplus in any quarter since 2000. Meanwhile, industrial-production figures also released on April 25th show output falling by 1.8% in seasonally adjusted month-on-month terms and by 6% year on year in March, its steepest year-on-year decline since 2002.
 
Analysis
 
There was evidence in the March data that February’s devaluation had taken a toll on imports: consumer-goods imports were down by 17% in the month. Capital-goods imports also fell, albeit less dramatically. However, the country’s continued energy crisis saw the fuel-import bill rise by 17% in the month, limiting the decline in the total import bill to 4%.
 
Export earnings, meanwhile, plummeted, falling by 16% in March. Primary product exports suffered on the back of falling volumes and weaker global soft-commodity prices. Export earnings from manufacturing also fell substantially, owing largely to difficulties in the automotive industry, as exports to Brazil, Argentina’s key export market, were held back by weak demand there and by the recent expiry of the automotive complementarity agreement between the two countries.
 
The same factors were to blame for the poor industrial production figures. It is too early for the boost to competitiveness from February’s devaluation to have had an impact, and, with inflation accelerating in the meantime, further currency depreciation will, in fact, be necessary for a turnaround in industrial production and in the trade balance.
 
 
4. BRAZIL’S MANTEGA: WORKING TO BOOST AUTO TRADE WITH ARGENTINA (Dow Jones Institutional News)
By Rogerio Jelmayer
28 April 2014
 
SAO PAULO–Brazilian Finance Minister Guido Mantega on Monday said the government is “working” to reduce trade barriers with Argentina in a bid to increase auto exports, after two big car makers announced plans to furlough employees last week.
 
“Right now the auto industry’s difficulty is in exporting to Argentina,” Mr. Mantega said at an event in Sao Paulo. “There was a reduction there and we’re working to make more imports by Argentina viable. We’re working on a solution.”
 
Mr. Mantega didn’t elaborate on specific measures that could be taken to boost trade with Argentina.
 
The economy of Argentina, Brazil’s main trade partner for vehicles and auto parts, ground to a halt early this year amid a currency devaluation, high inflation and widespread labor strikes, hitting demand for new cars.
 
The situation there has come at an inconvenient time for Brazilian auto makers amid signs of weakness in the world’s fourth-largest vehicle market. Car sales fell 0.9% last year and 2.1% in the first three months of 2014, following a decade of strong growth, as the local economy has stagnated.
 
Two of Brazil’s main global auto makers, Volkswagen and Fiat, said last week that they plan to put a total of at least 2,600 workers on temporary leave due to slack demand. Daimler AG’s Mercedes-Benz, meanwhile, confirmed Friday that it has launched a voluntary severance program that, according to the company’s labor union, is expected to reach around 1,500 employees.
 
Noting that the auto industry is one of the biggest investors in Brazil, Mr. Mantega said the government is looking for ways to prop up financing for domestic car purchases.
 
“While it used to be possible to obtain an auto loan with a down payment of 20% or 30% of the total value, today banks are demanding an average of at least 50%,” Mr. Mantega said. “What’s needed to increase consumption is credit.”
 
5. ARGENTINIAN BIODIESEL EXPORTS SHOW MODEST DECLINE IN MARCH: CARBIO DATA (Platts Commodity News)
By Sean Bartlett
28 April 2014
 
London (Platts)–28Apr2014/103 pm EDT/1703 GMT     Members of the Argentinian Biofuels Association, or CARBIO, exported 85,000 mt of biodiesel in March, a 5.2% fall compared with the same period in 2013, according to data from the industry body Monday.
 
CARBIO members account for the vast majority of exports from the country, giving a good indication of export values before official quarterly government data is released.
 
Separate fixture data received in March indicated that around 37,000 mt was fixed toward the US on the vessel Alkiviadis, while 28,000 mt was sent to Spain on the Ghetty Bottiglieri. The remainder was to sent elsewhere in South America or to unknown destinations.
 
According to Platts cFlow vessel-tracking software, the Alkiviadis went to Barcelona while the Ghetty Bottiglieri is en route to Singapore after leaving La Plata, Argentina, at the beginning of April.
 
The material sent to Barcelona was likely to be used for discretionary blending into high sulfur gasoil, a practice which takes place when fuel suppliers try to boost margins by increasing the amount of biodiesel or other economically viable components used in gasoil and diesel.
 
It is unlikely to be customs-cleared into the EU due to anti-dumping duties introduced in November on Argentinian product of between Eur216/mt and Eur245/mt.
 
The Singapore-bound vessel was likely to have been fixed during a spike in palm methyl ester prices versus gasoil in mid-March, a European trader said. The spread between Malaysia Bursa crude palm oil futures and ICE gasoil futures, or PO-GO, peaked at minus $9.49/mt at the Singapore Platts market close on March 19, the highest since Platts began the assessment in July 2013.
 
“When PO-GO was minus $10/mt, some {Argentine] SME [soy methyl ester] resellers would land [in Asia] much cheaper than [local] PME,” the trader said.
 
The material was likely to be used for discretionary blending purposes at the Singapore hub and then sent onto China, Australia or one of the other major demand centers.
 
Meanwhile, 7,159 mt of biodiesel produced by CARBIO members was consumed in Argentina during March, according to the same CARBIO data. A local analyst source estimated consumption from other local biodiesel producers at 44,877 mt, bringing the total to 52,036 mt, up from 36,284 mt the previous month.
 
This represented a blending incorporation rate of 5.11%, up from 4.24% in February but still some way off the 10% mandate introduced by the Argentinian government at the beginning of February.
 
Argentina’s President Cristina Fernandez de Kirchner last week asked Congress to approve a proposal to exempt biodiesel from local consumption taxes worth 41% at the pump to boost demand and help counter the negative effects of EU anti-dumping duties on the Argentine biodiesel industry.
 
 
 
 
 




— 

Overall, though, we are outmatched diplomatically. Obama’s foreign policy apparatus is bloated at the White House level, over-politicized at the State Department and dismissive of the expertise to be gained from career diplomats, with decision-making tending toward groupthink in an echo chamber. And if the White House believes it can achieve its goals toward Moscow by sending TV soap opera producers, hoteliers and other campaign contributor neophytes to face veteran Russian diplomats in key European capitals, it is nothing short of delusional. At the very least, Obama risks stumbling in his pursuit of foreign policy goals in a situation where every mistake counts.

— Jim Bruno at

 

ARGENTINE UPDATE – Apr 9, 2014

9 abril, 2014


1. ARGENTINA: STIFF SENTENCES FOR 10 IN RETRIAL OF HUMAN TRAFFICKING CASE (NYTimes.com Feed)
9 April 2014
A court handed down sentences of 10 to 22 years in prison on Tuesday to 10 defendants accused of kidnapping and forcing into prostitution a young woman whose disappearance raised global awareness about human trafficking. The search for the woman, Marita Veron, continues, but after two trials, her mother, Susana Trimarco, said she was satisfied with the verdict. She said she and others had “achieved a bit of justice for Marita and for all the girls.” The court heard the case after a new trial was ordered. All the defendants had been found not guilty in the first trial. Two brothers, Jose and Gonzalo Gomez, received 22 years each for kidnapping Ms. Veron. The others received lesser sentences. All but one are being jailed pending appeals.
2. ARGENTINE COURT GIVES LONG TERMS FOR SEX SLAVERY (The Washington Post Online)
April 8, 2014
BUENOS AIRES, Argentina — A court in Argentina has handed down tough sentences of 10 to 22 years in prison to 10 defendants accused of kidnapping and forcing into prostitution a young woman whose disappearance raised global awareness about people trafficking.
The search for Marita Veron continues, but after two trials, the woman’s mother Susana Trimarco says she’s satisfied with Tuesday’s verdict. She said she and others have “achieved a bit of justice for Marita and for all the girls.”
The court ruled in provincial Tucuman after a new trial was ordered following not-guilty verdicts for all the defendants.
Brothers Jose and Gonzalo Gomez received 22 years for kidnapping Veron. The others received lesser sentences. All but one are being jailed pending appeals.
3. ARGENTINA ECONOMY: QUICK VIEW – CONSUMPTION INDICATORS SLUMP (Economist Intelligence Unit – ViewsWire)
8 April 2014
Event
The latest consumer demand indicators are indicative of a decline in private consumption. In February supermarket sales grew by 30.5% year on year. Although there is no annual 12-month inflation figure from official sources for this period, estimates from PriceStats, an inflation-monitoring company, which form the basis for our forecasts, show annual inflation at 31.8%, which implies a decrease in sales in real terms.
Analysis
A number of other indicators have also been weak. According to the Confederación Argentina de la Mediana Empresa (CAME, a business chamber), retail sales sank by 7.2% year on year in volume terms in February, the deepest fall since October 2009. The decline was led by two sectors: real estate and household appliances, although all 22 categories registered declines.
The consumer spending slump appears to have deepened in March, when car sales fell by 35% year on year. In recent years consumers had increased their purchases of cars and other durable goods as a hedge against inflation. However, a combination of higher inflation and lower nominal wage rises appears to have exhausted this effect. Wages have lagged behind inflation since the start of the year because of delays to wage negotiations, and because new salary agreements have in most cases been behind current inflation. In this environment consumer confidence has plummeted. The consumer confidence index produced by the well-respected Universidad Torcuato di Tella declined by 19.8% in the first quarter of 2014, to its lowest level since 2002 (the height of the economic and financial crisis).
4. ARGENTINE BLUE-CHIP SWAP PESO AT SMALLEST GAP SINCE 2012 (Bloomberg.com)
By Camila Russo
Apr 8, 2014
The Argentine peso is strengthening in the parallel exchange market as higher interest rates reduce demand for dollars, closing the gap with the official rate to the narrowest since December 2012.
The foreign-exchange rate implied from trading in dollar and peso securities, known as the blue-chip swap, gained 0.6 percent to 9.618 per dollar, reducing the gap with the official rate to 1.62 pesos, from as wide as 4.56 pesos on Feb. 3. The peso in the black market rallied 2.5 percent to 10.34 per dollar, the strongest since January, according to data compiled by Ambito.com.
Argentina’s central bank devalued the official peso 19 percent in January and pledged to keep the currency at 8 per dollar, encouraging soybean exporters to sell their products to add foreign currency to reserves that have tumbled 32 percent in the past year. The monetary authority also boosted benchmark interest rates and drained pesos from the economy as part of efforts by the government to curb the decline in reserves.
“It seems like the central bank’s measures are being effective in bringing down the black-market dollar,” Francisco Diaz, a currency trader at ABC Mercado de Cambios, said in a telephone interview.
The gap between the street peso and the official rate narrowed to 2.32 pesos from 5.19 pesos on Jan. 22. The unofficial currency rate has gained 13 percent since the government eased currency restrictions Jan. 24 by allowing purchases of as much as $2,000 per month.
5. ARGENTINA ENCOURAGES CONSUMERS TO CUT GAS USE TO MAINTAIN SUBSIDIES (Platts Commodity News)
By Charles Newbery
8 April 2014
Buenos Aires (Platts)–8Apr2014/1013 am EDT/1413 GMT   Argentina’s government Tuesday called on businesses and households to reduce natural gas consumption, saying it would allow it to maintain subsidies to limit a planned increase in rates for the public utility.
“The more you save in gas, the subsidies will be maintained,” presidential Chief of Staff Jorge Capitanich said in a televised press conference.
Capitanich spoke a day after the Energy Secretariat announced a 20% reduction in the subsidies on commerce and households.
While the government had said this would lead to an up to 162% increase in gas bills this year, an analysis of the rates published Monday in the Official Bulletin, the government’s newspaper of record, shows increases of up to 943%. The increases will be made gradually in April, June and August.
But if consumers cut consumption by 5% to 20% this year compared with 2013, the hike in the rates is less at around 80%, depending on location and consumption. If consumption is cut by more than 20%, the gas rate won’t change.
“The percentage of the subsidy cut will depend on the rational use of energy,” Capitanich said.
The government began subsidizing electricity and natural gas for consumers, businesses and industry in 2003 to help rebuild the economy after Argentina’s 2001-02 financial crisis. The economy recovered robustly between 2003-2011, but the government struggled to peel back the subsidies as planned in 2008 and in 2011 on public outcry, or fear of it.
Low gas prices — they are averaging $2.50/MMBtu, up from less than $0.50/MMBtu in 2002 — have been a major factor behind a decline in gas production and surge in consumption.
6. UC DAVIS PROFESSOR RECEIVES 2014 WOLF PRIZE (U-Wire)
By Ellie Dierking
8 April 2014
UC Davis Professor Jorge Dubcovsky discovered a gene that can increase the nutritional value of wheat, and in January, was awarded the 2014 Wolf Prize in Agriculture.
The prize, which has been awarded since 1978, is one of six prizes established by the Wolf Foundation and is awarded once a year in Israel. The foundation’s website states that one of its main goals is “to award prizes to outstanding scientists and artists … for achievements in the interest of mankind and friendly relations among peoples.”
Dubcovsky and his team conduct their research using an applied breeding program that produces commercial varieties of wheat, which include things like pasta and bagels, and make up about 20 percent of the wheats grown in California.
“We discovered a gene that increased the amount of protein and iron that you have in the wheat grain,” Dubcovsky said. “This gene controls the remobilization of nutrients.”
Though the Wolf Prizes are usually each given to a single recipient, this year Dubcovsky shares the prize with Leif Andersson from Uppsala University in Sweden.
The foundation, according to its website, believes that Dubcovsky’s achievements are “truly impressive,” providing “groundbreaking contributions” to the field of wheat genetics.
“My program goes from very, very applied to very basic,” Dubcovsky said. “The focus of our research is on the genetics of the traits that contribute to develop better wheat: we study genes that improve quality and the nutritional value of wheat and that make wheat more resistant to biotic and abiotic stresses.”
Dubcovsky was born and raised in Argentina, and graduated from the University of Buenos Aires in 1984. He first came to Davis as a visiting scientist in 1992, but after returning to Argentina for a couple of years and finding it difficult to make a living, he moved to the United States and joined the UC Davis faculty in 1996.
“I enjoy it a lot here,” Dubcovsky said. “There are better opportunities for me. The system has more resources and is less corrupt. Argentina is a very nice place but we couldn’t make a living, and science wasn’t such a priority — that has changed a lot in recent years. That situation has gotten better for scientists, but when I came [to America] it was almost impossible for scientists [in Argentina].”
Dubcovsky currently teaches advanced statistics and an experimental design class at UC Davis. Previously, he taught undergraduate courses in molecular genetics and bioinformatics.
“I’ve had about 60 grad students every year for about 17 years — a lot of you!” Dubcovsky said. “I enjoy [being a professor], but I’m very passionate about my research also, so I like having time for that.”
Prior to receiving the Wolf Prize, Dubcovsky was also elected to the National Academy of Sciences in 2013, where he has meetings with legislators to advise on plant breeding and on the need to train new plant breeders. His NAS responsibilities also include the revision of manuscripts for the Proceeding of the National Academy of Science as well as a general promotion of science and science education.
Tyson Howell, a fourth-year Ph.D. student in the Genetics Graduate Group, has been a student of Dubcovsky since March 2011.
“I think he is an excellent teacher with a passion for his work that really shows,” Howell said. “He has an in-depth knowledge of the subject matter, and endeavors to help students understand the material. It is clear that he takes teaching seriously and has a sincere interest in helping students learn the material for their own benefit, rather than just teaching so the students can pass a test.”
Howell specifically remembers a late meeting with Dubcovsky one evening in which the professor had to rush home after realizing mid-sentence that he was late for dinner.
“I‘m sure he was hoping his wife hadn‘t noticed he had stayed late in the lab yet again,” Howell said. “I remember this because it made me realize that he truly is passionate about his research, but he is also a husband and a father and has to balance many different aspects of his life, and I hope that in the future I can do as good a job of it as he does.”
Another Ph.D. student, fifth-year genetics and plant breeding major Rebecca Turner, has known Dubcovsky for six years now, works in his lab and said that she believes his Wolf Prize is definitely well deserved.
“From an undergraduate perspective, Jorge is an enthusiastic professor, who takes the time to present applicable material in a thorough way,” Turner said. “As a graduate student, he is a serious advisor, who imparts in his students a responsibility to report accurate results and to address relevant research questions.”
According to Turner, Dubcovsky’s work has resulted in the collaboration of public institutions across the country, creating resources for identifying genes and traits in wheat and barley breeding.
“These contributions have a global impact, as wheat is one of the top staple food crops in the world,” Turner said.

 

ARGENTINE UPDATE – Apr 1, 2014

1 abril, 2014
1. ARGENTINA INCHES TOWARD ECONOMIC CRISIS, AGAIN (USA Today.com)
By David Agren
April 1, 2014
BUENOS AIRES — People may pack the pews at St. Benedict the Abbot parish in the upscale Belgrano district of the Argentine capital, but that doesn’t translate into demand for the images and statues of saints that Pedro Atencio sells outside the church.
“Sales are down due to the economy,” he says.
Times have turned tough in Argentina, where vendors such as Atencio blame old economic issues such as inflation and devaluations for sinking sales. Pessimism is rife as prices rise, purchasing power erodes and people prepare for the possibility of another economic crisis — in a country once among the wealthiest in the world, but better known now for recurring crises and calamities.
“This is a country that is constantly on the road to the next crisis,” says Luciana Carcione, economist with Orlando J Ferreres & Asociados in Buenos Aires. “Every 10 years or so, we end up in some sort of crisis, large or small.”
Economists such as Carcione see worrying signs, though she says “this won’t be a disaster” like 2001, when the currency collapsed and Argentina defaulted on debts of approximately $95 billion — leaving it frozen out of international credit markets.
Still, inflation is accelerating and projected to hit 40% in 2014, according to Sergio Berensztein, director of Poliarquía Consultores. Unofficial estimates put the inflation rate at above 25% in 2013, much higher than the official government rate of 10.9% — a figure few believe, Berensztein says.
A study from consultancy Estudio Bein estimates inflation has eroded wages nearly 10% over the past four months. The Argentine peso was devalued nearly 20% in January, further diminishing purchasing power and making imported items more expensive.
“The government was able to successfully stop the exchange crisis with a devaluation and raising of interest rates,” Berensztein says, adding the “fiscal deficit” and government spending are still high.
Outside investors remain skeptical. Moody’s downgraded Argentina’s sovereign rating March 17 to Caa1, seven levels below investment grade status, Bloomberg reported.
Rising incomes, along with inflation, spurred consumer spending during the past decade. Robust sales of soybean crops brought in badly needed foreign reserves, which were used to pay debts. Those reserves have dropped below $30 billion, prompting the devaluation.
“For nearly a decade, (reserves) were nearly $50 billion. … That gave the government an, ‘I don’t need the world’ attitude,” says Fernando Farías, radio host in Buenos Aires. “They have had to do something to bring Argentina back to the world financial markets.”
Inflation started increasing in recent years, prompting Argentines to spend instead of save, or move their money out of the country.
Automobile sales reached record levels in 2013, while Argentines traveled abroad like never before — both symptoms of high inflation, which has outpaced interest rates.
“There’s an incentive to spend that money now, whether in a restaurant or on a trip or on a flat-screen TV, rather than keep it in a bank and see it lose 30% of its value after a year,” Farias says.
The spending even reached the shanties of Buenos Aires, where the poor attempted to preserve their patrimonies by purchasing small cars — which tend to maintain their value in Argentina — or bricks to build additions to their homes.
“We now have traffic jams” in the shanties, says Father Carlos “Charly” Olivero, one of the parish priests Pope Francis sent to work in poor areas — places he made a priority of his ministry in Buenos Aires.
Amid rising inflation and devaluation, Father Olivero reports an increase in the demand for social services, such as parish food and clothing banks.
Under the constant threat of such crises, people take creative precautions. Oswaldo Peñalosa is an engineer by training, but he bought a taxi license 25 years ago and keeps renewing it annually, even if he isn’t driving his cab. “It’s been a life preserver,” he says.
Argentines traditionally have bought greenbacks as a safeguard against instability at home, but the government imposed restrictions in recent years as its reserves began to decline.
Saving in U.S. dollars is illegal in Argentina, and those traveling abroad pay a 35% tax on credit card purchases made outside the county. That doesn’t stop people from purchasing greenbacks on the black market.
“Argentines don’t invest,” says Máximo Merchensky, a former official in the Buenos Aires municipal government and critic of President Cristina Fernández de Kirchner. “They take (their money) out of the country or hide it under the mattress or in a safe, after first converting it into dollars.”
Fernández dismisses any talk of crisis in Argentina but has hit back against critics and business owners she accuses of improperly raising prices. Billboards encourage people to denounce stores and supermarkets not respecting price freezes ordered by the government.
A smartphone app developed by university students allows customers to check stores’ compliance. The president’s policies of cash transfers and subsidies have found favor with the poor — a group more likely to vote for her, according to polls done by Poliarquía Consultores — and groups such as students, who receive stipends to attend school.
“Even with inflation, wages have always kept up,” says Juan Manuel Estévez, a social worker and supporter of the president. “The problem is the distribution of wealth.”
Fernández promoted prosecutions of people publishing unofficial inflation figures, and the International Monetary Fund censured Argentina for its shoddy statistics. She promised no devaluations of the peso.
Since the president’s popularity has fallen and Fernández is unable to run again in 2015, analysts see opportunity for change in the coming years.
“It’s a pragmatism that’s late and incomplete,” Berensztein says. “Due to problems with reputation and communications, the magnitude of the change coming isn’t being appreciated.”
2. ARGENTINA’S FERNÁNDEZ FACES MOTHER OF POLITICAL FIGHTS (Financial Times.com)
By Benedict Mander
March 31, 2014
Cristina Fernandez confided in a recent televised address that as well as being Argentina’s president she liked to think of herself as “the mother” of the nation.
Although the 61-year-old indulged a handful of supporters by posing for pictures afterwards, many Argentines were incensed by the speech, in which Ms Fernández denied there would be a big jump in utility bills even though some are set to rise by as much as five times after hefty subsidy cuts were announced hours earlier.
Despite her maternal instincts, Ms Fernández’s popularity has dived since her 2011 re-election and could drop further as the leftist leader scrambles to avoid impending economic troubles by implementing the sorts of orthodox market reforms her government had long resisted.
The government’s series of U-turns on economic policy – which have also included a devaluation, the revamping of the consumer price index and the settling of long-running investor disputes – have led some to ask whether there has been a change of heart at the top of Argentina’s government.
Last Thursday, the cash-strapped government announced it was cutting subsidies on natural gas and water by a fifth, thus unwinding one of the cornerstones of government policy during what Ms Fernández calls the “victorious decade” since her husband Néstor Kirchner took power after Argentina’s 2001-02 economic crisis.
On the same day, the government revised its growth estimate for 2013 from 4.9 per cent down to 3 per cent, in line with private sector estimates, just in time for a deadline set by the International Monetary Fund for Argentina to improve its long-questioned statistics. In doing so, the administration saved itself a $3.5bn payout to holders of GDP warrants, which would only have been triggered if growth had exceeded 3.2 per cent.
The attempt to pursue more orthodox economic policies has helped Argentina’s bonds to rally strongly.
However, José Octavio Bordón, Argentina’s ambassador in the US during the administration of Mr Kirchner, said there has been “no ideological change” in government. “This is just an objective response to the fact that the government has run out of money,” he said.
Mr Bordón agreed the subsidies had been necessary to stimulate consumption when the Argentine economy collapsed after the 2002 default, but said these were kept in place for too long as it bounced back.
High commodity prices drove average annual growth of 7.2 per cent from 2003 to 2011. Yet the subsidies are now being removed just as another recession looms.
Carlos Germano, a political analyst, said: “There is no clear policy strategy. They [the government] are just going around putting out fires, fixing problems as they arise without thinking too much about the long-term consequences”. He expects further subsidy cuts.
“The president’s popularity is going to take a real beating. This is seriously weakening her leadership,” he added.
Foreign policy, which is driven by a desperate need to attract investment since Argentina has been locked out of the international capital markets since the 2001 default, has also been haphazard.
On a trip to Europe last month, Ms Fernández sought support from François Hollande, French president, in negotiations with the Paris Club of creditor nations that Argentina owes some $10bn.
But she also raised hackles among western leaders when she received a telephone call from Vladimir Putin, Russia’s president, to thank her for her position on the crisis in Crimea. Ms Fernández had criticised the “double standards” of UK and US leaders, who supported last year’s referendum in the Falklands Islands, in which 99.8 per cent of inhabitants voted to remain a British territory, while rejecting the recent referendum in Crimea.
Nevertheless, Argentina’s fitful efforts to mend poor relations with the international community bore fruit recently, when France, Brazil and Mexico declared their support for Argentina to the US Supreme Court in a dispute with so-called “holdout” creditors, who rejected restructured debt after the 2001 default and are pushing to be paid in full.
Ms Fernández’s success in tackling the problems assailing her government, which include having one of the highest inflation rates in the world to alarmingly low levels of foreign exchange reserves, will determine her political future.
Mr Bordón, himself a former presidential candidate, said Ms Fernández’s goal was to leave power with the best image possible when her term concludes at the end of 2015. The president’s approval rating is languishing at about 30 per cent.
He suggested she may be aiming to mirror the performance of Michelle Bachelet, president of Chile, who recently returned to power after a four-year hiatus.
“Those who think that the president is thinking of leaving [politics] are mistaken,” said Mr Bordón.
3. CREDIT MARKETS OPEN TO ARGENTINA FOR FIRST TIME IN YEARS: MINISTRY (Reuters.com)
March 30, 2014
BUENOS AIRES (Reuters) – Argentina has been approached by financial institutions offering it loans at favorable rates, the economy ministry said on Sunday, marking a tentative reopening of international credit markets for the first time in over a decade.
The economy ministry issued a statement on Sunday, saying it had received offers of credit from abroad. It did not name the institutions.
“In recent weeks … various financial institutions have presented proposals of access to external financing with repayment timetables and interest rates similar to those offered to other countries in the region,” it said.
It would be the first time Argentina has received loans from international creditors since a massive default in 2002.
The offers followed Argentina’s $5 billion settlement with Spain’s Repsol over its expropriation of YPF and progress on talks to repay over the $9.5 billion Caracas owes the Paris Club creditor nations, said the ministry.
The statement followed an earlier report in local newspaper Pagina/12 that the government was closing in on a deal to receive around $1 billion in loans from investment bank Goldman Sachs and had been approached by other lenders.
The paper, which has close ties with the government of President Cristina Fernandez, said the two-year loan would be announced in the next few days and carry an annual interest rate of 6.5 percent.
Goldman Sachs declined to comment.
The loans would come as the government seeks cash to avoid a further devaluation of the peso and increase its depleted foreign exchange reserves.
Dollars have been scarce in Argentina due to capital flight, weak exports, and low competitiveness because of high inflation.
The government hopes securing the Goldman Sachs loan would demonstrate that its strategy of thawing relations with international creditors was starting to take effect, said the paper.
Argentina has already offered to repay the debt it owes the Paris Club, which stems from the 2002 default.
The club had accepted Argentina’s initial proposal to pay back the funds without recourse to the International Monetary Fund and to request credit lines from the countries it owed money to, Pagina/12 said in a separate report on Sunday.
Talks were continuing over the repayment terms, it added.
The economy ministry also on Sunday restated its intention not to issue debt in foreign currency.
(Reporting by Maximiliano Rizzi, additional reporting by Lauren LaCapra; Writing by Rosalba O’Brien; Editing by Sophie Hares and Sandra Maler)
4. ARGENTINA TO START UTILITY SUBSIDIES CUTS AS SOCIAL TENSION RISES (Market News International)
By Charles Newbery
31 March 2014
 Argentina’s government this week plans to start reducing natural gas and water subsidies, a move that could fuel already high social tension as teachers extend a three-week strike.
Economy Minister Axel Kicillof and Planning Minister Julio De Vido said last week that the 20% subsidies cut could save the state up to 13 billion pesos ($1.6 billion) a year.
The cuts will be made in April, June and August, and will lead to a rise in prices for commercial and residential service of up to 162% for gas and 306% for water, according to the Planning Ministry.
Industry will not pay higher prices as long as they sustain prices and adequate supplies of their products, a move designed to improve the competitiveness of manufacturers and sustain employment. The government wants to keep the economy growing after 3% expansion in 2013, even as economists warn of a 2% contraction this year.
Argentina first introduced the subsidies in 2003 to help emerge from the 2001-2002 economic crisis, and the authorities have struggled to reel them in since then, with two previous attempts failing.
The subsidies have grown so large that for every five pesos the state spends one goes to keeping down utility and public transportation rates.
This has kept down earnings for private utility companies, with their finances taking a further hit from inflation. Consumer prices – and wages – have gone up by an average of 25% a year since 2010. In consequence, infrastructure has weakened and shortages have become periodic, with huge blackouts – for up to three weeks in some areas – hitting the country in December and January.
The government said the savings from the subsidies cut will go to improving the finances and infrastructure of utility companies while the rest will go to financing social spending such as on child welfare.
The subsidy cuts will not apply to families on welfare, people with disabilities, and households that live in remoter – and costlier – parts of the country like Patagonia.
Despite the cuts, Kicillof said the government will not abandon the subsidy program, saying it is a policy that spurs consumer spending and economic growth by increasing disposable income.
By not raising utility rates on industry, the administration hopes to limit the impact on consumer prices. Many economists expect inflation to surpass 40% this year after rising 35% year-over-year in February.
While the administration has started to make adjustments to a free-spending economic model by devaluing the peso by 20% against the dollar, raising interest rates, starting to come clean on long-underreported inflation data and settling debts and lawsuits with companies, a major hurdle remains for the economy: wage negotiations.
The government wants to keep wage hikes below 25%, but unions are demanding between 30% and 40% raises to protect their purchasing power.
Public school teachers in Buenos Aires province, the country’s most populated, will continue striking for higher pay for a fourth week this week. Teachers will hold a march in downtown Buenos Aires Monday evening to protest low wages.
The government will report public service consumption and construction activity Monday, while reports on March tax collections and auto production, exports and sales are due out later in the week.
Banks, financial markets and government offices will be closed Wednesday for a public holiday to remember veterans from the 1982 Malvinas/Falklands war.
5. ARGENTINA CRUDE EXPORTS ROSE IN FEBRUARY YEAR ON YEAR: GOVERNMENT (Platts Commodity News)
By Charles Newbery
31 March 2014
Buenos Aires (Platts)–31Mar2014/254 pm EDT/1854 GMT  Argentina’s crude exports totaled 61,161 b/d in February, compared with zero in the year-earlier period, the country’s Energy Secretariat said Monday.
The exports were nearly double the 33,689 b/d exported this past January, the department said in a monthly data report.
All of the exports in February and January were of Escalante, a crude that has a gravity of 24 API and 0.25% sulfur.
Pan American Energy, which is controlled by BP, is the country’s biggest exporter, generally making shipments of 1 million barrels to buyers in China and the US. It made 60% of the export sales in February while state-run YPF handled the rest.
Argentina launched a plan this year to step up crude exports with the aim of reducing imports of costlier refined products. Refiners have been asked to import more supplies of light crude, which is expected to leave more supplies of heavier crudes like Escalante available for export.
Argentina imported the equivalent of 7,130 b/d of crude in February, compared with zero in the year-earlier period and 9,213 b/d this past January. Refinor, which operates a 15,850 b/d refinery in the north of the country, made all of the imports.
Argentina had not imported crude for years, until 2012, when it had to turn to overseas suppliers to make up for dwindling domestic production, in particular during times of higher demand in the May-September cold season and the January-February crop harvest period and summer holidays. Domestic crude production fell 36% to 540,000 b/d in 2013, from a record 847,000 b/d in 1998, on low investment, maturing reserves and few finds, according to analysts.
6. COLORADO DAD ONE STEP CLOSER IN FIGHT AGAINST EX-WIFE FOR DAUGHTERS IN ARGENTINA (CNN Wire)
By Ana Cabrera and Elizabeth Stuart
31 March 2014
SNOWMASS, Colorado (CNN) — It’s been seven months since Dennis Burns has had any contact with his two young daughters. No visits, no Skype, no phone calls, no communication at all.
Just silence.
But all that could change in the next few weeks.
His daughters are victims of an international abduction.
Burns’ ex-wife, Ana Alianelli, spirited away the children, 7-year-old Victoria and 5-year-old Sophia, from their home in Colorado and fled to her native Argentina more than 3½ years ago, violating a court order.
“You know I think about them a lot,” Burns told CNN in an exclusive interview. “I dream about them a lot. I can feel their little hugs around my body. I just want to hug them back, and it’s super painful.”
Burns has devoted his life savings and all his time to fighting what’s become a messy international legal battle.
His odyssey now appears to be reaching a conclusion: Argentina’s Supreme Court has denied the last of appeals by his ex-wife this year, which means Burns has won his case. The final step will be an order of return from the U.S. State Department and a date to transfer custody of the girls to him.
It all began in September 2010, when Burns and Alianelli were divorcing and found themselves at an impasse: Alianelli wanted to relocate to Buenos Aires, and Burns wanted to stay in Colorado.
After a 13-month custody battle, a Colorado judge ruled in favor of Burns, declaring him the primary residential parent.
“I felt a sense of relief that was just beautiful,” he told CNN last November, when “New Day” first presented his story. “I was like, ‘I’m going to be able to spend time with my daughters, finally, and live with them and be able to teach them things, and show them things.”
Just three weeks later, Alianelli flew the girls out of the United States on their Argentine passports. They’ve been living with her in Buenos Aires ever since.
Messy legal battle
Burns filed an application through the Hague convention child abduction treaty to have Victoria and Sophia returned to him. The Hague treaty is an agreement among countries designed to prevent or resolve cases like Burns’. The U.S. State Department describes it as “a multilateral treaty that provides protection for children from the harmful effects of abduction and wrongful retention across international borders.” In theory, children should be returned within six to eight weeks after a Hague application is filed and a court gets the case. Argentina became a signatory country in 1991.
Despite the treaty, Burns’ case has taken years to resolve. The Argentine court system allows for multiple appeals, which is exactly what Alianelli has done, dragging the case on for years. Two appellate courts ruled in Burns’ favor. The last ruling was on New Year’s Eve.
“The Supreme Court of Buenos Aires ruled for the return of Sophia and Victoria, which is fantastic and was really, really good news to bring in the New Year for me,” he said.
Six weeks later, on Valentine’s Day, Alianelli filed what would be her final appeal to the Supreme Court of Argentina. It has meant more waiting for Burns, but the Supreme Court of Argentina has ruled in his favor, and that court’s decision is final.
Alianelli and her lawyers have declined several requests for an interview to get her side of the story. Instead, they provided this statement: “No comment.”
Meanwhile, Burns was supposed to be allowed at least three Skype communications with his daughters each week — under court order — but he has been completely cut off by Alianelli.
“We’re getting closer to justice being restored, and this is her way of getting back at me, I guess,” he said. “But it’s punishing them more than me. It hurts me, but they’re children who need their father and their mother.”
Taking the fight to Washington
Burns has joined forces with the hundreds of other American parents enduring the same heart-wrenching situation, taking their battle to U.S. lawmakers in Washington. Notably, he’s working alongside David Goldman, who has been in Burns’ shoes.
Goldman fought for more than five years to bring his son, Sean, home to the United States from Brazil. During his ordeal, U.S. Rep. Chris Smith, R-New Jersey, played an integral role in helping Goldman. Since then, Smith and Goldman have worked together to develop new legislation in the hopes of resolving parental abduction cases more quickly.
“Where’s the enforcement? Where’s the ruling? Every day is a day lost, every day is a day you can’t get back, and we have to do what we can,” said Goldman.
House Resolution 3212 is a bill designed to ensure that countries comply with the Hague abduction treaty. The bill outlines more than a dozen steps that the U.S. State Department could take, including the threat of sanctions, when a Hague country does not hold up its end of the deal.
The legislation has the potential to affect thousands of U.S. parents. The State Department reports more than 1,000 children were internationally abducted by a parent in 2013 alone.
The bill passed the U.S. House in December.
“It was beyond expectations,” Smith said. “It was unanimous: 398 (yes votes). Totally bipartisan.”
The bill now sits in the Senate Foreign Relations Committee, which held a first hearing on the proposed legislation on February 27.
“If HR 3212 was already a law, my daughters would most likely have been not only returned by now but probably would have been returned in the first year of this unending nightmare,” Burns said.
The final legal decision
Now that Argentina’s Supreme Court has ruled that Victoria and Sophia should return to the United States, Burns is in what he hopes are the final weeks of his nightmarish journey. Even after his daughters are back in his care, he vows to continue to help other parents fighting the same battle.
Burns hasn’t had any communication with his girls since last July, and he realizes that he will never get back the precious moments he’s missed out on for the past 3½ years. He also says he’s concerned about how his ex-wife may have characterized him in the years since his girls were taken.
However, Burns remains determined and steadfastly hopeful that he’ll be able to say these words to his daughters, in person, someday soon:
“Papa loves you, Victoria and Sophia. I love you very much.”

ARGENTINE UPDATE – Mar 11 & 12, 2014

12 marzo, 2014

 

MONDAY CLIPS..  

1. LEFT HAND AMONG BONES (NYTimes.com Feed)
By Roger Cohen
11 March 2014
BUENOS AIRES — In the end it was his father’s left hand, found a couple of years ago in a pile of charred bones outside La Plata, that enabled Gonzalo Reggiardo Tolosa to know for a fact the man he never knew was dead. This was physical knowledge, different from the almost-certain supposition with which he had lived ever since he discovered as a boy in the late 1980s that the couple who raised him and his twin brother Matías were not his parents.
Even his father’s remains did not constitute closure for this child of the “disappeared,” born in 1977 under the rule of Argentina’s military junta, seized at birth from parents who vanished into the vortex of the “Dirty War,” raised by a police officer named Samuel Miara and his wife Beatriz who initially insisted he was their son, thrust into foster care after Miara was jailed, then handed over to a biological uncle, told to forget his former life, and finally left to sift through the scattered fragments of his existence.
Still the trials go on.
“I am incredibly mad at the cruelty of not allowing a person to mourn his parents,” Reggiardo Tolosa tells me. “They did all they could to destroy the evidence. The other day I left the witness stand after giving testimony and broke down. I was sobbing. I am still trying to mourn my parents.”
We are seated in a Starbucks in the Argentine capital. It is a holiday, as usual. The streets are quiet — apart from the money-changers’ refrain: “Cambio, cambio, cambio.” Yet another little currency crisis has hit Argentina. Nobody wants pesos.
Reggiardo Tolosa speaks slowly of another time, when our sons of bitches, to paraphrase Franklin Delano Roosevelt’s apocryphal comment, did their foul business in the name of defeating communism in the Americas, and many thousands disappeared. His manner is gentle, his pain evident, still. This is what our sons of bitches wrought, a legacy without end.
His breakdown occurred last month. He and his brother were called to testify in a trial involving former army officers accused of involvement in killings under the junta at a clandestine facility called La Cacha, adjacent to Los Olmos prison in La Plata, where the twins’ parents were held before being “disappeared.”
One of the indicted, Ricardo Fernández, a former intelligence officer, is Gonzalo Reggiardo Tolosa’s godfather. His godfather! He was chosen by Miara, who always insisted, however, that Fernández had no role in abducting the twins. Now Reggiardo Tolosa is convinced Fernández was the conduit from the hell of La Cacha to the Miaras.
The twins arrived at the Miaras’ home on May 16, 1977. They have no birth certificate. It is estimated they were born around April 27. “What I must find out now is what exactly happened in those three weeks,” Reggiardo Tollosa says. Almost 37 years after he and his brother were taken, he is closing in on the truth.
I have known this man since he was a boy. His hair, now brown, was blond then. He and his brother were playing soccer in a yard in the Paraguayan capital of Asunción. I had followed a lead that the Miaras had fled to Paraguay with two boys born to a disappeared Argentine couple. Miara, when I confronted him in 1987, denied it. But the piece, published in The Wall Street Journal, helped secure his eventual extradition to Argentina.
Some stories will not leave you. They are your actual responsibility.
Reggiardo Tolosa is with his girlfriend, Jimena Vicario. She was a baby when, on Feb. 5, 1977, she was taken from her mother (who disappeared) during police questioning. She was dumped in a Buenos Aires hospital, raised by a woman who took pity. Her father, Juan Carlos Vicario, a Spanish citizen who fled Franco, was also murdered. The couple was about to leave for Spain when they vanished.
Jimena Vicario never gave blood for DNA testing, never wanted to know what exactly happened to her parents, never saw the point. Reggiardo Tolosa thinks she hates the tango and wants to get out of Argentina because that is what her parents were about to do when they were killed. For himself he cannot leave his football club (San Lorenzo), his city’s particular melancholy.
They first glimpsed each other as children in court. They re-met a year ago through Facebook. They laugh that there is so much they don’t have to explain to each other; that they don’t need to deal with in-laws; that money received in compensation for their loss disappeared in another currency crisis; and that they no longer have partners who, when angry, say: “Spare me your story yet again.”
They can laugh, just. The next trial, Reggiardo Tolosa says, will focus specifically on Fernández and the twins’ abduction. Perhaps then, he muses, “I will finish realizing I am an orphan.”
2. ARGENTINA: TED TURNER REQUIRES EMERGENCY MEDICAL TREATMENT (The New York Times)
By Jonathan Gilbert
8 March 2014
Ted Turner, the American media magnate, was expected to undergo emergency medical treatment in Buenos Aires, Télam, Argentina’s national news agency, reported Friday. Mr. Turner, 75, who founded CNN and is worth $2.2 billion, according to Forbes, had been at a ranch he owns in southern Argentina, local news media reported. He was taken to a private clinic in the city of Bariloche early Friday morning after he complained of a sharp pain in his abdomen, an official at the clinic told Télam. After a brief stay, Mr. Turner was moved to Buenos Aires.
3. A LULL IN THE FIGHTING (The Economist)
By H.C
March  7th 2014
IN JANUARY Argentina looked like it was in real trouble. Its official exchange rate was severely overvalued; its international reserves were dwindling. The government devalued the peso by 20% that month in an attempt to bring the official exchange rate closer to the unofficial “blue” rate. Things have stabilised as a result: Argentina’s official exchange rate has remained at around 8 pesos to the dollar since late January. But strains on the economy remain.
By hiking interest rates by six percentage points, to around 29%, Argentina’s central bank (BCRA) has made it more attractive to keep money in the country. More than 30 billion pesos ($3.75 billion) have been taken out of circulation over the past month and a half.
Relaxing some of the draconian currency controls on individuals that were introduced by President Cristina Fernández de Kirchner in late 2011 has also helped to steady things. By making it easier to get hold of dollars, the informal exchange rate has strengthened to around 11 pesos. Whereas in the past the difference between the official and unofficial rates reached 70%, it currently stands at 38%.
The country’s reserves, which have dropped below $28 billion, have also stabilised. That is partly an effect of the devaluation. The Central Bank also decreed that local banks liquidate any foreign-currency positions above 30% of their total assets. After plummeting by nearly $2.5 billion in January, this move helped slow the fall in reserves to $375m in February. The pressure will probably ease further in the coming weeks. This year’s harvest was copious and soy prices in Chicago are favourable, meaning that the BCRA can expect sizeable injections of dollars. Some think the recent compensation agreement between Argentina and Repsol over the 2012 nationalisation of YPF, the state oil firm, could trigger a flow of investment into the country’s petroleum industry.
Keeping the exchange rate steady will be harder. A new and more credible official consumer-price index put inflation at 3.7% in January. Private sources are predicting numbers close to 5% for February. Stalled wage negotiations with the teachers’ unions, some of which are demanding raises upwards of 40%, do not bode well for the government’s ability to keep inflationary pressures under control. Rapidly rising prices will soon erode the competitiveness boost afforded by January’s devaluation; by making the official rate seem more overvalued, it will also reinforce the allure of dollars.
According to Miguel Kiguel of EconViews, a consultancy, the BCRA could respond to this problem in a couple of ways. The first is to sustain the exchange rate at 8 pesos to the dollar for several months and then devalue again by around 20%, as it did in January. The other solution for the BCRA is to resume its previous strategy of “managed flotation,” or gradual devaluation, at a rate of about 2% a month.
Whatever happens, the authorities will be keen not to dampen economic activity too much. Interest rates have already risen; imports have already become more expensive thanks to the new exchange rate. According to Luis Secco of Perspectiv@s, a consultancy, the Central Bank has also cracked down on the sale of dollars to importers. Those looking to import manufactured goods and primary materials to Argentina must find the dollars needed to do so from their own coffers. The consensus is for a mild recession this year. Mr Secco likens the current situation to a GPS system that has been led astray from its originally planned path and must now recalculate. What the new route will be is not yet clear.
4. SUPREME COURT OBSERVATIONS: BG GROUP PLC V. REPUBLIC OF ARGENTINA (Forbes)
By Rich Samp
March 7, 2014
The Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law:  should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration?  In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration.  Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first.  But there was one point on which the justices agreed unanimously:  Argentina has a sorry history of living up to its contractual commitments to investors.  That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.
The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract.  Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award.  It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case.  The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.
The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement.  They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit.  They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.”
The Supreme Court summarily rejected Argentina’s argument that the arbitrators had exceeded their power in making that determination.  It recited at length each of the measures Argentina had taken to restrict access to its courts.  It then stated that while it did not necessarily agree with the arbitrators that those measures would make it “absurd and unreasonable” to mandate compliance with the 18-month litigation requirement, their interpretation of the treaty was nonetheless plausible in light of Argentina’s actions.
In his dissenting opinion, Chief Justice Roberts agreed with Argentina and the United States (which filed a brief supporting Argentina) that the UK-Argentina treaty required an aggrieved party to turn first to the courts of Argentina, and that doing so was a condition precedent to Argentina’s agreement to submit disputes to arbitration.  Roberts nonetheless went out of his way to make clear that he was not endorsing Argentina’s conduct in this affair.  He stated, “None of this should be interpreted as defending Argentina’s history when it comes to international investment.  That history may prompt doubt that requiring an investor to resort to that country’s courts in the first instance will be of any use.”
The justices were thus unanimous in their apparent disapproval of Argentina’s checkered past in international financial markets.  That disapproval is particularly problematic for Argentina’s ongoing efforts to persuade the Court to review a Second Circuit judgment that requires Argentina to abide by contractual commitments it made to holders of Argentina bonds.  The appeals court judgment was based to a considerable extent on Argentina’s adoption of “Lock Laws” that absolutely barred certain bondholders access to Argentine courts for the purpose of collecting on defaulted bonds.  The Court’s BG Group decision suggests that the justices may not look kindly on Argentina’s claims in cases where Argentina has manipulated access to its own courts.  Moreover, the decision indicates that support for Argentina from the U.S. Solicitor-General will not by itself be enough for Argentina to carry the day.
5. YPF PROFIT BEATS ESTIMATES ON HIGHER FUEL PRICES AND PRODUCTION (Bloomberg News)
By Pablo Gonzalez
March  9, 2014
YPF SA (YPF), Argentina’s largest oil producer, beat analysts’ estimates as fourth-quarter profit climbed 88 percent on increased revenue from sales and output.
Net income rose to 1.9 billion pesos ($241 million), or 4.89 pesos a share, from 1.02 billion pesos, or 2.59 pesos, a year earlier, Buenos Aires-based YPF said March 7 in a statement after the close of trading in New York. Per-share profit excluding some items beat the 4.75-peso average of three analysts’ estimates compiled by Bloomberg.
Argentine President Cristina Fernandez de Kirchner’s government on Feb. 25 agreed to pay $5 billion in bonds to Madrid-based Repsol SA to compensate for the 51 percent stake in YPF it expropriated in April 2012. Argentina seized the oil producer after its output declined at an average 6 percent rate for almost a decade. Oil and gas production climbed by 7.5 percent in the quarter compared with the same period a year ago.
“The company continued to halt declining output seen in previous years,” YPF said in the statement.
YPF boosted crude production by 6.3 percent in the quarter from a year ago, while natural gas output rose 10.2 percent, the company said.
YPF is pledging to invest $37 billion through 2018 and is seeking partners to develop Vaca Muerta, an area in southwestern Argentina the size of Belgium that contains an estimated 27 billion barrels of shale oil. Vaca Muerta is the world’s fourth-largest deposit of shale oil and second-largest natural gas deposit.
Repsol Compensation
Ending the dispute with Repsol should improve Argentina’s energy investment, YPF Chief Executive Officer Miguel Galuccio told reporters Feb. 25 in Buenos Aires. The agreement, less than the half of the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.
“There are many companies that are willing to come to Argentina and there are others that are more wary, but this agreement shows a much more positive horizon,” Galuccio said.
YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners. The Argentine producer on Feb. 18 signed a memorandum of understanding with Petroliam Nasional Bhd., the state-controlled company from Malaysia, to jointly develop an area in Vaca Muerta.
YPF, Argentina’s largest shale oil producer, also said on March 5 it signed two contracts for a total of about $1.2 billion to lease 15 drilling rigs to develop Vaca Muerta. YPF had 19 rigs operating in Vaca Muerta’s Loma Campana area, which it is jointly developing with Chevron.
YPF’s cash on hand at the end of quarter was 10.7 billion pesos, while debt increased by 5.8 billion pesos in the quarter to close at 21.2 billion pesos, the company said in the earnings report. The average cost of peso debt was 21.5 percent and 6.05 percent for dollar debt, it said.
(YPF is scheduled to have an earnings conference call today at 8:30 a.m. New York time. To access the webcast:http://www.ypf.com/InversoresAccionistas/Paginas/Home.aspx)
6. TED TURNER CUTS PATAGONIA STAY SHORT FOR SURGERY IN BUENOS AIRES (Bloomberg News)
By Charlie Devereux
March 9, 2014
Cable News Network founder Ted Turner was rushed to a hospital in Buenos Aires today from his holiday ranch in southern Argentina for appendicitis surgery.
Turner, 75, was admitted to a hospital in Buenos Aires, CNN said in a message on Twitter. Argentine television network TN broadcast images of Turner walking from a clinic to a car in the mountain resort town of San Carlos de Bariloche, 835 miles southwest of the capital, before boarding a private plane. Turner Enterprises chief communications officer Phillip Evans confirmed his hospitalization.
“While traveling in South America, Ted Turner was admitted to a local hospital for observation,” Evans said in an e-mailed statement. “Given it is our policy not to comment on his personal health, no further details will be provided.”
Turner, who owns three ranches in Argentina’s Patagonia region spread over more than 125,000 acres, turned CNN into one of the U.S.’s biggest cable-television systems before selling it to Time Warner Inc. in 1996. He also founded the Turner Foundation which seeks to protect and restore the natural world, according to the organization’s website.
Turner is being treated at the Instituto Argentino del Diagnostico y Tratamiento in Buenos Aires, online news service Infobae reported, without specifying where it obtained the information.
7. E-COMMERCE IN ARGENTINA MAY BE UNAFFECTED BY EXPECTED DECREASE IN CONSUMPTION (Business News Americas)
7 March 2014
E-commerce in Argentina will continue to experience robust growth rates this year despite the expected decrease in consumption, local paper La Nación reported e-commerce chamber CACE president Patricia Jebsen as saying.
“The decrease in consumption will not affect e-commerce in the country. We estimate that this year, e-commerce will experience a growth of 45% compared to 2013,” Jebsen was quoted as saying. “In the first two months of the year, e-commerce expanded ahead of our expectations,” she added.
However, the executive said that the sector still needs to continue boosting the offer of e-commerce channels to record even higher growth rates.
According to local economists, the country is expected to have an inflation rate of 30-35% this year. The central bank has implemented certain monetary policies in a move to control the depreciation of the local economy against the US dollar, which may lead to a recession scenario during 2014.
E-commerce revenues grew 48.5% last year versus the previous year, totaling 24.8bn pesos (US$3.17bn). The highest growth rate in e-commerce revenues over the last five years was in 2011, when the sector’s revenues climbed 49.5% compared to the previous year.
Around 38.8% of internet users in Argentina made online purchases during 2013, while some 73.4% research products online before purchasing offline, CACE said.
Argentina currently represents approximately 8.5% of total e-commerce revenues in Latin America and the Caribbean (CALA) region, according to the chamber.
8. ARGENTINA’S YPF BOOSTS FOURTH-QUARTER PROFIT BY 88% (The Wall Street Journal Online)
By Taos Turner
7 March 2014
Oil and Gas Production Also Rose From the Previous Year.
BUENOS AIRES—Argentina’s leading energy company, YPF SA, said Friday that its profit surged in the fourth-quarter while oil and gas production also rose from the previous year.
The state-run company posted a quarterly profit of 1.9 billion Argentine pesos ($241 million), up about 88% from the same period a year earlier.
YPF’s chief executive, Miguel Galuccio, has focused intensely on raising oil and gas production since he took over the company in mid-2012.
The company said crude oil production was up 6.3% in the fourth quarter while natural gas production was up 10.2%.
YPF produces about 35% of Argentina’s oil and gas and accounts for more than half of the fuel sold in Argentina.
Argentina’s government expropriated a 51% stake in YPF from Repsol SA in 2012 after Argentine President Cristina Kirchner claimed that Repsol had not done enough to boost production.
Last month, Repsol’s board said it agreed to end the Spanish oil major’s conflict with Argentina over the expropriation by accepting a compensation deal valued at $5 billion. YPF officials are hopeful the deal will clear the path for the Argentine company to attract fresh investment in the country’s vast and largely untapped unconventional oil and gas fields.
Last year, Chevron Corp. agreed to fund the bulk of a $1.5 billion joint venture with YPF to develop the country’s vast shale oil and gas deposits. Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to a study last month by the U.S. Energy Information Administration.
Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.
YPF is currently in talks with Petroliam Nasional Bhd, or Petronas, Malaysia’s state oil and gas company, to partner in a deal that could be similar in structure to the accord signed with Chevron.
9. ARGENTINA YPF INCREASED OIL PRODUCTION 2.2% IN 2013 ON YEAR (Platts Commodity News)
By Charles Newbery
7 March 2014
Buenos Aires (Platts)–7Mar2014/540 pm EST/2240 GMT  Argentina’s state-run oil company YPF increased oil production last year to 232,300 b/d, 2.2% above 2012, helping to reverse a decade-long decline as it boosted investment in upstream projects.
The company in a Friday statement said 2013 natural gas production rose 1.5% year on year 33.9 million cu m/d, while total hydrocarbon output was up 1.7% to 493,400 barrels of oil equivalent per day.
The recovery came after a decade-long decline in production at about 6% a year.
YPF began increasing investment after the state took it under control in May 2012 when it expropriated Spanish oil company Repsol’s 51% stake.
YPF said fourth-quarter oil production rose 6.3% on the year to 239,300 b/d, while gas production increased 10.2% year on year to 35.5 million cu m/d. Total hydrocarbon output rose 7.5% from Q4 2012.
The company said its production performance was even better at the fields it wholly operates. At those fields, crude production rose 3.4% in 2013 on the year while gas went up 2.2% over the same period.
YPF plans to spend $37.2 billion between 2012 and 2017 to boost oil and gas production by a targeted 32%, with a focus on squeezing more supplies out of maturing fields and developing the country’s large shale potential.
The company said it drilled more than 100 wells targeting unconventional formations in 2013, an effort that took unconventional output — mostly shale oil — to an average of 15,100 boe/d in the fourth quarter and to 18,900 boe/d in December.
As part of the unconventional push, YPF is working with Chevron to develop parts of the Loma Campana basin, where it has drilled more than 30 wells and will share output with the US company. It also has entered a partnership with Dow Chemical.
Argentina holds an estimated 27 billion barrels of shale oil and 802 Tcf of shale gas, far more than its 2.5 billion barrels of proved conventional oil reserves and 12 Tcf of proved conventional gas reserves, according to the US Energy Information Administration.
YPF said its proved hydrocarbon reserves rose 10.6% in 2013 to 1.083 billion boe from 979 million boe in 2012, while its reserve replacement ratio was 158%, the highest since 2000.
The improvement in reserves and production comes as the company increased spending 102% to 24.5 billion pesos ($3.1 billion) in 2013 compared with 2012.
In its downstream business, YPF said its average utilization rate of its three refineries was 87% in 2013, down slightly from 2012.
“This decrease was primarily the result of the unprecedented storm that affected the La Plata refinery during second quarter 2013, which crippled refinery processing levels for that period,” YPF said.
It added that the average utilization rate in the fourth quarter was 90%, a 2% decrease compared with the year-earlier period.
YPF said Q4 revenue rose 54% to 12.7 billion pesos from the year-earlier level, largely thanks to increased oil and gas sales and prices.
Domestic crude prices rose 2% to $71.4/b in 2013, while gas prices rose 78% to $3.94/MMBtu.
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TUESDAY CLIPS
1. GUEST POST: ARGENTINA’S DAY IN COURT (Financial Times)
By Samuel George of the Bertelsmann Foundation
March 10, 2014
On February 18 the Republic of Argentina submitted a petition to the US Supreme Court requesting a judicial review of a 2012 decision from the New York Second Circuit Court. That ruling found illegal Argentine payments on restructured sovereign debt if the country did not also service investors who had not accepted the haircut on the non-performing bonds.
If the Second Circuit Court ruling stands, it will set a precedent that holdouts could eventually be paid in full. Bondholders may become increasingly reluctant to accept haircuts on sovereign securities, thus complicating the ability of a distressed country to restructure its debt.
For this reason, the US and France issued amici curiae to the circuit court in favour of Argentina, and they may issue similar supportive briefs to the Supreme Court in the coming weeks.
The international financial community may not be inclined to cry for Argentina. The truth is a series of unorthodox policy decisions has led to mounting macroeconomic pressure in the country. However, this particular legal case has implications that extend well beyond Buenos Aires. It is especially crucial to modern-day peripheral Europe.
The Argentine case
In 2001, Argentina executed the largest sovereign default in history, walking away from more than $80bn in international debt. Between 2005 and 2010, the country offered bondholders swaps that initially paid around 30 cents on the dollar. (These coupons were packaged with GDP warrants that ensured that if Argentina grew, so too would the payout on its restructured debt. As the Argentine economy has expanded over much of the last decade, these coupons have increased in value—perhaps reaching as much as 50 cents on the dollar.)
Holders of about 93 per cent of the securities accepted the exchange and Argentina has serviced this restructured debt without interruption since 2005.
However, holders of roughly 7 per cent of the notes, accounting for more than $10bn in debt, refused the swap. These holders, frequently hedge funds that scooped the issuances at bottom dollar as the Argentine economy deteriorated, have pursued lengthy legal battles demanding that Buenos Aires pay face value plus interest on outstanding obligations.
On November 21, 2012, Judge Thomas Griesa of the Second Circuit Court decided in favour of one of these holdout funds, Elliot Management, and ordered Argentina to pay the company $1.33bn.
The judge put teeth into his decision with an unusual interpretation of the pari passu (equal rate) clause. According to the ruling, servicing the restructured debt (again, about 93 per cent of the total) without paying the holdouts would imply subordination of the latter group. Judge Griesa consequently declared any further payment on restructured debt, without honouring debt held by the holdouts, illegal.
The decision could unravel any hope of Argentina’s re-joining the international monetary system. Lost amid the negative coverage of the Argentine government is the fact that it has consistently serviced the restructured debt.
Retiring this debt is a crucial step that Argentina must take to re-enter global financial markets. Its current inability to access international capital has severely distorted the country’s economy. Because the government cannot finance a significant deficit, Buenos Aires has overvalued the domestic currency while implementing capital controls and limiting imports.
The Argentine central bank has exhausted a significant portion of its reserves by defending the overvalued peso. When these reserves hit a seven-year low in January, the central bank could no longer afford to intervene as strongly, and the currency was allowed to plunge nearly 13 per cent over two days.
If Judge Griesa’s ruling is upheld, Argentina’s options are bleak. Either Buenos Aires can pay the holdouts in full, and thus face a cascade of similar claims from other funds, or it can choose not to pay anyone and default again, ripping open the wounds the country has tried to heal since 2001.
Complicating the future of sovereign debt
Legal systems often rely on precedent, and Judge Griesa’s decision could set a dangerous one. If holders of stressed sovereign bonds believe they may eventually cash in the securities at face value, the incentive to accept a haircut diminishes.
Judge Griesa’s critics allege that the ruling undercuts the financial community’s most trusted strategies for managing a structured default. Since 2005, international sovereign debt issued in New York has regularly contained collective action clauses, which allow a qualified majority of bondholders to accept a write-down for all bondholders—thus limiting the influence of minority holdouts.
But much of Argentina’s stressed debt was issued prior to 2005. Buenos Aires and other governments in similar positions have relied on voluntary swaps that exchange old securities for new securities at market value with the addition of a collective action clause.
Lenders will not accept a swap at market value if they think they can hold out for face value. Moreover, as economists such as Nouriel Roubini and José Antonio Ocampo have argued, the potential of a full payoff will diffuse enthusiasm for exercising the collective action clauses anyway.
This could have immediate reverberations in Europe, where the eurozone’s survival may depend on haircuts to the sovereign debt of peripheral countries. For example, IMF support to Greece is contingent upon reduced debt-to-GDP ratios. Greece, in turn, has sought to meet this requirement in part through bond buybacks, offering 34 cents on the euro.
To avoid triggering credit default swaps, Greece has pursued such haircuts on a “voluntary” basis. As in Argentina, Greece’s ability to end the debt crisis will depend on bondholders’ willingness to accept the write-downs—something they may now be less inclined to do.
By accepting this case, the Supreme Court would have the opportunity to reflect on the ruling’s greater implications. That countries with as disparate governments as Argentina, the United States and France agree on this issue suggests that the court ought to take a closer look.
Samuel George is a project manager specialising in Latin America at the Washington, DC-based Bertelsmann Foundation.
2. YPF PROFIT BEATS ESTIMATES ON HIGHER PRICES AND PRODUCTION (Bloomberg News)
By Pablo Gonzalez
March  10, 2014
YPF SA (YPF), Argentina’s largest oil producer, beat analysts’ estimates as fourth-quarter profit climbed 88 percent on increased revenue from sales and output.
Net income rose to 1.9 billion pesos ($241 million), or 4.89 pesos a share, from 1.02 billion pesos, or 2.59 pesos, a year earlier, Buenos Aires-based YPF said March 7 in a statement after the close of trading in New York. Per-share profit excluding some items beat the 4.75-peso average of three analysts’ estimates compiled by Bloomberg.
Argentine President Cristina Fernandez de Kirchner’s government on Feb. 25 agreed to pay $5 billion in bonds to Madrid-based Repsol SA to compensate for the 51 percent stake in YPF it expropriated in April 2012. Argentina seized the oil producer after its output declined at an average 6 percent rate for almost a decade. Oil and gas production climbed by 7.5 percent in the quarter compared with the same period a year ago.
“The company continued to halt declining output seen in previous years,” YPF said in the statement.
YPF boosted crude production by 6.3 percent in the quarter from a year ago, while natural gas output rose 10.2 percent, the company said. The company expects crude output to rise 3 percent this year, gas production to increase 6 percent, company executives said on today’s earnings conference call.
Cost Concerns
Raymond James analysts in a report led by Santiago Wesenack and Santiago Ruiz said the output increases are beneficial while expressing concern for rising costs.
“We expect total output to post positive growth rates at the exploration and production level, as the oil and gas growth trend consolidates,” Wesenack and Ruiz said in a report to clients today. “Moreover, we will be looking for a growth trend in operating expenses as exploration and production margins deteriorated this quarter for this reason.”
The company plans to focus on cost control this year and could eliminate projects if necessary to contain costs, Chief Executive Officer Miguel Galuccio said today on an earnings conference call.
YPF’s capital investment budget of $5.5 billion for 2014 could be cut after last month’s devaluation of the Argentine peso, Chief Financial Officer Daniel Gonzalez said on the same call.
Argentina devalued its currency 15 percent on Jan. 22-23 in the biggest drop since 2002.
YPF’s American depositary receipts were little changed at $28.35 at 10:52 a.m. in New York after earlier rising as much as 3.2 percent. The ADRs have fallen 14 percent this year.
Repsol Compensation
YPF is pledging to invest $37 billion through 2018 and is seeking partners to develop Vaca Muerta, an area in southwestern Argentina the size of Belgium that contains an estimated 27 billion barrels of shale oil. Vaca Muerta is the world’s fourth-largest deposit of shale oil and second-largest natural gas deposit.
Ending the dispute with Repsol should improve Argentina’s energy investment, YPF Chief Executive Officer Miguel Galuccio told reporters Feb. 25 in Buenos Aires. The agreement, less than the half of the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.
“We played an important role in fostering the settlement between the republic of Argentina and Repsol,” Galuccio said on today’s call. “We believe we are all winners and we can put that distraction behind us.”
Debt Sales
YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners. The Argentine producer on Feb. 18 signed a memorandum of understanding with Petroliam Nasional Bhd., the state-controlled company from Malaysia, to jointly develop an area in Vaca Muerta.
YPF’s cash on hand at the end of quarter was 10.7 billion pesos, while debt increased by 5.8 billion pesos in the quarter to close at 21.2 billion pesos, the company said in the earnings report. The average cost of peso debt was 21.5 percent and 6.05 percent for dollar debt, it said.
The company is monitoring international markets watching for a window of opportunity to sell debt, Gonzalez told investors on today’s call. YPF raised $650 million in international bond market last year to develop shale deposits.
3. ARGENTINA WAGE DEBATE CONTINUES AS TEACHERS EXTEND STRIKE (Market News International)
10 March 2014
Argentina this week will see continued social tension, as striking teachers demand higher wages and transport fares rise.
Teachers in most districts returned to work March 7 after accepting increases of around 30% in their wages, higher than the 22% first offered by the administration of President Cristina Fernandez de Kirchner.
Even so, many teachers went on strike for the two previous days, delaying the start of the school year.
Teachers in Buenos Aires province, home to a third of the country’s 40 million people, will extend the strike until at least Tuesday. They are demanding an increase of at least 35% in the base salary, far more than the 25.5% offered by Buenos Aires Gov. Daniel Scioli, a possible frontrunner in the 2015 presidential election.
Scioli’s administration has called them in for talks Tuesday.
The push for higher wages comes as rising inflation saps consumer spending power, raising concerns of an economic slowdown. The government wants to limit the wage hikes to put a lid on inflation, which many economists say could surpass 40% this year from 30% annual in January.
To contain prices and improve business competitiveness, the government devalued the peso by 23% in January.
While the central bank has kept the official rate at about 7.80 and 7.90 pesos to the dollar since then, it must contain wage demands to keep them down in dollar terms to make the devaluation effective in rebuilding the trade surplus by boosting exports and limiting imports, economists say.
Otherwise higher wages will eat up the devaluation gain in competitiveness by accelerating inflation, according to economists.
It may prove difficult to contain the powerful unions and hold off more strikes and contain social tension.
On Wednesday, the Public Workers Association and the Argentine Workers’ Central Union, a leading labor umbrella group, will strike to put pressure on the government to offer wage increases of at least 35%.
Wage talks are held throughout the year, starting with teachers in February.
Roberto Lavagna, who served as Economy minister from 2002 to 2005, warned last week the country is entering a “semi-recessive scenario,” adding that the second half of the year will be “more complex” given a decline in dollar inflows after the March-September farm export season.
He said on Radio Mitre that the crisis started in 2007 when inflation accelerated into the double digits and the government failed to put in measures to contain consumer prices.
Now workers and pensioners “are those who are paying for the errors” of the government, he said.
The cost of living for the many who live and work in Buenos Aires will take another hit this week with a 29% increase in subway fares, effective Friday.
4. ARGENTINA’S YPF SEES 2014 OUTPUT GAINS; LOWER DRILLING COSTS (Reuters News)
By Alejandro Lifschitz
10 March 2014
BUENOS AIRES, March 10 (Reuters) – Argentina’s state-controlled energy company YPF plans to increase production this year while reducing the cost of drilling in its promising Vaca Muerta shale oil and gas field, CEO Miguel Galuccio said in a conference call on Monday.
The South American country is betting that Vaca Muerta, potentially one of the biggest shale formations in the world, will restore it as a net energy exporter in the years ahead.
Government accounts, already hit by loose fiscal policy fueling one of the world’s highest inflation rates, have been further drained in recent years by expensive fuel imports.
YPF expects to increase crude production by 3.0 percent and natural gas output by 6.0 percent this year, Galuccio told analysts during the call to discuss company’s earnings.
The production growth estimate does not include the bump expected from YPF’s recent purchase of the Argentine operations of U.S. energy company Apache, for which the Argentine company paid $800 million.
Crude output of YPF, which was nationalized by the Argentine government in 2012, grew 2.2 percent last year to 232,300 barrels per day. It’s natural gas production grew 1.5 percent to 34 million cubic meters per day.
“We are consistently drilling and completing vertical wells for $7.5 million,” the YPF chief executive said, adding that each well is taking about 18 days to complete.
The first well drilled at Vaca Muerta cost about $10 million. The increase in efficiency remains far from what will be necessary to make Vaca Muerta profitable. The drilling of similar wells in the United States costs $2 million to $3 million per perforation.
“Our ultimate objective is much more aggressive than $7.5 million per well,” Galuccio said.
A U.S. Department of Energy report shows that Argentina has more natural gas trapped in shale rock than all of Europe, a 774-trillion-cubic-feet bounty that could transform the outlook for Western Hemisphere supply.

The country’s shale gas reserves trail only China and the United States.
 5. TED TURNER SAYS HE’S ‘RECUPERATING WELL’ AFTER SURGERY IN ARGENTINA (CNN Wire)
By Alan Duke
10 March 2014
(CNN) — CNN and Turner Broadcasting System founder Ted Turner says he’s “recuperating well” after falling ill South America.
Turner, 75, confirmed in a statement issued Monday that he “underwent a minor surgical procedure due to appendicitis” during a “brief hospital stay” in Argentina.
Turner’s spokesman previously declined to reveal why he was hospitalized last Friday, saying only that he was there “for observation.”
Argentina’s state-run Telam news agency reported Turner was initially treated in Bariloche, a lakeside city near the Chilean border, about 1,500 kilometers (940 miles) southwest of Buenos Aires. He was suffering from acute abdominal pain, according to clinic spokeswoman Paula Redondo.
Turner was flown later that morning to the capital of Buenos Aires to have surgery, according to Telam.
“I’m happy to report I’m recuperating well and looking forward to getting back to business as usual,” Turner said Monday in his statement. “The doctors and medical staff at both hospitals in Bariloche and Buenos Aires were amazing and took really good care of me.”
He said he was heading back to the United States.
“To my family, current and former colleagues and everyone else who called, sent notes of encouragement and get well wishes, I can’t thank you enough for lifting my spirits during my ordeal,” he said. “During moments like this I tend to reflect on the past, and while I have dealt with many difficult situations in my lifetime, I am humbled by this experience and will be forever grateful to you all.”
Soon after graduating from Brown University and serving in the U.S. Coast Guard, Turner took over the family business — Turner Advertising — in 1963. Seven years later, he bought TV stations in Charlotte, North Carolina, and Atlanta to kickstart a media empire that would one day include TBS, TNT, HLN, Cartoon Network, TCM and CNN, which launched in 1980.
In 1996, Turner sold Turner Broadcasting to Time Warner, though he remained active in the business for several more years.
Besides his business ventures — including the Ted’s Montana Grill chain and the renewable energy company RT Solar — Turner has been one of the United States most generous philanthropists, including a $1 billion donation to the United Nations in 1997.

“Diplomacy is seduction in another guise, Mr. Adams. One improves with practice.” 
~ Benjamin Franklin – the father of the American Foreign Service

ARGENTINE UPDATE – Mar. 1st, 2014

4 marzo, 2014

 

Posted on Sat, Mar. 01, 2014
Andres Oppenheimer: Venezuela’s Maduro faces hard choices
By Andres Oppenheimer
Venezuelan President Nicolás Maduro’s disastrous government is in much bigger trouble than most people think, not because of the student protests that have already resulted in more than 16 deaths, but by a 56 percent annual inflation rate — the world’s highest — that may soon turn his country ungovernable.
Most economists agree that no country can maintain a 56 percent inflation rate for several years. History shows that when countries reach that inflation level, they either take draconian austerity measures to curb inflation, or they fall into hyper-inflation, and economic and political chaos.
In other words, it would be almost impossible for Maduro to stay in power until the end of his term in 2019 without stopping the inflationary spiral, putting an end to food shortages, and preventing an economic meltdown.
Here are his available options:
•  A traditional IMF-supported austerity package. Much like bankrupt Greece did recently, and many Latin American countries have done, Maduro could ask the IMF to rescue Venezuela with emergency loans and a package of austerity measures. That would require, among other things, massive cuts in public spending, reversing nationalizations, lifting price controls and restoring the independence of the central bank.
Of course, all of this would be diametrically opposed to everything Maduro and his mentor, late President Hugo Chávez, have been preaching over the past 15 years. And, if he took these austerity measures, Maduro would most likely need to form a coalition government or reach a deal with the opposition to prevent the ongoing street protests from getting bigger, and bloodier.
•  A self-imposed austerity package. Maduro could try a self-imposed package of belt-tightening measures, without IMF assistance. Much like Mexico did recently with its Pact for Mexico, in which all major political parties agreed on long-term economic reforms, Maduro could call the opposition to sign a national economic salvation plan.
But the opposition would most likely not go for it without a coalition government that would restore a separation of powers, create an independent central bank, and call for early elections.
•  Dollarizing the economy. Much like Panama, Ecuador and most recently Zimbabwe have done, Maduro could stop the inflationary spiral by adopting a basket of major currencies, which in effect means the U.S. dollar.
That would help restore confidence in the country’s economy. But it would not only be embarrassing for Maduro, who claims to be an “anti-imperialist’’ revolutionary, but would result in the same draconian public spending cuts as an IMF package. It would be hard to enforce without a coalition government or a political agreement with the opposition.
•  A Chinese bailout. Much like Cuba did with the former Soviet Union, Maduro could ask oil-hungry China to bail out Venezuela in exchange for virtually taking over the country, and turning it into a Chinese satellite state.
Problem is, the Chinese are prudent business people, and they are already worried about the more than $20 billion in outstanding loans to Venezuela. Last year, Venezuela asked for a $10 billion loan from China, but only got half of that with stronger conditions attached.
Now, with greater political uncertainty than last year, China will be even less likely to bail out Venezuela, says Evan Ellis, a professor with the Center for Hemispheric Defense Studies in Washington D.C., and a top expert on China-Latin American ties.
When I asked Ellis whether China would not be tempted to run greater economic risks in exchange for controlling oil-rich Venezuela, he said that’s unlikely. It would require a level of Chinese control and supervision that would infuriate the United States, he said.
“Every commercial and strategic opportunity that the Chinese pursue in Latin America, they do with one eye to the reaction of the United States,” Ellis said. “China doesn’t want to turn the United States, its biggest trade partner, into an enemy.”
My opinion: It’s hard to say which of these options Maduro will choose, but it’s clear that doing nothing is not an option for him. Praying for a new hike in world oil prices won’t work, because virtually no serious economist is forecasting a major rise in world oil prices anytime soon.
Maduro will have to make massive cuts in public subsidies, which he cannot enforce by himself in a deeply divided country without triggering more — and larger — social protests. Barring an unlikely Chinese bailout, he will need a political agreement with the opposition leaders he now insults every day.

Read more here: http://www.miamiherald.com/

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1. OP-ED: CRY FOR ME, ARGENTINA (The New York Times)
By Roger Cohen
February 27, 2014
USHUAIA, Argentina — A bon mot doing the rounds in post-commodities-boom South America is that Brazil is in the process of becoming Argentina, and Argentina is in the process of becoming Venezuela, and Venezuela is in the process of becoming Zimbabwe. That is a little harsh on Brazil and Venezuela.
Argentina, however, is a perverse case of its own. It is a nation still drugged by that quixotic political concoction called Peronism; engaged in all-out war on reliable economic data; tinkering with its multilevel exchange rate; shut out from global capital markets; trampling on property rights when it wishes; obsessed with a lost little war in the Falklands (Malvinas) more than three decades ago; and persuaded that the cause of all this failure lies with speculative powers seeking to force a proud nation — in the words of its leader — “to eat soup again, but this time with a fork.”
A century ago, Argentina was richer than Sweden, France, Austria and Italy. It was far richer than Japan. It held poor Brazil in contempt. Vast and empty, with the world’s richest top soil in the Pampas, it seemed to the European immigrants who flooded here to have all the potential of the United States (per capita income is now a third or less of the United States level). They did not know that a colonel called Juan Domingo Perón and his wife Eva (“Evita”) would shape an ethos of singular delusional power.
“Argentina is a unique case of a country that has completed the transition to underdevelopment,” said Javier Corrales, a political scientist at Amherst College.
In psychological terms — and Buenos Aires is packed with folks on couches pouring out their anguish to psychotherapists — Argentina is the child among nations that never grew up. Responsibility was not its thing. Why should it be? There was so much to be plundered, such riches in grain and livestock, that solid institutions and the rule of law — let alone a functioning tax system — seemed a waste of time.
Immigrants camped here with foreign passports rather than go through the nation-forming absorption that characterize Brazil or the United States. Argentina was far away at the bottom of the world, a beckoning fertile land mass distant enough from power centers to live its own peripheral fantasies or drown its sorrow in what is probably the world’s saddest (and most haunting) dance. Then, to give expression to its uniqueness, Argentina invented its own political philosophy: a strange mishmash of nationalism, romanticism, fascism, socialism, backwardness, progressiveness, militarism, eroticism, fantasy, musical, mournfulness, irresponsibility and repression. The name it gave all this was Peronism. It has proved impossible to shake.
Perón, who discovered the political uplift a military officer could derive from forging links with the have-nots of Latin America and distributing cash (a lesson absorbed by Hugo Chávez), was deposed in the first of four postwar coups. The Argentina I covered in the 1980s was just emerging from the trauma of military rule. If I have a single emblematic image of the continent then it is of the uncontrollable sobbing of Argentine women clutching the photographs of beloved children who had been taken from them for “brief questioning” only to vanish. The region’s military juntas turned “disappear” into a transitive verb. It is what they did to deemed enemies — 30,000 of them in Argentina.
Since 1983, Argentina has ceased its military-civilian whiplash, tried some of the perpetrators of human rights crimes and been governed democratically. But for most of that time it has been run by Peronists, most recently Néstor Kirchner and his widow, Cristina Fernández de Kirchner (shades of Perón’s widow Isabel), who have rediscovered redistribution after a Peronist flurry in the 1990s with neoliberalism. Economic whiplash is alive and well. So are reckless spending in good times and lawless measures in bad. So, too, are mawkish evocations of Perón and Evita and Isabel: On earth as it is in the heavens.
Cry for me, my name is Argentina and I am too rich for my own good.
Twenty-five years ago I left a country of hyperinflation (5,000 percent in 1989), capital flight, currency instability, heavy-handed state interventionism, dwindling reserves, uncompetitive industry, heavy reliance on commodity exports, reawakening Peronist fantasies and bottom-of-the-world complexes. Today inflation is high rather than hyper. Otherwise, not a whole lot has changed.
Coming ashore at Ushuaia on Argentina’s southern tip, the first thing I saw was a sign saying that the “Malvinas” islands were under illegal occupation by the United Kingdom since 1833. The second was a signpost saying Ireland was 13,199 kilometers away (no mention of Britain). The third was a packet of cookies “made in Ushuaia, the end of the world.” The fourth was a pocket calculator used by a shopkeeper to figure out dollar-peso rates.
Hope is hard to banish from the human heart, but it has to be said that Argentina does its best to do so.
2. DEVALUATION HURTS ARGENTINA’S REGIONAL STANDING: COLOMBIA HAS LIKELY OVERTAKEN ARGENTINA AS LATIN AMERICA’S THIRD-LARGEST ECONOMY (The Wall Street Journal Online)
By Darcy Crowe and Taos Turner
Feb. 27, 2014
Following Argentina’s humbling currency devaluation, the country is suffering another economic embarrassment: Colombia has likely overtaken it as Latin America’s third-largest economy.
After Argentina’s economy dwarfed Colombia’s for decades, economists say the trend reversed in January as the sliding value of Argentina’s peso made its economy smaller in dollar terms. Argentina’s devaluation later in the month erased any doubt, economists say.
Capital Economics, a London-based research company, estimates Argentina’s annual economic output at $343 billion for 2013 using Argentina’s new exchange rate of about 8 pesos to the dollar. Colombia’s economy in 2013 stood at $350 billion for 2013, according to the company.
“This is symptomatic of a broader trend that is seeing Argentina’s economic model unravel while Colombia’s economy has been well managed,” said Neil Shearing, chief emerging-market economist at Capital Economics.
Colombian officials, who have also touted their own estimates showing that Colombia has overtaken Argentina, have recently poked fun at their southern rival.
“It’s like making it to an Olympic podium, and the truth is, in a competition no one remembers who came in fourth place,” Colombian Finance Minister Mauricio Cárdenas said in an interview.
This is a new gloating opportunity for Colombia, whose reputation until a few years ago was sullied by cocaine cartels, widespread kidnappings and a civil war. It also underscores the chronic woes of Argentina, a country that at the start of the last century was one of the world’s richest.
“Our economy is in decline and things keep getting worse,” said Julio Roig, a 73-year-old accountant in Buenos Aires. “Even Uruguay exports more beef than we do these days. Tiny Uruguay. That says a lot.”
Argentine Economy Minister Axel Kicillof declined to comment.
Colombia says the ranking—which follows the far larger economies of Brazil and Mexico—is about more than boasting rights. “Having the third spot is of strategic importance because it attracts companies and is great for the image of Colombia,” Mr. Cárdenas said. “Our country should be proud to be the third-largest economy in Latin America.”
Many economists say that Argentina’s currency controls, costly energy and transportation subsidies, high inflation and unpredictable government policies have weakened the economy. Amid the turmoil in emerging markets, Colombia has touted its disciplined spending and low inflation. Colombia’s central-bank reserves were $43.7 billion at January’s end, the latest available figure, compared with Argentina’s $28.1 billion.
“In Colombia our policies have been to make the economy predictable and boring,” said Juan Carlos Echeverry, a former finance minister. “And that is paying off.”
Comparing the size of different economies can be tricky. Economists need a measuring stick—usually the dollar. But local currencies often fluctuate wildly against the greenback, making their economies in dollar terms sometimes seem bigger or smaller than they actually are.
“Currency rates fluctuate all the time. The really meaningful thing is that for several years now Colombia has embarked on a steady path to development by respecting private-property rights and setting clear policies,” said Juan José Cruces, an economist and dean of the business school at Universidad Torcuato Di Tella in Buenos Aires.
Colombian officials had claimed for the past two years that their country had overtaken Argentina. But in making their case, they were using the value of Argentina’s peso currency on the black market, where it trades at a significant discount to the country’s official exchange rate. Argentines brushed off the comparison as unfair.
But now Argentina’s economy appears to be smaller than that of Colombia using Argentina’s official, regulated exchange rate—particularly after the peso slid about 19% in January alone. Since then, the peso has strengthened slightly.
Few economists think that the peso is likely to appreciate against the dollar this year given the country’s estimated inflation rate of more than 25% a year. Further, many economists expect Argentina to enter a recession this year, while Colombia’s economy is forecast to grow roughly 5%.
New economic research also adds to Colombia’s claim to the third spot, suggesting that President Cristina Kirchner’s government has overstated the country’s high growth rates.
Argentina’s GDP is at least 12% smaller than the official size reported by the government, according to a study by economists at the University of Buenos Aires, whose work has been guided in part by an economist at Harvard University, Dale Jorgenson. Mr. Jorgenson says the research reflects “the international standards which the Argentine government stopped applying to its indicators.”
Their findings, to be published next month in the journal World Economics, say that Argentina grew by only half of the 30% that Buenos Aires says it did from 2007 to 2012. The report says that instead of helping lead Latin American growth over the past 15 years, Argentina has trailed its neighbors since 1998.
“It’s a myth that economy has grown at Chinese-like rates over the past decade,” said Ariel Coremberg, a University of Buenos Aires professor who led the research. Before doing the research, Mr. Coremberg measured Argentina’s economic growth for the government until 2007. “The economy has grown, but not by anywhere near as much as the government has reported.”
Mrs. Kirchner’s government unveiled a new inflation index this month that economists said was far more credible than the index it produced since 2007 that led to inflated GDP estimates.
Despite the humiliation of having fallen behind yet another neighbor in economic rankings, the Argentines believe they will surpass Colombia in one proud discipline: soccer. “Colombia can say whatever it wants, but we will be waiting for them…at the soccer World Cup,” Mr. Cruces said.
3. ARGENTINA’S POOR AT RISK AS INFLATION WEAKENS SAFETY NET (Reuters.com)
By Brad Haynes and Kevin Gray
February 28, 2014
At a soup kitchen in a Buenos Aires slum, Alejandro Monzon hung his head as he stood in line and recounted how his fortunes have unraveled over the last year.
Food prices have soared, the 29-year-old maintenance worker complained, squeezing his meager monthly budget and leaving him reliant on charity to keep his wife and six children fed.
“I hoped it wouldn’t come to this,” he said. “But it’s just too hard to make ends meet now.”
He is not alone. A sharp currency devaluation in Argentina last month has worsened one of the world’s highest inflation rates, threatening to unravel a generous social safety net at the heart of President Cristina Fernandez’s economic policies.
One in four Argentine families now rely on state welfare programs ranging from payouts for the unemployed to scholarships for poor high school students, as social spending boomed along with the economy over much of the past decade.
Monzon was one of millions of Argentines who benefited. He moved into a bigger government-built apartment and found a job at a supermarket that helped him buy a car and even a flat-screen TV.
But climbing consumer prices in recent years have overtaken his monthly salary of 4,000 pesos ($507 at the official exchange rate, or about $350 at the black market rate) – a complaint echoing throughout Argentina.
Monzon watched the value of his paycheck tumble further last month when the Argentine peso devalued sharply, triggering a spike in prices of food and other goods.
Facing criticism that it underreported inflation for years, the government recently unveiled a consumer price index showing 3.7 percent inflation in January, the highest in over a decade.
Most economists say inflation is running at more than 25 percent a year, compared with government data that has put annual inflation at just over 10 percent.
As that gap has grown, so has the sense among many struggling Argentines that government-set stipends cannot cover what they used to.
A few months ago, Monzon reached his breaking point. As more of the family budget went to just putting food on the table, he sought help at the Los Piletones soup kitchen.
On a recent day, a line of adults and children, some with bowls in their hands, stretched outside the dining hall and onto the dust-filled streets in the Villa Piletones slum in Buenos Aires. Inside, workers dished out bowls of meat stew and people sat and ate at long wooden tables.
Beatriz Antunez, who helps run Los Piletones, said she saw the crowds lining up for a meal grow late last year.
“People are having to make choices about how they spend their money. And to cut down on their food expenses, they’re turning to us,” she said.
NO NEGOTIATING POWER
While Argentina’s influential unions have leverage to demand steep wage hikes keeping pace with inflation, those who rely on government social programs depend on policymakers to raise subsidies at the pace of consumer prices.
“The poorest are always the most sensitive to inflation,” said Eduardo Amadeo, a former secretary of social programs who runs an anti-poverty think tank. “But they can’t negotiate their subsidies. Their only tool is taking to the streets.”
Although there have been no large-scale demonstrations this year, some groups of poor Argentines staged a day of protests following the peso’s plunge in January, demanding a 40 percent increase in cash payouts for the unemployed.
Keeping a lid on social tensions will be a priority for Fernandez for the rest of her second four-year term. Under the constitution, she is unable to seek a third term and will leave office in December 2015.
On the streets of Buenos Aires, the signs of economic strains are unmistakable. Some of the famous boulevards that earned the city a reputation as the “Paris of South America” are lined at night with homeless people.
In the shadow of the century-old railway station Retiro at the heart of the city, a slum known as Villa 31 has grown about 50 percent in four years, housing an estimated 40,000 people in ramshackle brick homes three stories tall.
The vulnerability of so many Argentines remains a sore spot for a nation proud of its affluent history. In the early 20th century, Argentina ranked among the richest countries in the world, thanks to its booming beef and wheat exports.
However, a succession of financial crises in recent decades battered its well-educated middle class. As much as half of the country fell into poverty during the economic collapse that followed a record 2002 sovereign debt default.
Fernandez and her late husband and predecessor Nestor Kirchner turned back that tide thanks in part to new social programs and strong economic growth over a period of several years.
Kirchner took office in 2003 and four years later stepped aside for Fernandez to run. Popular for steering the country out of the economic crisis, Kirchner was widely expected to run again for president, but he died in 2010 near the end of his wife’s first term.
“There’s no question things are better than 10 years ago,” said Daniel Arroyo, a professor at the University of Buenos Aires and former vice minister of social development under Kirchner. “But many of the accomplishments have been through direct cash transfers rather than new jobs.”
STRETCHED THIN
Formal job growth has withered in recent years as economic growth slowed and private investment dried up, scared off in many cases by Fernandez’s heavy-handed approach to the private sector, economists say.
At the same time, the cost of the government’s social and subsidy programs have grown to 15 percent of gross domestic product from 10 percent a decade ago, according to economists at the Universidad Catolica de Argentina.
As the government has been lowballing inflation since 2007, however, official poverty statistics are suspect.
According to official data, adults can cover their basic needs and stay out of poverty with less than 600 pesos ($75) per month. Independent economists estimate that in fact those basic goods now cost twice as much.
The result is a startlingly low official poverty rate – below 5 percent last year – as millions saw their salaries inflated over an artificially low bar. Private economists say the real poverty rate could be five times higher.
With government finances under pressure, more deficit spending may worsen Argentina’s perilous inflation spiral. But allowing the value of subsidies to decline could also undermine the bedrock of Fernandez’s political support.
“The government is facing a serious social dilemma,” said Amadeo. “It’s hard to know what they’re going to do.”
The new official price index serves as a tacit admission that inflation is higher than previously reported and may open the door to raising subsidies faster, adding strain on the budget. Last year, the fiscal deficit before debt payments grew fivefold as public subsidies increased.
Fernandez has made repeated announcements this year of new or expanded social spending programs. Most recently, she tripled a stipend for families to buy school supplies, just as the academic year is starting.
Still, Monzon said he and his wife looked at the family budget and realized they would have to cut back on spending if they wanted to afford their children’s school materials.
“I’m still having a hard time making the numbers add up,” he said.
4. ARGENTINA LAWYER SAYS U.S. RULING THREATENS BOND MARKETS (Bloomberg.com)
By Greg Stohr
Feb 27, 2014
An American court ruling centering on Argentina’s defaulted bonds poses a “dire threat” to sovereign debt markets, said Paul Clement, the lawyer asking the U.S. Supreme Court to take up the case.
Speaking publicly on the case for the first time since he filed Argentina’s appeal to the Supreme Court last week, Clement said the lower court decision would imperil countries’ ability to restructure their debts.
The New York-based federal appeals court said Argentina must pay owners of the repudiated bonds in full before the country can make payments on a separate $24 billion in restructured debt.
The ruling “radically changes the balance of power between those that hold out and those that accept voluntary restructurings,” Clement, formerly the top Supreme Court lawyer for the U.S. government, told reporters at the Argentine embassy in Washington.
The dispute stems from Argentina’s 2001 default on a record $95 billion in debt. The country offered to substitute bonds worth 25 cents to 29 cents on the dollar in 2005 and made a similar proposal in 2010. Owners tendered about 92 percent of the outstanding debt.
Argentina is battling claims by a fund, controlled by billionaire Paul Singer, that holds some of the defaulted debt and sued to collect the full amount.
Outside the embassy, the American Task Force Argentina, which represents some of the holdouts, distributed flyers that called Clement a “defender of Argentina’s disgraceful behavior toward U.S. courts.”
Argentine President
Argentine President Cristina Fernandez de Kirchner has said the country will never pay the funds, and the country’s lawyers have said in court that it won’t obey the rulings.
The legal fight is putting U.S. courts in the unusual position of shaping another country’s financial future. Argentina says the dispute threatens to force a new default, and lower court rulings have led Standard & Poor’s, Fitch and Moody’s to lower the country’s bond ratings. The bondholders say the country is exaggerating the potential impact.
Under the Supreme Court’s normal scheduling practices, the justices may say as soon as April whether they will consider the appeal. They would hear arguments and rule during the nine-month term that starts in October.
The Supreme Court case is Argentina v. NML Capital, 13-990.
5. ARGENTINA EXPECTS BOOST IN ENERGY INVESTMENT IN WAKE OF REPSOL SETTLEMENT (Platts Commodity News)
By Charles Newbery
27 February 2014
Buenos Aires (Platts)–27Feb2014/954 am EST/1454 GMT   Argentina’s YPF plans to ramp up investment to boost oil and natural gas production in the wake of a deal to pay $5 billion in compensation to Spain’s Repsol for its expropriated 51% stake in the state-run company, a senior government official said Thursday.
“YPF will be the flagship for investment to achieve energy
self-sufficiency,” Presidential Chief of Staff Jorge Capitanich said in a televised news conference.
Capitanich spoke two days after Repsol said its board had approved Argentina’s compensation offer for the 51% stake, which the government took under state control in May 2012 over claims that under Repsol’s control, YPF had failed to make sufficient investments in domestic upstream operations.
He said since the expropriation, YPF has “reversed the attitude of private companies,” adding YPF increased investment to $6 billion in 2013 from $3 billion in 2012.
YPF produces 39% of the country’s 540,000 b/d of crude and 27% of its 114 million cu m/d of gas, while foreign and private companies like Chevron, Pan American Energy, Petrobras and Sinopec extract much of the rest.
Capitanich said Argentine President Cristina Fernandez de Kirchner told him she wants YPF “to increase even more the level of investment in exploration and production.”
There had been concerns of securing sufficient financing to increase investment by foreign companies without a settlement deal for the shares expropriated from Repsol. With the deal in place, Capitanich said he expects an improvement in “the access to capital markets” for YPF.
YPF plans to invest $37.2 billion between 2012 and 2017. While it initially said it would finance most of the spending out of cash flow, the company has been seeking partnership deals to develop the country’s large shale resources, with a focus on the giant Vaca Muerta play in the southwest.
YPF has teamed up with Chevron, Dow Chemical and Petrolera Pampa to develop unconventional resources there, and earlier this month signed preliminary deals with Argentina’s Pluspetrol and Malaysia’s Petronas for other ventures.
YPF also has said it wants to sell bonds on global markets, but has not provided a timetable.
6. POTENTIAL BOOST TO ARGENTINE PROVINCIAL BUDGETS HIGHLIGHTED BY YPF PLAN IS OFFSET BY SHORT-TERM CAVEATS (IHS Global Insight Daily Analysis)
By Laurence Allan
27 February 2014
Argentina’s minister of economy, Axel Kicilloff, yesterday (26 February) said that 25% of the government’s current 51% share in the majority state-owned YPF oil company will eventually be transferred to the ownership of the country’s oil and gas producing provinces. The statement came in a public announcement about the agreement between the Argentine authorities and Spain’s REPSOL on compensation for previously REPSOL-owned shares in YPF, expropriated by the Cristina Fernández de Kirchner government in April-May 2012. The transfer of 25% of YPF to the provinces will take place once pending related legal issues are resolved.
Significance: The promise to transfer control of 25% of YPF to provincial government will, when it happens, potentially provides a major boost to provincial authority finances. A number of those provinces, which had significant levels of US dollar-linked debt, have been badly affected by the de facto 20% devaluation in the Argentine peso since late 2013. Among oil and gas producing provinces, Mendoza, Chubut, and La Pampa have especially sharp concerns over US-dollar linked debt. They have, respectively, 56%, 30%, and 12% of provincial debt either US-dollar denominated or dollar-linked. Under the Argentine constitution, provinces are the ultimate arbiters of the exploitation of sub-soil resources. Eventual handover of YPF shares would thus significantly boost the influence of the provincial authorities over the operational environment in oil and gas producing provinces. It could also represent a potentially significant additional revenue source for those provinces, mitigating budgetary concerns and non-payment risks. In a best-case scenario, such a move could also mitigate civil unrest related to provincial government spending cuts that are currently being planned by several of the indebted provinces. Nonetheless, any timeline for a positive outcome for the provinces is as yet uncertain. Thus, even if the agreement between Argentina and REPSOL should move forward smoothly and unblock legal uncertainties, a positive outcome is highly unlikely in the next 12 months, given the uncertainty around YPF production and revenues, among other constraints. In that scenario, non-payment and civil unrest risks are likely to remain high in Argentina’s provinces through 2014 and into 2015.
7. BODY OF CLARKS SUMMIT CLIMBER RECOVERED IN ARGENTINA (Scranton Times-Tribune)
By Dinesh Ramde
February 28, 2014
MILWAUKEE – The bodies of two American climbers were recovered this week from the Argentinian slope where they died two months ago, the relative of one climber said Thursday.
Jarod VonRueden, 22, of Clyman, Wis., and Frank Keenan, 28, of Clarks Summit, were climbing Mount Aconcagua, the highest peak in North and South America. They apparently slipped and fell into a fissure of rock and ice, U.S. officials told the climbers’ relatives on Dec. 31.
A helicopter spotted their bodies but rescuers couldn’t immediately reach the men, who were presumed dead.
VonRueden’s cousin told The Associated Press on Thursday that both bodies were recovered this week. The bodies are being sent back to the U.S., where funeral arrangements still were being made, said Julie Feldman of St. Paul, Minn.
VonRueden’s parents and one of Keenan’s relatives went to Argentina to identify the bodies, she said.
“They’re bringing the boys home,” she said.
Feldman said the climbers were descending when the weather worsened. They were in an area with loose rock, which may have contributed to their fall, she said.
She said it took so long to recover their bodies for a few reasons. The climbers had taken a rarely used route, which required additional planning to map out how to reach them, and because they were presumed dead the priority was to conduct the recovery effort in a way that presented the least danger to the rescuers.
Relatives of both climbers remembered the men as adventurous spirits who had a passion for traveling and being outdoors.
VonRueden backpacked in China and the Grand Canyon, he went mountain-climbing in Ecuador and he’d just scaled Alaska’s Mount McKinley last summer, Feldman said.
Keenan’s mother, Diane Lozinger, previously told AP her son, who hoped to work as a guide for international mountain climbers, kissed her as he rushed out the door for the trip. Knowing she was frightened for him, he told her that if anything happened she should take comfort in knowing he died doing what he loved.

ARGENTINE UPDATE – FEB 6, 2014

7 febrero, 2014
1. ARGENTINA WAREHOUSE BLAZE KILLS NINE FIREFIGHTERS: GOVERNMENT LAUNCHES PROBE OF FIRE AT DOCUMENT-STORAGE WAREHOUSE (The Wall Street Journal)
By Shane Romig
Feb. 5, 2014
BUENOS AIRES—The Argentine government launched an investigation into a fire that killed nine firefighters and destroyed a warehouse that stored banking and corporate documents here on Wednesday.
Investigators are looking into why the “substantial fire-prevention system” failed to control the blaze, which injured at least seven others, said Security Secretary Sergio Berni.
The facility was equipped with fire-detection and sprinkler systems, said Iron Mountain Inc., the Boston company that operated the warehouse.
The fire isn’t the first for Iron Mountain, which operates document- and data-storage facilities in more than 30 countries.
A 1997 fire destroyed Iron Mountain’s corporate-document warehouse in New Jersey. In 2006, the company’s London warehouse burned to the ground. The cause of that blaze was never conclusively determined, Iron Mountain spokesman Christian Potts said. However the London Fire Brigade blamed arson. In 2011, fire struck Iron Mountain’s document warehouse in Aprilia, Italy.
“We don’t yet know the cause of today’s fire in Buenos Aires,” Mr. Potts said. Iron Mountain didn’t respond to requests to describe the cause of the 1997 and 2006 fires.
Iron Mountain said it would work with local investigators and authorities, adding that all of its employees are safe.
“This is a tragic event, and we are deeply saddened by the deaths of the brave first responders who rushed to save our facility,” the company said.
Argentine President Cristina Kirchner declared two days of national mourning following the tragedy.
The victims were crushed when a wall of the warehouse collapsed and spilled out into the street. Firefighters had gathered to battle the fire in the mixed industrial and residential neighborhood of Barracas in the southern part of the capital.
“It took them all by surprise,” Mr. Berni said.
Shaken colleagues picked through the rubble to retrieve the bodies of the dead and rescue the injured.
Local media reported that one of the people killed was Anahí Garnica, who became the federal police force’s first female firefighter in 2006.
“I like going out to fires, helping the people, saving their lives, their things, their pets,” Ms. Garnica said in a 2013 interview in local newspaper Pagina 12.
—Mark Taylor in New York contributed to this article.
2. INFLATION FUELS CRISES IN TWO LATIN NATIONS (The Wall Street Journal)
By Taos Turner, Juan Forero and John Lyons
6 February 2014
Argentina and Venezuela Face Soaring Prices, Possible Recessions After a Decade of Unorthodox Polices; Regional Headwinds
BUENOS AIRES — Funeral home director Carlos Bianchi’s dilemma over how much to charge for his coffins goes a long way in illustrating the economic woes plaguing both Argentina and Venezuela.
The Argentine government’s currency devaluation last month, which helped spur a global selloff in emerging-market currencies, also sent prices soaring here. What confounds Mr. Bianchi’s calculation is that he must use an unsteady and weakening currency, the peso, to buy imported parts for his wares.
“I have to tell customers that I can give you a coffin today, but you’ll to pay for it later, at who-knows-what-price,” said Mr. Bianchi, with a cigarette in hand. “Nobody wants to do that.”
Both Argentina and Venezuela face soaring inflation and possible recessions that create new headwinds for a region already reeling from China’s slowdown and investor pessimism about emerging markets.
Venezuela notched a 56.2% rate in 2013, one of the world’s highest rates. Argentina, independent economists say, clocked an approximate 28% rate last year. They expect it to be higher this year following a devaluation.
Meanwhile, Venezuela looks set to fall into recession as stringent price controls and shortages of imports due to scarcities of hard currency bring economic activity to a standstill. The country’s central bank on Wednesday canceled its weekly dollar auction, citing unexplained “anomalies,” further constricting imports.
For Argentina, Bank of AmericaMerrill Lynch forecasts a 3% contraction, as investment dries up and people spend less because of higher interest rates and decreasing purchasing power.
Alberto Principe, 71 years old, who owns a Hyundai dealership in a tony district near Argentina’s championship polo field, lamented that he has seen it before, the boom-bust cycle. “Our cycles are almost biblical,” he said. “But just because you’re used to inflation doesn’t mean it’s easier to deal with.”
Car sales had been good in recent years, Mr. Principe said, but new taxes and the devaluation are “lethal,” he added, explaining how a Santa Fe Premium SUV, which sold for $63,000 a few months ago, now goes for more than $100,000. “The market has totally shut down,” he said.
Many economists say the countries’ fading fortunes are a rebuke of the heavy state intervention, price controls and corporate nationalization that have underpinned their policy making for more than a decade.
The nations now risk reviving the kind of out-of-control inflation that characterized Latin America in the “lost decade” of the 1980s but which most experts believed had been tamed for good.
“There is a risk of hyperinflation, of prices really starting to accelerate enormously,” said Claudio Loser, an Argentine and former International Monetary Fund economist. “I’m not saying that you’ll have hyperinflation, but it’s a very plausible scenario. In Venezuela, it’s already happening.”
When inflation surged in Latin America in past decades — it reached 5,000% in Argentina in 1989 — many of the region’s trading partners also had fast-rising prices. But that isn’t the case today, making Argentina’s and Venezuela’s outliers in a region likely to feel their pain.
For Brazil, fewer exports of its cars, auto parts, food and manufactured goods to one of its major trading partners, Argentina, stands to further hold back its already slowing economy. Uruguay, whose economy is more dependent on Argentina’s, is concerned about a run on Argentine banks and a drop in tourism from its neighbor.
Venezuela, economists say, has started to selectively default — failing to pay European airlines, American oil service companies and Colombian food exporters, as it struggles with fast-depleting reserves.
In Argentina already, many people believe a wave of fast-rising inflation is coming, as stores jack up prices to stay ahead of the falling peso value. “We raised prices by 15% across the board after the devaluation,” said a home appliance salesman in a Buenos Aires suburb, Rene Poirier, surrounded by washing machines and refrigerators. “If you don’t raise prices, you can get caught and lose money.”
Economists say inflation in Argentina and Venezuela can be curtailed by ditching subsidies, price caps and currency controls. But observers of both Argentine President Cristina Kirchner and Venezuela’s Nicolas Maduro say they have a political stake in acting contrary to the more orthodox economic policies supported by their U.S. nemesis such as free trade.
Indeed, Mrs. Kirchner’s cabinet chief, Jorge Capitanich, this week reiterated threats to fine or shut down businesses that raise prices, telling reporters “unscrupulous store owners and businessmen want to affect the purchasing power of families.”
In Venezuela, where the government also vilifies certain businesses, soldiers forced retailers to sell electronics goods at bargain-basement prices; one general guaranteed plasma televisions to all Venezuelans on national TV.
A new agency Mr. Maduro created, the National Superintendence for the Defense of Socio-economic Rights, began deploying 480 inspectors this week to check prices and level sanctions against those who set them too high.
The agency aims to enforce a new law that can lead to a 14-year prison term for those convicted of hoarding products or waging “economic warfare” against the government. “If we have to expropriate, we will expropriate what we have to in order to defend the economy,” Mr. Maduro warned businessmen in a rally on Tuesday.
Venezuela’s inflation woes are in plain sight in Caracas, where high prices and scarcity on store shelves is the norm. “I can’t buy because of the price rise,” said Jorge Marquez, 25, who was shopping for a tablet on a recent day. “There is a lot of scarcity, and in addition to that, when you find something it’s expensive.”
3. BESIEGED ARGENTINA TO REVISE INDEX (The Wall Street Journal)
By Juan Forero and Taos Turner
6 February 2014
BUENOS AIRES — To calculate inflation here, the government surveys supermarkets and clothing stores, collecting prices and figuring an annual rise of 10.9%.
But many businesses and labor unions, as well as multilateral lenders and credit agencies, depend on other sources, among them Graciela Bevacqua, a mathematician. She leads a team of 20 university students, most of them economists, who scour supermarkets and stores several days a month to check prices. Their conclusion: inflation in 2013 rose by more than 27%.
Ms. Bevacqua is part of a small independent group of economists here who, using mathematical models or conducting their own surveys, have consistently shown that prices rise nearly triple the official rate.
Last year, the International Monetary Fund censured the country over its data, the first sanction of its kind in IMF history. As a result, Argentina is set to unveil a new inflation index next week, though the extent of the overhaul is unclear.
Now, with prices soaring even more in Argentina in the wake of last month’s sharp currency devaluation, the independent economists say they feel vindicated.
“What led me to doing this was the lack of a credible official index of prices,” said Ms. Bevacqua, who had overseen the collection of prices for the government until 2007.
4. ARGENTINA PESO FIRMS AFTER GOVERNMENT LIMITS BANKS’ FOREIGN CURRENCY HOLDINGS (The Wall Street Journal Online)
By Shane Romig
February 5, 2014
BUENOS AIRES–Argentina’s peso firmed against the dollar Wednesday after the nation’s central bank ordered private banks to lower their foreign currency holdings.
The move pumped a wave of dollars into the local exchange market and stemmed the capital-flight pressure the peso’s been under in recent weeks. The peso closed at 7.90 pesos to the dollar after opening at 8.01 on the regulated Mae currency market.
It also took the pressure off the central bank, which has been bleeding reserves in the face of strong demand for dollars. The government has adopted a host of tactics in recent days to try to stem the heavy outflow of dollars.
On Wednesday, the central bank notified banks that they no longer can have more than 30% of total assets in foreign currencies. The central bank bought $396 million from the private banks Wednesday, in part to bring them in line with the new limit, brokerage ABC Mercado de Cambios said in a market note.
The measure also allowed the government to stall the drain on reserves, which ended Wednesday virtually unchanged at $27.9 billion. Reserves peaked at $52.6 billion in January 2011 but have declined steadily since then after the government started tapping them to make debt payments, buy imported fuel and to fund spending.
However, the central bank’s actions reduced the outflow of reserves this week, with the bank giving up $97 million Monday and $95 million Tuesday. Last week, reserves fell by nearly $1 billion.
This week, the central bank began rejecting requests from companies to buy dollars to pay for imports, according to currency traders and company officials familiar with the matter. Businessmen and economists expect the policy to continue through March, when farmers will begin exporting this year’s soybean crop, which is expected to bring in up to $29 billion in proceeds.
In addition, the government is trying to pressure farmers to sell the remaining grain stocks they have been holding on to. Farmers are hesitant to sell because holding out as long as possible acts as a hedge against inflation and the depreciating peso. There are still about 4.6 million tons of soybeans being held by farmers, up from 3.9 million tons at this point a year earlier, according to Juan Morelli, agricultural markets analyst at local grain traders Futuros y Opciones.com SA.
5. 9 DIE IN FIRE DESTROYING ARGENTINE BANK ARCHIVES (The Washington Post)
By Michael Warren
Wednesday, 02.05.14
(Published also in The Miami Herald)
BUENOS AIRES, Argentina — Nine first-responders were killed and seven others injured as they battled a fire of unknown origin that destroyed an archive of corporate and banking industry documents in Argentina’s capital on Wednesday.
The fire at the Iron Mountain warehouse took hours to control and at least half of the sprawling building was ruined despite the efforts of at least 10 squads of firefighters.
The nine firefighters and civil defense workers were crushed when a brick wall collapsed on top of a large group of first-responders on the sidewalk and street outside. Tearful rescuers removed rubble by hand to reach their comrades.
“It took them completely by surprise,” said Argentina’s Security Secretary Sergio Berni said. “Some of the injured are fighting for their lives.”
Berni said Iron Mountain also had employees inside the building when the fire started early Wednesday, but all the employees and firefighters were accounted for by early afternoon.
The destroyed archives included documents stored for Argentine corporations and banks, said Buenos Aires security minister Guillermo Montenegro.
The cause wasn’t immediately clear. Berni said the company’s on-site firefighters shared some details with authorities, and Iron Mountain said it too will investigate.
“All of this will end up in court,” Berni said, declining to make any details public.
If the cause is found to be arson, it wouldn’t be the first time for Boston-based Iron Mountain Inc., which manages, stores and protects information for more than 156,000 companies and organizations in 36 countries. Fire investigators blamed arson for blazes that destroyed its warehouses in New Jersey in 1997 and London in 2006, prompting rounds of legal claims over lost records.
Iron Mountain issued a statement saying “we are deeply saddened by the deaths of the brave first responders who rushed to save our facility. Our thoughts are also with those who have been hospitalized, and we wish them a quick and complete recovery.”
“We will investigate the cause of the fire and work closely with local investigators, police and fire authorities to understand what happened. The building was equipped with both fire-detection as well as a sprinkler system,” the company said, adding that it is contacting its customers whose documents were lost.
6. PARIS CLUB SAYS “OPEN” TO DEBT TALKS WITH ARGENTINA (Reuters.com)
Feb 5, 2014
Feb 5 (Reuters) – The Paris Club is open to talks with Argentina on repaying its debt, the group of creditor nations said on Wednesday, moving closer towards launching formal negotiations with Buenos Aires.
Eager to settle disputes with its creditors, Argentina outlined its conditions for repaying the roughly $9.5 billion in debt it owes Paris Club members last month.
Paris Club Secretary General Clotilde L’Angevin said that its members had had “preliminary discussions” on the offer from Buenos Aires, which was their first official contact in years.
“They are open to continue the dialogue with Argentina,” L’Angevin told Reuters, adding that Paris Club members wanted clarification from Buenos Aires on questions which she declined to specify.
With dollar funding scarce and international reserves dwindling, Argentina devalued its currency last month <ARSB=. , putting Latin America’s third-largest economy at the centre of a global sell-off in emerging market assets.
The revival of long-stalled talks between Argentina and the Paris Club marks a small step towards opening formal negotiations to decide how to handle the country’s outstanding debt with the group, a remnant of its massive 2002 default.
Argentina wants a breakthrough deal because it needs to open up new sources of international funding after being shut out of capital markets since its default.
7. DISPUTE LEADS ARGENTINA TO REVISE INDEX (Dow Jones Institutional News)
By Juan Forero and Taos Turner
5 February 2014
BUENOS AIRES–To calculate inflation here, the government surveys supermarkets and clothing stores, collecting prices and figuring an annual rise of 10.9%.
But many businesses and labor unions, as well as multilateral lenders and credit agencies, depend on other sources, among them Graciela Bevacqua, a mathematician. She leads a team of 20 university students, most of them economists, who scour supermarkets and stores several days a month to check prices. Their conclusion: inflation in 2013 rose by more than 27%.
Ms. Bevacqua is part of a small independent group of economists here who, using mathematical models or conducting their own surveys, have consistently shown that prices rise nearly triple the official rate.
Last year, the International Monetary Fund censured the country over its data, the first sanction of its kind in IMF history. As a result, Argentina is set to unveil a new inflation index next week, though no one knows whether it will match economist expectations.
Now, with prices soaring even more in Argentina in the wake of last month’s sharp currency devaluation, the independent economists say they feel vindicated.
“What led me to doing this was the lack of a credible official index of prices,” said Ms. Bevacqua, who had overseen the collection of prices for the government until 2007. “You have to try to keep this issue alive in our society.”
That has angered President Cristina Kirchner’s populist government, which has levied fines and criminal complaints against some of the economists and characterizes them as mercenaries working for opponents out to destabilize the economy.
“The economists speaking to many media companies are undercover agents working for business groups who don’t show their face,” Jorge Capitanich, Mrs. Kirchner’s chief of staff, said on Tuesday. “But they’re also undercover agents for political leaders who don’t have the courage to say what they really think on radio, TV and in newspapers.Who are the people that are really responsible for raising prices? Unscrupulous companies and unscrupulous businessmen.”
Polls have consistently shown that Argentines don’t believe the government’s figures. Labor unions use the higher inflation rates in bargaining for pay raises, often winning 30% annual raises. Economic consulting firms here say business use them to plan their budgets into the future.
And ordinary people, like Mariel Cobo, who works at a fast-food stand, said she doesn’t even consider the government’s numbers.
“There are two realities–the one the government wants you to see and the one you see with your own eyes,” she said. “There is a big difference between the government’s prices and the prices you see on the street. Your salary doesn’t get you to the end of the month anymore.”
The tussle between the government and those with contrary numbers is felt as investment houses as far away at Europe and the U.S., where economic analysts say they scramble to find accurate figures and dismiss the official numbers as fabrications.
“It didn’t take too long for the market to realize what was going on, and independent measures of inflation are important,” said Hernan Yellati, head of research and strategy at BancTrust & Co in Miami. “There are different degrees of accuracy, but overall, the market is using those [unofficial] figures.”
Compiling data at odds with the government’s policies, though, has come with a high price for some. In 2007, several statisticians, field workers and clerks were fired from the state’s consumer price collection agency, according to a special prosecutor’s investigation that was spurred by complaints from those who were dismissed. Later the government leveled fines of $125,000 and filed a criminal complaint against a handful of economists.
One of them, Jorge Todesca, then sued government officials, including the then-commerce secretary, Guillermo Moreno. Mr. Moreno resigned late last year after a federal court began investigating him for “abuse of power,” a case triggered by a complaint filed against him by Mr. Todesca. The cases–against the economists and against Mr. Moreno–are still being argued in court.
“It has been scary to have to go up against the state like this,” Mr. Todesca said.
Efforts to reach Mr. Moreno, who is now a diplomat in Italy, have been unsuccessful. The Economy Ministry didn’t return phone calls seeking comment.
Most of the work the economists carry out is low-key, released quietly to companies so they can make long-range plans, or consultants or other economists. But a handful also provide their data to Congress, which collects the different estimates and publishes an average monthly inflation rate.
“This was a matter of free speech,” said Patricia Bullrich, of the opposition Union For All party, who helped spearheaded the initiative. “If we hadn’t done this the result would have been total silence.”
Ms. Bevacqua said organizing price surveys isn’t easy. It entails deploying the students she leads to supermarkets and green grocers, hair salons and gymnasiums. “What we try to do is reinforce our samples as much as possible,” she said, noting that they collect prices on more than 25,000 products a month.
The final result is a consumer-price index she said has consistently shown growing inflation.
“It’s hard to put all these numbers in a basket,” she said, referring to the government’s calculations, “and for them to give you the results you want.”
8. ARGENTINA PESO FIRMS AFTER GOVERNMENT LIMITS BANKS’ FOREIGN CURRENCY HOLDINGS (Dow Jones Institutional News)
By Shane Romig
5 February 2014
BUENOS AIRES–Argentina’s peso firmed against the dollar Wednesday after the nation’s central bank ordered private banks to lower their foreign currency holdings.
The move pumped a wave of dollars into the local exchange market and stemmed the capital-flight pressure the peso’s been under in recent weeks. The peso closed at 7.90 pesos to the dollar after opening at 8.01 on the regulated Mae currency market.
It also took the pressure off the central bank, which has been bleeding reserves in the face of strong demand for dollars. The government has adopted a host of tactics in recent days to try to stem the heavy outflow of dollars.
On Wednesday, the central bank notified banks that they no longer can have more than 30% of total assets in foreign currencies. The central bank bought $396 million from the private banks Wednesday, in part to bring them in line with the new limit, brokerage ABC Mercado de Cambios said in a market note.
The measure also allowed the government to stall the drain on reserves, which ended Wednesday virtually unchanged at $27.9 billion. Reserves peaked at $52.6 billion in January 2011 but have declined steadily since then after the government started tapping them to make debt payments, buy imported fuel and to fund spending.
However, the central bank’s actions reduced the outflow of reserves this week, with the bank giving up $97 million Monday and $95 million Tuesday. Last week, reserves fell by nearly $1 billion.
This week, the central bank began rejecting requests from companies to buy dollars to pay for imports, according to currency traders and company officials familiar with the matter. Businessmen and economists expect the policy to continue through March, when farmers will begin exporting this year’s soybean crop, which is expected to bring in up to $29 billion in proceeds.
In addition, the government is trying to pressure farmers to sell the remaining grain stocks they have been holding on to. Farmers are hesitant to sell because holding out as long as possible acts as a hedge against inflation and the depreciating peso. There are still about 4.6 million tons of soybeans being held by farmers, up from 3.9 million tons at this point a year earlier, according to Juan Morelli, agricultural markets analyst at local grain traders Futuros y Opciones.com SA.
9. ARGENTINES FRET OVER PRICE UNCERTAINTY (Dow Jones Institutional News)
By Taos Turner and Juan Forero
5 February 2014
BUENOS AIRES–Inflation in Argentina, many people here say, breeds uncertainty.
Just ask Jose Porciel, 63, who owns a bustling hardware store, but closed for two days following Argentina’s sharp devaluation. Not sure what to charge, he went through his inventory, from screw drivers to nails to power saws and wrenches, and settled on prices ranging between 27.5% to 35%. He said they it was a calculation based on what distributors began charging.
“I’m very worried because after the devaluation there will be recession and our business could be hurt,” said Mr. Porciel, who reopened on a recent afternoon. “And I have bills I have to pay.”
Across this urban landscape, from affluent Puerto Madero to middle class Nuñez to the suburbs, businessmen and store owners were raising prices–and predicting they would raise them some more in the weeks ahead. Economists are predicting that the way things are going inflation here could top 40% this year, compared with the 28% it clocked in 2013.
Seemingly little hasn’t gone up in price in recent days. Meat went up 20% in a matter of days. Schools supplies soared. Furniture rose 10%, and car prices rose anywhere from 5% to 15%, or more.
The government here has placed the blame squarely on businesses, and has threatened fines and even closure. “What we’re not going to allow is that they pull our leg and take us for being stupid and continue robbing the Argentine people,” President Cristina Kirchner said in a speech on Tuesday.
But a central problem for the government is that the peso, set at an artificial exchange rate of eight to the dollar, may need to be devalued further, economists say. “Inflation is spiraling until the exchange rate finds a new equilibrium,” said Martin Redrado, a former Argentine Central Bank president.
He predicted “a bumpy ride” in the months ahead.
Those raising prices say they are doing it out of a sense of survival amid unease over what many predict will be a period of ever-higher prices.
Fabian Silvero, a salesman at a furniture store, said he has turned away customers until distributors decided on new prices that could be 20% over what they are now.
“You see that big mess of papers over there?” Mr. Silvero said, pointing to blank price tags scattered across tables in showroom packed with furniture.
He spoke of one customer who offered a $60 down payment on a new bed that would normally cost $586. But Mr. Silvero said he was out of stock, and he couldn’t take the order because he didn’t know how much the distributor would charge him.
“I had to give the guy his money back because the factory said they would not sell us anything else until they knew how much to charge,” he said.
What was clear to him, he said, was that the furniture he did have in stock had to go up in price.
10. ARGENTINA’S MERVAL DIVES AS PESO CRISIS DEEPENS (Investor’s Business Daily)
By Alan R. Elliott
6 February 2014
Emerging economy woes have nowhere been worse than in Argentina, where a devaluing peso has pushed the country to the brink of a breakdown.
Alongside that decline, the Merval index — which tracks top stocks on the Buenos Aires Stock Exchange — climbed above a three-month consolidation in the past week to take a new high.
The Merval tumbled 4% on Wednesday, ending a seven-day advance and leaving investors wondering whether they may have just heard the death rattle ahead of an economic collapse.
While the U.S. Federal Reserve’s pullback in monetary support has been blamed for much of the turmoil on international currency markets, Argentina is among a handful of countries — including Turkey, Venezuela and Russia — where internal policies have led to particularly vulnerable economies.
By pumping dollars into the economy to support the weakening peso, the country depleted its currency reserves 32% in 2013 to below $29 billion — a seven-year low.
A downshift in monetary support on Jan. 22 triggered a two-day sell-off that sent the peso down 15%.
The events have brought rising criticism of Cristina Kirchner, Argentina’s president since 2007.
Matters were muddied further Wednesday, when fire destroyed a Buenos Aires archive storing bank documents and killed nine firefighters.
Inflation is reportedly hovering near 30%, posing steep challenges to consumers and businesses. It also means the country is increasingly unable to repay its debt.
The Wall Street Journal reported regulators upped their defense of currency reserves this week by blocking importers from buying dollars to use for foreign purchases. Reuters reported Wednesday that the Paris Club, involving officials from 19 of the world’s largest economies, is prepared to launch negotiations in order to help the country settle disputes with its creditors.
Despite Wednesday’s sell-off, the Merval is up a dizzying 75% in the past 12 months.
U.S.-traded stocks with strong ties to Argentina have generally been in sharp decline since at least December, but generally did not show a strong reaction to Wednesday’s developments. And the Global X FTSE Argentina, an ETF fund tracking top stocks on the Buenos Aires exchange, rose a fraction Wednesday.
11. ARGENTINA ECONOMY: DEVALUATION EXPECTATIONS REMAIN HIGH (Economist Intelligence Unit – ViewsWire)
5 February 2014
The recent decision to ease foreign-exchange controls for savings in US dollars, taken just after the peso fell in value by 15% in a two-day period in January, sought to reduce the gap between the official and black-market exchange rate, and, therefore, anchor devaluation and inflation expectations. However, a week after its implementation, the black-market premium has, in fact, widened, while demand for dollars from savers has led to a further drop in the international reserves. The Banco Central de la República Argentina (BCRA, the Central Bank) has tightened monetary policy to curb inflation and reduce dollar demand and capital flight. But its efforts could still fail, given a clear lack of co-ordination between the Central Bank and the Ministry of the Economy, and a lack of commitment to fiscal tightening from the latter.
In the week after foreign-exchange controls on dollar savings were eased, there were 178,548 sales of foreign exchange to individual savers for a total of US$95m (an average of US$531 per operation). The government has been able to stabilise the official exchange rate, which on January 31st was trading at Ps8.03:US$1, relatively unchanged on Ps8:US$1 a week earlier. However, exchange-rate stabilisation has come at the expense of the international reserves, which fell by almost US$800m in the week after the peso slide. In the same period, the black-market rate continued to depreciate, to Ps12.55:US$1, from Ps11.7:US$1 on January 24th.
The data for the full month are even more stark: in January the stock of international reserves fell by more than US$2.4bn, its biggest fall since January 2006, when the government paid off outstanding debts to the IMF from the reserves. The peso, meanwhile, fell in value by 18.6% in January, its largest monthly decline since the 2002 maxi-devaluation.
Inflation expectations and interest rates rise
The peso slide has lifted inflation expectations, which were already high, given increases in petrol prices and public transport fares in January. Before the peso’s fall, monthly inflation seemed likely to come in around 3.5% in January. It now seems more likely to come in closer to 5% in January, and will probably exceed this rate in February. This would be the highest monthly inflation rate since April 2002, when Argentina was going through a severe financial, debt and currency crisis.
Soon after the January peso adjustment, many household appliance retailers closed their doors in anticipation of price increases by their suppliers. Once new prices were released, many showed increases of 30%. To avoid an inflationary spiral, the interior commerce secretary, Augusto Costa, met with retailers to agree a cap of just 7.5% on price increases for electronic goods and household appliances. However, as with other price controls, it will be difficult to monitor compliance. In fact, there have been shortages of goods as both suppliers and retailers have held onto products while waiting for the currency to stabilise. There have also been substantial price rises for cars, where imported inputs are vital. In just a week after peso adjustment, the price of some models climbed by 27%. The price of building materials and school supplies (demand for which peaks in February) also rose substantially. For their part, supermarket chains stated that suppliers had increased prices by an average of 15% after the peso slide, a development that will threaten the latest price freeze accord, “Precios Cuidados”, agreed between the government and supermarkets in early January to control the prices of 194 basic items.
The Central Bank has responded to last month’s currency adjustment by raising interest rates sharply, in a move that will have contractionary effects, at least during the first quarter of 2014 and probably much longer. The Bank had, in fact, raised interest rates gradually for much of 2013, and had already lifted the interest rate on Central Bank notes (Lebacs) from 15.1% at end-2013 to 19.6% on January 22nd, just before the currency run. Since then it has raised the rate on Lebacs in stages, to 28.5% at the start of February. The benchmark Badlar rate (the interest rate on private banks’ peso-denominated term deposits over Ps1m) has started to respond; in early February it stood at 25.4% and it will rise further.
Bank lending rates have so far risen by between 3 and 11 percentage points. Hardest hit have been consumer loan rates. Total financial costs (including commissions and administrative costs) now range from 31% (at the state-owned Banco de la Nación Argentina) to 84% in some private banks. Consumer loans terms have also shortened, from 60 to 40 months, while retail chains, which usually offer fixed installments for a 12-month period, are expected to reduce these to six months.
Assuming that interest rates are raised to positive levels in real terms, monetary tightening should help to stabilise the exchange rate by discouraging dollar demand, and help to bring down inflation by reducing consumer demand. In addition, the favorable effects of currency adjustment on domestic output (reflecting the rise in the country’s competitiveness) should become apparent in the medium term-but only if the government is able to anchor inflation expectations, a difficult task considering the lack of a comprehensive economic plan that includes clear monetary and fiscal targets.
All eyes on the economy ministry
In fact, Central Bank efforts to tighten monetary policy to curb inflation and devaluation expectations could backfire if authorities at the economy ministry continue to show what appears to be an improvised and even contradictory approach to the currency crisis. In November 2013, just after his appointment as economy minister, Axel Kicillof had said that there would be no brusque economic changes. Two months later, he backed the largest fall in the peso’s value in 12 years. The economy ministry’s subsequent insistence on price controls, and pressure on retailers not to pass on price rises post-devaluation as its main means of reining in inflation, is also a cause for concern, given the persistent failure of controls to have any lasting impact on price formation. What is needed is a clearly signalled plan to tighten fiscal policy (which has been extremely loose for several years and is the main cause of Argentina’s inflation and competitiveness problem).
This will undoubtedly have further contractionary effects, and the government will, as a result, be extremely reluctant to undertake it. However, it appears to have little option but to do so, if it is to restore credibility in policymaking and confidence in the peso. In the coming weeks, it will become clear whether the government is willing to take this step. If not, the run on the reserves will continue and the country will be facing a much steeper, uncontrolled currency devaluation in the coming months.
12. ARGENTINE ECONOMY HEADING FOR RECESSION THIS YEAR – BOFA MERRILL LYNCH (Business News Americas)
4 February 2014
The troubled Argentine economy is bound to enter into a recession this year, forecasts Bank of America Merrill Lynch.
“Simply speaking, the size of public and private spending measured in dollars and in inflation-adjusted terms has to adjust,” said the US investment bank in a report.
The contraction will stem from a decline in inflation-adjusted wages that causes consumption to decline and from a contraction in inflation-adjusted fiscal spending, the bank predicts.
The size of the contraction and how it materializes will depend on domestic economic decisions, political action and the global environment, BofA Merrill Lynch notes.
Argentina’s fiscal spending is at its highest in history and the government is “printing pesos and burning reserves” to finance this expansion, but this strategy has hit a wall already, the bank points out.
In the report, BofA Merrill Lynch outlines what it sees as different potential scenarios for Argentina this year and it expects the scenario it calls “trial and error” to be the most likely to unfold.
THE TRIAL AND ERROR SCENARIO
In this scenario, the government does not introduce additional adjustments to those already implemented, continues its rhetoric and, as a result, international reserves continue dropping at a fast pace.
“In such a context, we assume the government introduces additional measures, days or weeks later, but remains behind the curve. After more downside and turmoil, we assume the Peronist Party takes a bigger role at some point and proposes an agenda and a cabinet on Cristina Kirchner,” the report reads.
BofA Merrill Lynch believes this could happen as soon as February or as late as the second half of the year. “Timing would, of course, change the outcome in this scenario,” it notes.
The bank also expects this scenario to force Peronist governors to walk a fine line in coming weeks and months. “On one hand, they probably do not want to be seen as the proponents of unpopular adjustment policies; on the other, they have much to lose if the crisis spirals out of control.”
Under the so called trial and error scenario, BofA Merrill Lynch sees Argentina avoiding a full-blown crisis, but economic activity would fall by at least 3%, the local currency would end the year weaker than 10 pesos/US dollar and inflation would get close to 50%.
13. ARGENTINE PESO GAINS AFTER LIMITS ON BANK CURRENCY HOLDINGS (1) (Bloomberg News)
By Camila Russo and Daniel Cancel
February 05, 2014
Argentina’s peso gained the most since November 2008 after the central bank placed limits on the amount of foreign currency commercial banks can hold.
Argentine banks must limit the holdings to 30 percent of assets and cut futures contracts in foreign currency to 10 percent of assets by April 30, the central bank said in a resolution published on its website late yesterday. The peso gained 1.4 percent to 7.9 today in Buenos Aires, according to data compiled by Bloomberg.
The peso had hovered near 8 per dollar since the government devalued the local currency 15 percent in the week ending Jan. 24. President Cristina Fernandez de Kirchner’s government is trying to persuade farmers to sell hoarded soybeans for dollars abroad in an attempt to reverse a tumble in international reserves to a seven-year low. The central bank measure caused banks to sell dollar assets today to comply with the measures, according to Juan Diedrichs, a trader at Capital Markets Argentina.
“The measure is forcing banks to sell dollars and this drags down the official rate,” Diedrichs said in a telephone interview in Buenos Aires.
Onshore non-deliverable forward contracts that expire in three months gained 6 percent to 8.6 per dollar, according to data compiled by the Rosario Futures Exchange.
Blue-Chip Swap
A financial transaction market used by Argentines to obtain foreign currency also showed the peso gaining. The so-called blue-chip swap, which is an implicit rate derived from selling peso stocks or bonds for the same securities denominated in dollars, rose 3.2 percent to 12.1537 pesos per dollar.
The Merval benchmark stock index fell 3.5 percent.
The central bank today bought $386 million from deposits commercial banks had with the monetary authority, according to a bank official who asked not to be identified because he isn’t authorized to speak publicly about the matter. The purchase won’t have an impact on reserves because they were already part of the funds, the official said.

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.

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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)


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