May 16, 2013

President Cristina Kirchner has devised a clever way to bring American dollars to the Argentine economy, thirsty for U.S. greenbacks.  The government has offered a tax amnesty to Argentines that are “thought to hold tens of billions of dollars in undeclared U.S. dollars if they invest that money in energy and construction projects at home,” Economy Minister Hernan Lorenzino announced Tuesday. This tax amnesty will be the second in five years, with the last one in 2009 bringing $4 billion into government control.

The measure has been widely criticized for enabling foreign tax evasion and money laundering. Carlos Bastillo, managing partner of TEAS and director of Legal Affairs for the Financial Information Unit warned that with this measure may lead to increased dirty money and corruption in the country.  “The state [won’t be able to] determine if the funds that a person declares as a product of tax evasion are not coming from drug trafficking, political corruption, embezzlement of public administration or any other crime,” explained Bastillo to La Nacion.

This tax amnesty could also be the tip of the iceberg to push Argentina onto a global blacklist, which is the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" (NCCTs).   Being blacklisted could lead to financial countermeasures against Argentina.  In 2011, FATF placed Argentina on its notorious “Grey List” of nations that have “failed to comply with international efforts to stem money laundering and financing of terrorism.”

Argentina’s withering economy and increased tax evasion, capital flight and drug trafficking appears to be worsening.  This tax amnesty is another shameful example for the world to see that Argentina does not abide by international rule of law.

May 10, 2013

The irony cannot be lost that President Kirchner demands justice (for herself!) in foreign courts, but has made it a matter of her nation’s global strategy to flout the rule of law in international courts and to undermine the independence of her own judiciary.

Case in point, in early May, Cristina Fernandez won a slander case against Italian leading daily Corriere Della Sera.  The Italian paper had reported that Argentina’s President went on an extravagant shopping spree totaling over 140,000 Euros at Bulgari while attending a world summit on food security at the FAO in 2008.  While Ms. Kirchner referred to the Italian incident as “slander” she was also caught red-handed by the New York Post which reported that she bought “20 pairs of Louboutins at $5,500 a pair” during a 2011 trip to Paris.

According to Mercopress the Argentine president took advantage of the Italian court ruling to deliver political message against the Argentine judiciary.

"I don’t think there are judges capable of ruling in a similar way in this country. Some because they’re afraid, because they see everything (the media) makes up and they are afraid something similar may happen to them. Others because they are a part of the opposition even though they claim to be independent and others because they probably have skeletons in the closet," she said.

The message was delivered just as Argentina’s Congress passed a controversial law that gives President Kirchner and the executive branch excessive influence over Argentina’s judges.

The Italian case also demonstrates that Ms. Kirchner only abides by the rulings that reflect her interests.  In the case of sovereign debt default being adjudicated in New York and the ICSID judgments she has yet to pay a single cent.

May 1, 2013

Looking for an accurate economic forecast for a particular geographic region?  You need look no further than at the companies unwilling to continue doing business within it; no more current – or reliable – economic barometer exists…and Argentina’s continues to burst with bad news.   The Kirchner regime’s international pariah status – earned with its corrupt, isolationist, and consistently “disastrous” policies – means that even the most stalwart international retailers – Fendi, Louis Vuitton, Escada, Cartier, Calvin Klein, and Ralph Lauren, to name just a few – are intimidated into shuttering, pulling up the proverbial stakes, and fleeing in droves, according to a recent Clarin report.

“They are not the only ones…also one of the biggest web seller companies is packing up, as well as an electronics company... Vale and Petrobras are on the list.”  So, too, “Kenzo…and Luxotica, the maker of luxury sunglasses like Dolce & Gabbana or Prada.”

Clarin identifies the three immediate impediments to sustaining international business in Argentina as the Kirchner regime’s import restrictions that penalize companies for maintaining low bank balances, the disparity between expenses incurred in Argentina and those found elsewhere, and finally, the “state regulations” – rather than the market itself – that artificially determine prices.

In other words, the obstacles to successful business in Argentina are divorced from the traditional concerns of supply and demand, and from the ability of companies to engage in profitable commerce.  All of the economic impediments to business in Argentina are “man-made,” even as they originate from feminine government.

In its analysis, Clarin offers to, “put it simply,” and then it proceeds to do just that: “it’s the most frivolous expression of the disastrous energy policy of recent years, which made the country which used to export oil” now dependent upon more than US$15 billion in annual energy imports.

And so, the Argentine people continue to suffer as their government willfully destroys the economy.

Friday, April 26, 2013

Now it’s official: “K-Corruption” – good old-fashioned bribery, massive theft, and aggressive money-laundering at the highest levels of the Kirchner Government – is acknowledged to be a key factor in the “capital flight” that we’ve lately seen from Argentina.

The swift exodus of wealth and money from Argentine can no longer be solely attributable just to President Kirchner’s isolationist and confiscatory policies, her repudiation of the country’s debt obligations, the historic censure by the IMF, or, the pervasive fear that another massive default waits just over the horizon.

To be sure, these realities play a central role in the spiraling deterioration of the Argentine economy, and the increasing misery visited upon its citizenry.

So, too, does the frequent “souring” of relationships between the Kirchner Regime and industry, as cited today in the Financial Times story about the departure of the Argentine Agri-Giant, El Tejar, to more lucrative Brazilian pastures.

These are all a factor, and important.  But the recent public shaming of – and large fines levied against – the Ralph Lauren Corporation, not to mention its decision to shutter its Argentine outlets, are indicative of a much deeper rot, the roots of which trace right to La Casa Rosada, where Madame Kirchner rules with ever more feverish imperiousness.

“The money route began where so many things have started, in Rio Gallegos, making an operational stop in Buenos Aires and going on towards bank accounts in Switzerland belonging to companies registered in tax havens such as Belize…”

So begins the Clarin report on the TV program, Peridodismo Para Todos (PPT), which first revealed that the “businessman Lázaro Báez, one of Cristina and Néstor Kirchner’s closest friends, took out of the country some 55 million euros which were transferred abroad outside the legal system, in a series of maneuvers typical of those who launder money or illicit cash gains.”

Earning some of the highest ratings in the program’s history, PPT detailed “witness accounts of Leonardo Fariña, the ‘bellboy’ and Federico Elaskar, the ‘financier,’” intensifying public interest in the graft and money laundering scandal that has implicated Nestor Kirchner, House FpV leader Agustin Rossi, and others close to the Kirchners.”

As Farina stated, “you have no idea of the size of the structure Néstor had set up.  I can assure you that the guy was in charge of everything”.

“The story of the route taken by the K cash,” Clarin teases, “mixes in extraordinary fashion politics with the underworld of parallel finance and showbiz.”

“Underworld” is the right word; seamy, sleazy, best performed in the damp dark of night.  It’s just a shame that the Argentine people are forced to suffer it.

April 10, 2013

President Cristina Kirchner has frozen gasoline prices for six months to tame the country's rampant inflation and bolster political support in upcoming midterm congressional elections in November, according to Dow Jones Newswires.

The energy sector is the latest one to face top-down Soviet-style price freezes (last month supermarket chains were also forced to implement controversial price controls).

And the timing could not be worse: the announcement coincides with the one year anniversary of the government’s expropriation of YPF.  YPF continues to struggle to find investors as energy bills spike.

“A year after its expropriation, energy company YPF has attracted interest in its world-class Vaca Muerta shale deposit but companies have yet to put their money where their mouth is, meaning Argentina still has a hefty energy import bill,” wrote FT’s Jude Webber on April 8.   Argentina desperately needs liquefied natural gas (LNG) imports to offset falling domestic supplies and surging demand, and is struggling to get them.

According to today’s Bloomberg report, “Argentina’s YPF SA continued to hunt for spot cargoes, closing a buy tender today for 10 shipments delivered in the second half of 2013. The country has no long-term supply contracts according to data compiled by Bloomberg. YPF and Energia Argentina SA, the state-run energy company, have issued six spot purchase tenders seeking as many as 143 cargoes from December last year.”

The troubles in the energy sector are early warning signals that indicate Argentina’s economy is about to erupt.  Unfortunately for President Kirchner, she is at the epicenter.

By Horacio Vázquez, holdout bondholder, Buenos Aires

April 4, 2013

In early February, I was interviewed by CNN, Dinero to discuss a briefing I had conducted with members of the international news media along with several dozen Argentine holdout bondholders, who had travelled to New York to tell our story. In my remarks to reporters, I made it clear that the bottom line question for us was simple:  How come our government does not want Argentina to purchase debt at lower interest rates, comparable to our neighbours from Paraguay or Bolivia? What price must we pay for their obstinate refusal to satisfy holdout creditors like myself?

After all, the government is receiving significant amounts of foreign currency by selling commodities from the agriculture sector. So why would they not allow ordinary citizens to buy US dollars? These restrictions have led to the sharpest drop in sales, purchases and construction jobs in twenty years. How do they explain that the private investment that creates real jobs, which once came to Argentina, is now going to our Latin American neighbors? How come foreign businesses that once settled Argentina can’t wait to leave?  Certainly, it’s the same policy that triggered an increase in unemployment.

Now with the high-profile US court case brought by bondholders holding investments governed by New York law, the ghost of legal uncertainty has appeared again.  At issue, are several billion dollars in neglected contracts still owed to holdout bondholders like myself. These obligations date back to the default of 2001 and the messy exit from the convertibility between US dollars and the Argentine Peso. Even then, this mostly affected the middle class who "dared" to have savings in our country.

After the default, a high tax rate was imposed on the agriculture sector. Later on, driven by the need to boost Central Bank reserves, the government expropriated billions from the pension funds. This sparked more inflation. Since 2006 the administration decided to fake its official inflation statistics, allowing them to steal from those bondholders who received Argentine Legislation Bonds during the “swap.”

What many don’t know is that at the end of 2011, there was a second swap custom-created for “friends” of the government that made them whole. At that time, it had already been a decade since Argentina was able to sell debt on the global markets at lower tax rates – all because Argentina had never exited from default. The government started restricting the purchase of US dollars, culminating in the current situation where it is almost a crime to purchase foreign currency for investment savings. In the past year, the price of the dollar on the “black market” (which is where you are actually able to purchase foreign currency outside government controls) exploded, making it impossible for us to save -- given the peso’s devaluation.

This has generated a significant tax pressure that is suffocating what’s left of the middle class: sectors of legal employment, retirees and pensioners, lower income classes battered by inflation and a high VAT (value added tax).

If we analyse these recent events, we understand that this has happened to a great extent because of the government’s unwillingness to negotiate their sovereign debt. Today, we are still in default because of a mere USD 6 billion of capital debt (less than 1.8% ofthe national GDP). We still can’t access credit, which is currently available at the lowest interest rates in 50 years. This predicament (of their own making) has forced the administration to create what’s popularly known as “Cristina’s dollar yard.” As a result, we live with the highest levels of inflation in 20 years and with the consequences that come with it.

Now the US Court of Appeals in New York has ordered that Argentina pay USD1.3 billion to holdout bondholders. If the government decides to ignore this order, it will mean that our country will be  creating more poor people every day, reducing more and more the ability of our citizens to be able to provide a decent life for their families.

We hope that the U.S. justice system might help us convince our government to honor our basic rights that they have violated with impunity. This decision by the US courts will make it impossible for our government to continue evading the responsibilities that would allow us to live in a normal world; similar to our neighbors. We want to have basic civil and economic rights restored. We trust in New York law to uphold the contracts and promises so violated in Argentina.

March 28, 2013

President Cristina Kirchner’s economic policies continue to produce dividends of misery for the Argentine people.  Thanks to a trade philosophy that might be called, “tax, restrict, repel,” Kirchner’s campaign to isolate the Argentine people from the rest of the world – and from the regular staples they enjoy – has achieved new success with the President of Uruguay’s acknowledgement that maintaining trade relations with Argentina is, a “mission impossible.”  It’s a declaration that echoes the advice offered from that same country’s Economy Minister, Fernando Lorenzo, to the Uruguay food industry last September: "Gentlemen, forget about exporting to Argentina.”

Of course, these statements are no longer the realm of speeches and closed-door business meetings.  Now, thanks to the many obstacles that have been erected to block swift and regular imports – like requirements that all importers obtain a permit for every good brought into the country – foreign producers that had once enjoyed mutually beneficial trade relations with Argentina are simply declaring defeat…and looking elsewhere for more fruitful markets.  Like Brazil, Chile, Peru and Columbia.

These are now the realities on the ground for the people of Argentina: less choice, longer delays, more hassle, and higher prices.  Not the ingredients with which one builds national contentment, nor international investment…

Reacting to the Kirchner government’s raising of the tax (from 15% to 20%) levied on overseas travel and expenditure, Danilo Astori, Uruguay’s Vice-president, said, “this harms Uruguay considerably.  We are in the worst moment of our economic-trade relations with Argentina in a long time.”

This bad news is just part of a series, but does come after the conclusion of a very difficult month, in which the World Bank labeled Argentina, the “world’s most protectionist country,” and, the International Monetary Fund censured Argentina for its dishonest reporting of its own inflation statistics.

February was also the month that Argentina was warned by the U.S. government that its trade policies could become a “boomerang,” discouraging investment in Argentina, pushing companies to leave the country, and resulting in an “economy [that] will begin to show signs of deterioration.”  A foreshadowing that seems to have come to pass even faster than was predicted.

The Argentine people surely find no solace in the confirmation that world observers continue to accurately forecast the failures of their own government’s flawed economic policies.  That knowledge puts no food on families’ tables.

February 14, 2013

Earlier this month, the International Monetary Fund (IMF) censured Argentina for its faulty inflation statistics.  Though Argentina has been cooking the books since 2007, international condemnation has grown louder in response to the government’s ongoing persecution of independent economists.  Now, in a misguided attempt to curb runaway inflation, the government has implemented a two-month price freeze on food products and every product in all of Argentina’s largest supermarkets coupled with an unofficial ban on advertising.

Step one to fixing Argentina’s problems is admitting that the country has them, which the government is unprepared to do.  On February 2, Hernán Lorenzino, Argentina’s Minister of Economy, lashed back at the IMF’s criticisms.

“The Fund knows perfectly well that we are involved since 2011/12 in the elaboration of a new CPI…” he stated.

President Kirchner also criticized the IMF through her Twitter account.

“Do you know any sanction from the IMF, a decision on who enriched them and melted the world? No. The IMF is always against Argentina,’” wrote the President on the social network.

Rather than address the IMF’s concerns and calm international investors, the government imposed a two-month price freeze on February 4.

Analysts doubt that this shortsighted policy will work.  Rather, it will create shortages and drive up prices on the black market:

“The results are predictable. Market demand will spill over to small retailers who cannot satisfy the demand for food products. Their prices will rise, and there will be two quite different prices of the same food products. Customers of large retailers will stand in line hoping to buy at the frozen price. There is no assurance that there will be anything to buy when they get to the front of the line. Outside Wal-Mart, Carrefour, Coto, Jumbo, and Disco stores, black market sellers will offer customers goods at much higher prices. Police will either tolerate them or try to dislodge them, only to see them come back later to continue their business.”

Businesses also report that the Administration has imposed an unofficial ban prohibiting supermarkets from advertising in newspapers, a decision that has been condemned by groups like IAPA.

The Wall Street Journal reported that this move is a “bid to weaken independent media companies as President Cristina Kirchner turns to increasingly unorthodox policies to prevent inflation from derailing an ailing economy.”

Unfortunately for Ms. Kirchner, rather than deflect attention from her disastrous policies, these measures have magnified them.

January 16, 2013

December 17 marked the 90-day deadline the International Monetary Fund (IMF) gave Argentina to adjust its official inflation statistics that almost nobody believes.  On September 24, Christine Lagarde, IMF Managing Director, threatened Argentina with expulsion from the IMF, saying Argentina would be given a “red card,” if it did not fix its inflation statistics.  If this were to happen, Bloomberg noted Argentina would be the “first country ever censured by the IMF for not sharing accurate data about inflation and the economy.”

The IMF postponed its ruling until late January to give its board time to review the situation.   During the IMF probationary period, the gap between the government’s official-unofficial inflation rates has only widened.  According to a January 15 MercoPress article, Argentina’s inflation climbed 25.5%, which is two times the figures reported by INDEC, Argentina’s national statistics agency.

The IMF decision to censure Argentina is imminent.   Some have speculated that their ruling may lead the G-20 to expel Argentina as well.

Argentina’s false statistics have garnered significant attention from human rights groups and individuals concerned about Argentina’s treatment of statisticians trying to report accurate figures.  warned that

“It is time to stop writing letters and figure out a way to prevent Argentina’s government from prohibiting the independent reporting of statistics,” Statistics Professor and Human Rights Advocate Jay Kadane warned in December. “The rights to free speech and press in Argentina are at stake. We must implement strategies to stop this from happening in Argentina and to deter other governments from engaging in similar behaviors.”

Further reading on Argentina’s faulty statistics and status with the IMF:

MercoPress: “Argentina’s inflation in 2012 climbed to 25.6% according to private agencies”

MercoPress: “Eleven million Argentines surviving on 7 dollars per day, according to Indec”

MercoPress: “Argentina among select group with the highest inflation in the last five-year period”

PressTV: “Argentina risks censure from IMF members over finance doubts”

Bloomberg: “IMF to Put Argentina on Path to Censure Over Inflation Data”

Ambito Financiero: “First mission of now-Ambassador Nahon: seduce the IMF”

Economist: “Don’t lie to me Argentina”

January 14, 2013

The Kirchner Administration’s controversial and burdensome “dollar clamp” policy implemented in late 2011, coupled with the country’s rampant inflation is alarming Argentine citizens. Fed up with the situation, they are now going to great lengths to get their hands on U.S. dollars.

The situation is so bad that Paypal was forced to suspend domestic transactions in Argentina in September because users were transferring money between two accounts of their own, trading the local currency for U.S. dollars.  Luxury brands like Louis Vuitton have also recently pulled out of the Argentine market.

The clamp has also increased black market peso exchange activity.  The Wall Street Journal reports that this market’s exchange rapidly increased during the past few weeks because many Argentines are vacationing and need money.   The reported exchange rate on the black market is 7.23 pesos to the dollar, far exceeding the official 4.93 rate the government reports.

Pending the IMF’s decision later this month on whether or not to give Argentina an official censure for failure to report accurate statistics, Argentines have discovered they may be better off paying the black market price for the secure dollar than holding onto pesos that may be worth even less in a short period of time.

In the meantime, U.S. companies are testing unconventional methods to expand business and also help out visiting Argentines.  Alejandro Maya, co-owner of Maya Tapas and Grill in Miami, FL, now accepts pesos in his restaurant at the official exchange rate.  Other businesses, including apartment rentals in Miami Beach, have also adopted this method of attracting Argentine tourists.

The Miami Herald reported that Maxi Gonzalez, an Argentine who vacationed with his family in Miami, was only able to convert the equivalent on $2,000 from Argentine pesos into dollars, an amount insufficient  to  vacation with his large family.   According to Gonzales, “It’s not difficult, it’s impossible” to buy U.S. dollars in Argentina.

Not surprisingly, the only individual not affected by the dollar clamp policy is Argentina’s President.   It was reported yesterday that Ms. Kirchner arrived in Abu Dhabi and is staying in the most expensive hotel in the world.