Archive for the ‘economics’ Category

Argentina’s crumbling economy

Tuesday, January 14th, 2014

Riots, looting, blackouts and soaring inflation. Mary O’Grady explains the sorry state of the country after 10 years of kirchnerismo,

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Argentina’s Crumbling Economy
Officially, inflation is 10.5%, but skeptics think it’s much higher. Capital flight is accelerating.

Argentina’s implied annual inflation rate is close to 50%/year.

Argentina: More price controls

Sunday, January 5th, 2014

Expect more shortages, black markets and inflation:
Argentina Launches New Price-Control Accord
New Program Sets Stage For Annual Wage Talks

The one-year program sets prices on 194 supermarket items including staples like milk, meat and pasta as well as discretionary items such as beer and ice cream.

I wonder if dulce de leche, coffee and mate are included.

The goverment doesn’t think of it as imposing uncompetitive prices; instead they call it “reversing unjustified prices.”

Yeah.

No matter what you call it, bad economic policy has consequences:

President Cristina Kirchner faces the same economic problems in the New Year as she did in 2013: low growth, rising inflation and foreign currency shortages.

The second highest rate of inflation in the Americas has also forced the Kirchner administration to ration the hard currency people and businesses can legally buy to prevent a run on the central bank’s foreign currency by inflation weary residents.

Even so, debt payments, fuel imports and capital flight gobbled up $12.7 billion in hard currency last year. Reserves have stabilized in recent weeks at a seven-year low of about $30.6 billion.

It’ll continue and worsen, for as long as the high government spending financed in part by money printing continues. Argentina will remain in the Troubled Currencies list for the foreseeable future.

Latin America: Free trade vs. Mercosur

Saturday, January 4th, 2014

David Lhunow writes on The Two Latin Americas
A Continental Divide Between One Bloc That Favors State Controls and Another That Embraces Free Markets

In 2014, the Pacific Alliance trade bloc (consisting of Mexico, Colombia, Peru and Chile) is slated to grow an average of 4.25%, boosted by high levels of foreign investment and low inflation, according to estimates from Morgan Stanley. MS +1.55% But the Atlantic group of Venezuela, Brazil and Argentina—all linked in the Mercosur customs union—is projected to grow just 2.5%, with the region’s heavyweight, Brazil, slated to grow a meager 1.9%.

Related: Is 2014 Latin America’s “big year”?


Cuba: Lies, lies, and more lies

Saturday, January 4th, 2014

For decades, we’ve been subjected to numerous reports on Cuba’s “excellent free healthcare”, when in fact it is an apartheid system where poor Cubans have to provide their own sutures, supplies, and sheets if they’re in the hospital (video in Spanish)

Now we’ve been hearing about Raul Castro’s “reforms”; Mary O’Grady writes about the reality:

It was only two years ago that Castro boasted a loosening of the rules in the state-owned economy. He did it under duress: The bankrupt government couldn’t continue to pretend to pay people who pretend to work. The dictatorship forecast that it had to unload more than a half-million Cubans from state payrolls. To ease the pain and potential social unrest, Castro pronounced 178 trades “legal.”

A gullible foreign press swooned over Castro’s words as if he was getting ready to admit the defeat of the 55-year-old communist revolution and let the market take over.

Which, as we have seen, is not the case.

The regime, he [Raúl Castro] said, is not about let “private business people” go around “creating an environment of impunity and stimulating the accelerated growth of activities that were never authorized for certain occupations.” Illegal activities like “competing excessively with state enterprises,” will not be tolerated, he warned. In other words, Cuban poverty is here to stay.

Fabio Rafael Fiallo points out how Once Again, the Castro Regime Lies:

The fiction of “reform” has once again been in full swing since 2010, as President Raúl Castro has introduced a new set of policy changes labeled as an “updating” of Cuba’s socialism. The purpose of the exercise is to inject the economy with homeopathic doses of capitalism — the very capitalism that the regime took so much care to wipe off.

A cornerstone of the “updating” exercise relates to the creationof a “special economic zone” in the west designed to host foreign firms and expected to operate according to criteria other than those applied in the rest of the country.

These kinds of special economic zones have been tested already in a country ruled by another staunch communist regime: the Kaesong Industrial Complex in North Korea, where some 100 South Korean enterprises, staffed by 50,000 North Korean workers, are allowed to operate. The complex has not halted the continued decline of the North Korean economy, nor the recurrent famines. And there is no reason to believe that the Cuban version will perform any better.

And much like North Korea, the Cuban regime fails to realize that it is not by insulating several hundreds of square miles from the rest of the country — so as to keep the bulk of the population immunized from the “virus” of capitalism — that an economy can possibly take off.

Still more unfounded are the expectations that the Cuban regime is trying to nurture the political realm. While Raúl Castro proposes to President Obama to establish a “civilized relationship” between their two countries, the Cuban regime continues to repress members of the dissidence, denying them the right to express their views, beating them brutally and submitting them to recurrent arrests.

Arrests of dissidents have in fact been on the rise: 4,000 in 2011, 5,000 in 2012 and more than 5,300 in 2013. Some leading dissidents — such as Laura Pollán and Oswaldo Payá — lost their lives under strange circumstances.

And more truth on the island-prison: How the Castro brothers observe Christmas in Cuba: Beating children and stealing toys

Is 2014 Latin America’s “big year”?

Thursday, January 2nd, 2014

Alexa L. McMahon asks, 2014: Is This Latin America’s Big Year?

In fact, thanks to its strong economic growth and growing international influence, 2014 has the potential to be Latin America’s best year yet.

Latin America’s economic growth will only increase in its upward trajectory in 2014, driven by countries such as Brazil, Chile and particularly Mexico. According to the U.N., “Based on promising signs of private consumption and manufacturing, the region will see [expected] growth rates of 3.6 in 2014 and 4.1 percent in 2015, according to World Economic Situation and Prospects 2014, a report that launches in January.” The U.N. Economic Commission on Latin America forecasts that Latin-American Economic development will be the highest of all global regions for 2014. Brazil is slowing down compared to its explosive performance in recent years, but still very strong. Brazilian finance minister Guido Mantega said in December that foreign direct investment continues to be robust and, according to the Wall Street Journal, “pointed to $8.3 billion in foreign direct investment posted in November as a strong signal investors continued to favor the country. In October, the figure was $5.4 billion.”

McMahon looks at Mexico, Chile and Brazil, and concludes,

All in all, things are looking up for Latin America next year, and as they’ve shown in multiple avenues, the sky’s the limit.

I wish I could share her optimism.

I am cautiously optimistic about Mexico: their recent (and very overdue) reforms may have staying power, which will propel a new era of growth and prosperity – if the opposition allows it.

I’m not optimistic on Chile: re-elected president Michelle Bachelet has promised to amend the constitution, and to expand the welfare state by raising tax rates and taxing shareholders on retained earnings along with the dividend taxes they already pay. She’s also asking for an “exhaustive review” of the Trans-Pacific Partnership; the Partnership was one of the few authentically good news of 2013 for the region,

The goal of the alliance is to create a free-trade corridor of all countries in the Americas with a Pacific coast. The hope is that dropping barriers on labor, finance and trade will help the Alliance become a hub for commerce with Asia.

If Bachelet’s changes include changing the way proceeds from copper are used (since 2000 this process has been carried out according to a rule that requires generating a structural surplus equal to 0% of the Gross Domestic Product), Chile may be in for disastrous economic policies. She had attempted to use those mining revenues during her first term, and promised “likely changes to include altering mining royalties and funding programs” during her re-election campaign.

McMahon is very bullish on Brazil hosting the World Cup this year and the Olympics in 2016, because of the “worldwide media attention,”

which will help Brazil, and Latin America more broadly, brand itself on the global stage as vibrant and culturally rich a place as any in Europe or the United States.

Some of us thought it already is “as vibrant and culturally rich a place as any,” but the question is, how will Brazil emerge financially after the billions of dollars spent on these two hugely expensive events?

Just a month ago, The Economist published this:
Brazil’s economy
The deterioration
Slow growth, stubborn inflation and mounting deficits

McMahon states, and I hope she’s right,

Brazil is projected to be the world’s fifth largest economy by the time they host the Olympics in just two short years

But the facts right now point to a flat economy that may lapse into recession.

Turning a profit on World Cups and Olympics is a risky business, and Brazil rolled the dice twice, once for the World Cup, and once for the Olympics; the structural problems of slow growth, inflation and deficits will remain, regardless of the outcome, because of its government’s current economic policies.

Two other large economies, Argentina, with a GDP of $716.4 billion, and Venezuela, with a GDP of $374.1 billion – compared with Chile’s GDP of $299.6 billion – are in dire trouble. In Argentina:

The policy mix of harsh capital controls, restrictions on imports, and a series of nationalizations has severely undercut economic freedom. Regulatory pressure on the private sector has continued to rise, with populist spending measures and price controls further distorting markets. The central bank’s independence was essentially destroyed in 2012 when its charter was changed to allow the government unlimited use of the bank’s reserves to pay its debts. Efforts to reform the rigid labor market have long been stalled.

As it collapses into communism, Venezuela‘s,

overall score has recorded one of the 10 largest declines in the 2013 Index

In Colombia ($472.0 billion GDP), lingering institutional shortcomings undermine prospects for broad-based long-term economic development, but at least is making progress. Likewise, Peru ($302.0 billion GDP), whose economy has grown in the last few years, still has weak property rights and weak institutions impeding progress.

Indeed, I hope McMahon is right in saying “the sky’s the limit;” but from where I see it, there’s a lot of pie-in-the-sky there.


Puerto Rico: Drawing on cash

Tuesday, December 10th, 2013

Last month Fitch Ratings warned that its debt rating may be reduced to junk bond status:

The commonwealth’s fiscal stability affects the $3.7 trillion local-debt market because more than three quarters of U.S. municipal mutual funds hold the securities, which are tax-exempt nationwide.

Puerto Rico Repaid $400 Million Loan With Cash on Hand
Decision Marks Latest Sign of Island’s Travails Funding Itself

Puerto Rico took on the Barclays debt to repay a loan from the GDB. Government officials touted the deal in August as providing “the GDB additional liquidity to meet its responsibility of providing financial support to the government and facilitating economic activity on the island.”

But without affordable interest rates in the bond markets, Puerto Rico has now decided to return those funds, said people familiar with the matter.

The territory announced Monday a 5.3% decline in economic activity in October compared to the year-prior period. The price of Puerto Rico’s 5.75% bond due 2041 has fallen 10% over the past month to 67 cents on the dollar while the yield of the bond has risen to 9% from 8%, according to the Municipal Securities Rulemaking Board.

Worse yet, Puerto Rico economy shrinking by 5.3% in the fiscal year that began July 1. It was the 11th-straight year-over-year drop in October.

Venezuela: Al-Jazeera op-ed in denial

Wednesday, December 4th, 2013

Ewa Sapiezynska and Hassan Akram, both from the University of Chile, writing at al-Jazeera, claim that Bleak media reports about the country’s polity and economy are exaggerated.

According to Sapiezynska and Akram, the Venezuelan economy is stable, economic woes are politically induced, and Venezuela’s electoral system is “the best in the world” because Jimmy Carter said so.

That al-Jazeera would publish such nonsense about the second-most corrupt and least-free nation in our hemisphere, a country with an implied annual inflation rate of 325%, , speaks poorly not only of al-Jazeera; it also makes you wonder what kind of charlatan they hire at the University of Chile.

Post edited for clarity.

The most corrupt countries in the world

Tuesday, December 3rd, 2013

In our hemisphere, Haiti and Venezuela are in the bottom 20 most corrupt, while Canada, Barbados, the USA and Uruguay are in the top 20 least corrupt, with the Bahamas, Chile and Saint Lucia in the top 25,

h/t Business Insider

Contrary to the Pope’s expectations, the least corrupt overlap the Index of Economic Freedom. Economic freedom goes hand in hand with less corruption.

Related: Catholics and Communists

The Catholic Church, unfortunately, has been a fellow traveler in the global movement to regulate individual success, opportunity, and freedom out of existence for the great majority of mankind, through authoritarian control exerted under the wafer-thin guise of promoting “equality.”

And while we’re at it, you can replace the word “Africa” with “Latin America” in Paul Theroux’s essay,

Africa has the schools, the money and the resources to fix its own problems; it’s appalling to think of donors telling them otherwise, of the whole continent terminally indebted and living on handouts.

and you’ll be right.

Venezuela: “21st Century socialism” = same old Communism UPDATED

Monday, December 2nd, 2013

Last month I referred to Maduro’s incarceration of business owners as the start of the really bad news: the mask dropped completely.

Must-read op-ed by Enrique Standish: Venezuela Finally Turns Communist
Maduro Follows Leninist Dogma to the Letter
. Standish tracks the evolution in four stages:

  • The first stage entailed obtaining total control of all institutions of the Venezuelan state.
  • In the second stage, Chavez

    passed 49 laws directed against the private sector. These laws eliminated private participation in the oil business, allowed for confiscation without payment of private lands, suspended constitutional guarantees for business owners, and established “military security zones” in major metropolitan areas — a de facto confiscation of prime real estate in Venezuela’s major cities. At the same time, he launched an all out attack against the country’s independent labor unions

  • Third stage:

    Chavez nationalized the holdings of international corporations in all sectors considered essential by his Cuban advisers: telecommunications, mining, steel, construction materials, oil and oil services, energy generation, distribution and transmission, gas, agricultural services, and even glass companies. At the same time, Venezuela entered into a hugely expensive and disadvantageous agreement with China, with the sole purpose of diverting its oil exports from the United States to the Chinese market.

Now in the fourth stage, Maduro has declared “Economic War” by ending what was left of free markets in Venezuela as he approved a law setting price controls on all goods, and another law creating a National Foreign Trade Center monopoly that will handle all imports entering Venezuela.

Venezuelan blogger Miguel Octavio sees A Confusing Future Ahead For Maduro And Venezuela. Let’s look at a Zara store in Venezuela, before price controls,

and a Zara store after,

Enter the black market, in force.

UPDATE:
The Pope, the State and Venezuela
Nicolás Maduro needs cover for an economy in free fall. He gets it from an unlikely source
. Pope Francis

trusts the state, “charged with vigilance for the common good.”

I hate to say this, but the Pope’s moral authority just went missing.

More on The Pope’s Rhetoric.

And, Maduro Now Set To Regulate Car (???) Sales.

Over at CNN, “Venezuela is on a fast track to ruin:”

UPDATE 2:
Linked to by Moonbattery. Thank you!

Deflation at the Fed

Sunday, November 17th, 2013

From L.A. Liberty

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Via Gerard.