Argentina’s Grating Grocery Sweepstakes
Despite 2013 Latin America leading debt and equity returns at 30 percent and 60 percent respectively, Argentina under new Economy Minister Kicilof, an avowed socialist in a policy group founded by President Fernandez’s son, entered January with tighter capital outflow curbs for individual travel and a 200 food item year-long price freeze hitting major foreign-owned supermarket chains. The reinforced interventions belied initial post-election gestures to lure energy investment and settle outstanding disputes, as the US Supreme Court is due to consider appeals of adverse “vulture fund” debt repayment orders. The peso fell to a record low of 10 to the dollar, with a 60 percent parallel exchange premium, on privately estimated inflation near 30 percent mirroring labor unions’ early annual wage increase plea. The government will soon unveil CPI index overhaul in consultation with the IMF, which has again delayed statistical manipulation sanctions for several months pending the launch. World Bank and Inter-American Development Bank anti-poverty borrowing has continued in the face of US and European no votes, as Chinese buyers remain wary of available soybean supply under current weather, tax and production conditions. Currency depreciation aimed at aiding exporters is foreseen at a 40-50 percent pace this year, as the reserve position further erodes toward $25 billion only half in liquid access. The stifling summer will likely entail power cuts and deter tourism as planning officials after denying tariff hike have threatened to seize the main private distributors. Although bilateral relations have cooled since Chavez’s death, the business and consumer crackdown follows on the heels of Venezuelan President Maduro’s “new economic order” against the “parasitic bourgeoisie” as he attempts to consolidate political power and tackle 55 percent inflation on meager 1.5 percent GDP growth. The exchange rate regime will be run by a single authority following 45 percent devaluation for non-essential goods to 11.5 to the dollar, around one-sixth the unofficial rate. Domestic oil prices will stay heavily subsidized as state monopoly PDVSA returns to active local and foreign bond issuance under preliminary Finance Ministry guidance. Foreign reserves are held disproportionately in gold, and commercial transactions with dollar-based Ecuador have shifted to the virtual “sucre” instituted also with Bolivia and Nicaragua in 2010. Unlike the globally-known bitcoin the arrangement is overseen by central banks and Ecuadorean companies used $750 million equivalent through the third quarter of last year. According to executives, payment approval is faster than through formal channels although the route may be tapped regularly for money laundering.
Brazil on the other hand was at the bottom of the securities pack as it heads into its own election season and soccer World Cup with President Rousseff still the favorite, despite poor growth and trade figures and real slippage toward 2.5 to the dollar despite extended interventions. The budget primary surplus was half the 3 percent of GDP target and sovereign ratings downgrade may soon be added to the spoiled recipe.
