Archive for the ‘economics’ Category

Brazil: BNDES bends the rules, gives Cuba nearly $1billion

Monday, February 10th, 2014

Yes, Cuba, one of the world’s deadbeats.

Brazil Tries to Borrow Its Way to Prosperity
A five-year credit spree by state banks threatens the country’s competitiveness.

The Brazilian government’s development bank—known by its Portuguese initials BNDES—has dumped almost $700 million in subsidized credit into Cuba to finance the renovation of the Port of Mariel. On Jan. 27, Mrs. Rousseff cut a ribbon at the project and promised another $200 million in BNDES credits for a second phase of construction. On the same day the Brazilian newspaper Valor Economico reported that Cuba is now the third top destination for BNDES loans.

And that’s only one of several bad loans:

There is also the question of quality in what is a highly politicized loan portfolio. In October the Economist magazine reported “leaked documents show that Caixa’s analysts think default rates will be 30-50%.” BNDES seems to have plenty of dogs too. It reportedly lent the companies led by smooth-talking Eike Batista some $4.7 billion. His empire collapsed last year after his oil company OGX filed for bankruptcy.

That’s Dilma’s idea of fiscal responsibility.

Argentina: Chronicle of a default foretold, continued

Friday, January 31st, 2014

As Latin America’s Leaders Hail Democracy In Havana, Cuba’s Beatings Intensify, but rather than try some networking at Davos, Cristina visited with what’s left of Fidel,

while Argentina Loses $1.25 Billion of Foreign-Currency Reserves
Kirchner’s Government Tries to Head Off Recession

Argentina’s central bank has shed $1.25 billion of its dwindling foreign-currency reserves since it devalued the peso last week, even as the currency came under renewed pressure on Thursday.

he devaluation has so far failed to achieve what is believed to be its main goal: to close the confidence-busting gap between the official and black-market rates. The gap has narrowed in recent weeks.

The bigger the gap between black-market and regulated rates, the more the Argentine public fears the official exchange rate is overvalued and vulnerable to another devaluation.

Another measure aimed at deflating the black market also appears to be falling flat.

Starting Monday, Argentines were allowed to buy limited amounts of dollars for savings for the first time in about 18 months. The tax agency said it had authorized purchases of more than $137 million in dollars through Thursday afternoon.

However, Argentines opted to pay a 20% tax and withdraw $125 million from the banks instead of taking advantage of attractive interest rates and tax breaks for dollar deposits, the tax agency said. Many people still remember the 2002 crisis, when the government forcibly swapped dollar savings for devalued pesos.The Kirchner administration has borrowed more than $29 billion since 2010 from the central bank to pay its creditors, while government fuel imports and falling gold prices have also dented reserves.

If that money doesn’t stay in the banks, the central bank will likely take additional measures to stem dollar outflows. The central bank could takes losses of between $8 billion and $9 billion to individuals this year under the measure, according to estimates from BNP Paribas.

The trend has some investors and Argentines wondering if the country might struggle to pay its foreign debt and buy enough imported goods to keep its economy going.

As you can tell from the title of this post, I consider it a certainty.

Prior post: Argentina: Chronicle of a default foretold


Minimum Wage Laws Kill Jobs

Thursday, January 30th, 2014

Prof. Steve Hanke explains Minimum Wage Laws Kill Jobs

In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%.

Read the whole article.

Argentina And Venezuela: Chronicles Of Devaluations Foretold

Saturday, January 25th, 2014

Monica Showalter has an excellent article on a cautionary tale:

Argentina And Venezuela: Chronicles Of Devaluations Foretold And they inevitably lead to inflation. For 2012, Venezuela’s inflation surged to 56.1%, its central bank said. In Argentina, the rate was 28%, according to a watchdog.
These man-made disasters are due to governments spending more than they have to buy votes. In Argentina, spending rose 50% in the past decade, and in Venezuela it surged 60% in just the past year.
The numbers are so hard, and crisp and predictable, it’s astonishing anyone could be surprised by them.

Read the whole thing – the US M2 money supply is up 34% since President Obama took office.

Argentina: Chronicle of a default foretold

Friday, January 24th, 2014

Subroto Roy sent this article, Argentine Default Chaos Relived as Blackouts Follow Looting, which describes the deja-vu conditions as the country is about to default, again, this time on its $50 billion foreign currency obligations,

Investors are bracing for the possibility of another default. The country’s average dollar bond yield of 12.4 percent is the highest among major developing nations after Venezuela. Trading in swap contracts that insure bonds shows investors see a 79 percent probability of a halt in payments over the next five years, a reflection in part of concern that Singer’s demand of full repayment on the securities he kept from the 2001 default will disrupt debt servicing.

“Over the next five years”, maybe, maybe earlier, as the Specter of Default Stalks Argentina. Argentina’s dollar reserves have now slipped below $30 billion.

Yesterday’s 8% devaluation (the largest one-day decline since the 2002 country’s default on its debt)

and falling reserves raise the specter of a deep economic crisis with inflation already believed to be running above 25% before the devaluation, the product of years of rapid increases in government spending financed in part by money printing. A weaker currency can aggravate inflation by reducing consumers’ purchasing power and pushing up the cost of imported goods.

The devaluation is also a major political blow to Mrs. Kirchner and her new economic team led by Mr. Kicillof. Shortly after her ruling coalition suffered a steep drop in support in October’s midterm congressional elections, Mrs. Kirchner replaced her finance minister, central bank chief, price control enforcer and economy minister. Less than a year ago, the president told the public it shouldn’t expect a devaluation under her watch.

Cristina Fernandez’s chief of cabinet Jorge Capitanich rushed to put lipstick on a pig, easing restrictions on the purchase of U.S. dollars Friday, by saying “The government considers that the price of the dollar has reached a level of convergence that is acceptable with the objectives of our economic policies.”

And the economy is pining for the fjords,

UPDATE:
As a result of government price-fixing, Argentinians bought less bread and more cookies in 2013. The price of flour went up by 65%.

A parting question: Where’s Cristina?

Venezuela: Shuffling the deck chairs on the Titanic UPDATED

Thursday, January 16th, 2014

Venezuela Shuffles Economic Team
Maduro Also Pledges to Keep Fixed Exchange Rate Unchanged This Year

The president also said the central foreign-exchange board, Cadivi, would be incorporated into a separate government body overseeing external commerce.

Some Venezuelans misinterpreted that to mean that

Cadivi will be eliminated, which many interpreted as the elimination of Cadivi for the private sector, and the Government keeping the Bs. 6.3 per US$ rate to itself.

$5 says that Maduro’s regime will only increase whatever control it exerts over the private sector, Cadivi or whatever you call it. While he was at it, Maduro just created

111 new Vice-Ministers to accompany the thirty Ministers that accompany in his Cabinet. The hilarious thing is that the decree creating these new positions (Decree 730) actually says that this “optimizes” the structure of Government, not once, but twice.

I wonder how many of these new ministers are former military, a la Cuba.

The 2014 Index of Economic Freedom rates 178 countries on four broad categories, or pillars, of economic freedom:

  1. Rule of Law (property rights, freedom from corruption);
  2. Limited Government (fiscal freedom, government spending);
  3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and
  4. Open Markets (trade freedom, investment freedom, financial freedom).

Venezuela is 175th, or 4th from the bottom. Only Zimbabwe, Cuba and North Korea rated worse – all countries whose leaders Hugo Chavez admired.

UPDATE:
At long last socialism

What happened yesterday is that the government doubled down on the insane economic policies that, in case you have not heard, have brought growth to a standstill, fueled inflation, generated unprecedented scarcity, and has sent the black market into overdrive.

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