Archive for the ‘economics’ Category

Argentina defaults

Thursday, July 31st, 2014

As predicted,
Argentina Declared in Default by S&P as Talks Fail

Standard & Poor’s declared Argentina in default after the government missed a deadline for paying interest on $13 billion of restructured bonds.

A US judge had set a deadline of 04:00 GMT on Thursday for a deal.

This is the eighth time the country has defaulted:

ARGENTINA’S first bond, issued in 1824, was supposed to have a lifespan of 46 years. Less than four years later, the government defaulted. Resolving the ensuing stand-off with creditors took 29 years. Since then seven more defaults have followed, the most recent this week, when Argentina failed to make a payment on bonds issued as partial compensation to victims of the previous default, in 2001.

En la fuacata!

Ecuador and the ‘straitjacket’

Thursday, July 24th, 2014

Many of you approaching retirement age may have read multiple public relations articles touting Ecuador as A Top Retire-Overseas Choice. Among the reasons listed,

– Ecuador uses the U.S. dollar meaning no exchange-rate risk for American retirees.

If that’s a reason for your relocation, don’t get packing yet: Rafael Correa has other plans,
Ecuador Weighs Escape From Dollar ‘Straitjacket’

Congress has until the end of today to vote on President Rafael Correa’s proposal to change the South American nation’s financial laws, which would allow payments in “electronic money.” Lawmakers are debating whether to insist the central bank back the new currency with a one-to-one dollar guarantee.

As a current-account deficit drains dollars from the economy, making it harder for Correa to fund a burgeoning budget gap, a new currency could be used to meet government payments, said Jaime Carrera, a former deputy finance minister and director of the Quito-based Fiscal Policy Observatory. It could also lose its value quickly if not backed by the central bank, he said.

You may recall, seven years ago

Rafael Correa said Ecuador’s economy will remain dollarized during his four-year mandate

Of course that was before he changed the constitution to allow for his “indefinite re-election.”

Much water under the bridge and many debts later,

Correa, who calls the South American country’s use of the greenback an economic “straitjacket,” has already started paying some pension obligations in government bonds, which brokers are refusing to redeem at face value.

Additionally, Correa wants to issue electronic money without explicit public guarantees.

I can’t wait for him to turn to bitcoin.

Too bad Putin didn’t include Correa in the upcoming BRICS bank.

UPDATE:
Linked to by Babalu. Thank you!

Communism at work: Give up your car

Wednesday, July 23rd, 2014

Translation: Workshop:
Maximum Socialist Efficiency
The State enterprise building
the New Economic Order

My latest article, Communism at work: Give up your car, is up at Da Tech Guy Blog.

In other related news, Maduro says he needs $15billion to rebuild the exhange system, which is the amount Hugo Chavez spent on weapons purchases three years ago.

Puerto Rico: Default

Monday, July 7th, 2014

Mary O’Grady writes, Puerto Rico’s Borrowing Bubble Pops
Moody’s measure of ‘expected default’ for Puerto Rico is higher than Argentina and Venezuela.

A Puerto Rican default should not surprise anyone. According to Carlos Colón de Armas, acting dean of the School of Business Administration at the University of Puerto Rico, for eight years from 2005 through 2012, government expenses exceeded revenues on average by approximately $1 billion annually. The dean told me by telephone that total commonwealth debt is now around $73 billion and in 2013 it was 101% of the island’s gross national product (GNP) up from 57% in June 2001. (Although gross domestic product is the most widely accepted measure of an economy’s size, it reflects the profits of large multinational corporations booked for tax purposes in Puerto Rico but not retained in the local economy. Therefore, GNP, a measure of what is produced by locals, is a more accurate tool to assess the economy.)

Unlike Luis Fortuño, the previous governor, current governor Alejandro García Padilla

increased expenses by almost $600 million in his first budget. While he is now cutting spending, the cuts are mostly from that increase, according to Mr. Colón de Armas. Some $500 million-$800 million in fat—from subsidies to special interests to funding for political parties—remains untouched in the $9.6 billion budget.

Fortuño lost by 12,000 votes since García Padilla (known as Agapito) promised the moon and the stars.

And there it goes: a certain default.

Added,

Venezuela: Where there’s rationing, there’s smuggling

Monday, June 9th, 2014

Toilet paper is in short supply in Venezuela, where each roll was recently selling for more than $6 at the official exchange rate in San Antonio.

The WSJ reports on two contrasting economies, free-market Colombia, and command-economy Venezuela:
Venezuela Pays Price for Smuggling
President Loses Popularity Amid Protests as Cheap Goods Move Across Border to Colombian Consumers

Stifled by inefficient state-owned factories and price controls, domestic production in Venezuela has plummeted. Moreover, the massive weakening of Venezuela’s currency makes its goods cheaper in Colombia. These factors lead to frequent shortages that make life especially trying for Venezuelans along the border, where smugglers leave little behind on store shelves.

Read the whole thing, and don’t miss the money quote, “Looking around here, you can tell why socialism doesn’t work.”

Panama: And now, price controls UPDATED

Saturday, May 10th, 2014

This is ri·dic·u·lous:
Panama President-Elect Promises Price Controls

Let’s step away from the link for a moment, and ponder an economy with

  • 8% average annual growth for the past four years
  • 4.1% unemployment rate
  • 4% inflation – double what it was in 2009.

The inflation part is troublesome, since according to official data, the current $335 price of the basic food basket (50 products that officials say is enough to feed a family of four for a month) has increased by 25% in the last four years.  The basic food basket has outpaced the country’s inflation rate. Minimum salary is $475 to $625 a month.

So now President-elect Juan Carlos Varela, formerly top executive for Panama’s biggest liquor company, has the brilliant idea of

imposing emergency price controls on 22 basic goods, everything from rice and eggs to cuts of meat.

The AP article mentions a woman who earns $500/month who

has to pool her income with other family members to feed the five adults and three grandchildren who live in her zinc-roofed home

If you lived with four other adults, wouldn’t you expect them to pool in?

But I digress.

While campaigning Varela used to point out the price of lentils,

“You can’t be allowed to mark up basic-need items 60, 70 or 80 percent,” Varela said in a meeting with foreign journalists two weeks before the vote.

Of course, this has nothing, absolutely nothing to do with the fact that outgoing President Ricardo Martinelli is the billionaire owner of the country’s biggest supermarket chain, Super 99, and Varela may be wanting to stick Martinelli one where it hurts, so to speak:

In 2009, Varela was elected vice president on Martinelli’s ticket but they split acrimoniously two years later over Martinelli’s effort to engineer a constitutional change that would have allowed him to seek re-election.

Every time price controls are installed, shortages follow, which will avail Varela with the opportunity to blame the shortages on Martinelli.

Hugo Chavez must be smiling in his grave.

UPDATE:
Panama elected-president pledges to normalize relations with Venezuela and Colombia
Venezuelan President Nicolas Maduro and Panamanian president-elect Juan Carlos Varela have pledged to waste no time in normalizing relations and re-launching diplomatic, economic and trade ties cut off two months ago, Venezuela’s foreign ministry announced. Varela takes office next July first


Chile: Down with entrepreneurs

Thursday, May 8th, 2014

Letter to the WSJ editor:

Regarding Mary Anastasia O’Grady’s “Assault on the Chilean Miracle” (Americas, May 5): I am of German nationality and came to Chile last year, where the startup community was flourishing. I set up our company, a tech startup that optimizes recruitment processes through the automatization of internal referral systems. All was going well until the tax reforms provoked a state of shock among Chilean companies. It now seems that Chilean companies have been put on “stand by” due to the uncertainty of the tax reforms.

Many relatively new companies that have come to Chile to innovate are now struggling due to budget cuts from large, potential clients and will directly suffer because of this reform. The entire entrepreneurial ecosystem that has given the country so much international exposure is currently at stake. This will have a direct impact on the forward-thinking measures Chile has taken over the past years.

Alexander Theis

I would call it unintended consequences, but, quite frankly, I suspect the outcome is exactly what Bachelet intended.

Argentina: Trade surplus plummets

Tuesday, April 29th, 2014

Argentina Trade Surplus Plunged 95% on Year in March
Broad Decline in Commodities, Manufactured Goods Exports Led to Drop

Exports fell 16% on the year to $5.25 billion in March, led by a plunge in grain and soybean exports. Shipments of industrial products like cars also fell as sluggish growth in neighboring Brazil trimmed demand for Argentine manufactured goods. Imports decreased 4% to $5.21 billion, led by declines in consumer goods and spare parts, according to preliminary data published by the national statistics agency Indec.

The trade surplus for the first quarter shrank to $121 million, from $1.5 billion a year ago due to a drop in farm shipments and rising fuel imports. Argentina’s energy deficit—the difference between energy exports and imports—widened 19% on the year to $792 million in the quarter.

While the country expects a record soybean crop,

The Argentine economy is widely expected to tip into a recession this year as inflation of more than 30% erodes the public’s purchasing power and spurs locals and foreigners alike to pull their money out of the country. Analysts at Abeceb and Barclays expect the economy to shrink about 1.5% this year.

According to the government’s own figures, industrial production fell 6% due to declines in the automotive and petrochemicals industries.

UPDATE:
Linked to by Israel Foreign Affairs. Thank you!

Venezuela: Misery and missiles

Friday, April 25th, 2014

In addition to the marauding gangs armed to the teeth, the country is armed. Russia is Venezuela’s largest supplier of weapons and armored vehicles, but China and Iran are involved, too.

Read my full article at Da Tech Guy Blog

Venezuela: #1 in misery index

Thursday, April 24th, 2014

In an upcoming article in Globe Asia Magazine, Prof. Steve Hanke of Johns Hopkins is Measuring misery around the world. Venezuela is on top:

When measured by the misery index, Venezuela holds the ignominious top spot, with an index value of 79.4. But, that index value, as of 31 December 2013, understates the level of misery because it uses the official annual inflation rate of 56.2%. In fact, I estimate that Venezuela’s annual implied inflation rate at the end of last year was 278%. That rate is almost five times higher than the official inflation rate. If the annual implied inflation rate of 278% is used to calculate Venezuela’s misery index, the index jumps from 79.4 to 301, indicating that Venezuela is in much worse shape than suggested by the official data.

Argentina’s on the #4 spot, also because of inflation.

Daniel Duquenal looks at How to admit failure in Venezuela: by threatening further and blaming others

Video: What It’s Like to Live in Venezuela Now

In Venezuela, shortages are such that there’s a shortage of the plastic used for making the electronic rationing cards . The CNE (the elections commission, run by Cuban intelligence) is behind the rationing cards:

With their ID cards, and by providing the fingerprints for their index fingers and thumbs, any Venezuelan can register in the system.

Registration also requires providing a series of detailed personal information: is the person a public employee, do they belong to a communal council, do they shop at government stores, and whether or not they have participated in the government’s social programs. They also have to leave their phone number and an email, where in 45 days they will receive a message saying their caard is ready.”

Juan Cristobal Nagel wonders, Is Venezuela a middle class country? My question is, what middle-class country imposes food rationing on its citizens?

UPDATE:
Linked to by Extrano’s Alley. Thank you!