Archive for the ‘economics’ Category

Brazil: Opposition now has Arminio Fraga

Tuesday, August 12th, 2014

Arminio Fraga, president of Brazil’s central bank from 1999 to 2002 under the Fernando Henrique Cardoso administration, is now back in the game:
Brazil Ex-Insider Returns to Help Oust President
With slow growth and high inflation hurting Brazilian President Dilma Rousseff’s chances of winning a second term, former central banker Arminio Fraga joins the opposition to persuade voters that Brazil needs a new economic steward.

Mr. Fraga appears to be positioning himself as something of an inflation whisperer. As president of Brazil’s central bank from 1999 to 2002 under the administration of President Fernando Henrique Cardoso, he helped stabilize the currency and rein in consumer prices. Mr. Fraga supports restrained public spending, tough inflation targeting and a floating exchange rate, policies that became known in Brazil as the “economic tripod.”

He is highly critical of the Rousseff administration’s decision slow inflation by capping gasoline prices and electricity rates, moves he dismissed as “gimmicks.” He’s also alarmed that Brazil’s central bank has been intervening regularly in the currency markets to prop up Brazil’s real against the dollar, a strategy he ridicules a “populist move.”

Mr. Fraga said these are stopgap measures that already are proving unworkable and that Brazil needs to focus on long-term fundamentals like increasing private investment and balancing its books.

The fact that earlier this year Standard & Poor downgraded Brazil´s long term bonds credit rating to one notch above junk doesn’t help Dilma – but you have to remember that, even when Dilma’s the candidate, Lula is the man to beat.

Ecuador: Like bitcoin, but not as solid

Wednesday, August 6th, 2014

Anyone investing in Ecuador?

Bitcoin-Like Money Is Ecuador’s Latest Dollar-Saving Plan (emphasis added):

After mortgaging most of Ecuador’s oil and gold to finance spending, President Rafael Correa is planning to create virtual money to pay the nation’s bills.

Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador. Once signed into law, the country will begin using the as-yet-unnamed currency as soon as October. A monetary authority will be established to regulate the money, which will be backed by “liquid assets.”

What do they mean by “liquid assets”, if it can’t be swapped for government bonds?

How reliable is Ecuador?

Less than six years after repudiating $3.2 billion of its dollar-denominated debt

And don’t forget the 1999 default.

UPDATE:
Since the “currency” is yet unnamed, I suggest we name it bullcoin.


Argentina: Cristina gives bondholders the raspberry

Friday, August 1st, 2014

As I predicted,
Argentine Leader Defies Wall Street for Main Street
Argentines awoke Thursday to find their country was once again a financial pariah after the populist President Cristina Kirchner stared down Wall Street hedge funds and pushed her country into its second default in 13 years.
Very little downside for her, since

Her refusal to settle with bondholders owed $1.6 billion could prove politically expedient in the short term: It distracts from Argentina’s slowly crumbling economy and shores up her support among many working-class Argentines who form the base of her Peronist movement, economists and analysts say.

Higher inflation, deeper recession?

Here in this sprawling capital, Argentines reacted with a mix of pride and disinterest. Pride because Mrs. Kirchner stood up to foreigners, mostly Americans and Wall Street, and disinterest because unlike the country’s record $100 billion default in 2001, this one doesn’t mean Argentina is suddenly broke and on the verge of financial collapse.

It’s all about power, folks.

UPDATE:
Stop spouting ‘half truths’ over default, US judge tells Argentina
South American country’s reaction to second default in 12 years does not alter the fact it has to pay what it owes, judge says


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.