Pope From , joined Dec 1969, posts, RR:
Reply 1, posted (8 years 9 months 2 weeks 3 days 22 hours ago) and read 1837 times:
One year almost to the day before Argentina's currency last fell, the WSJ ran an article about Argentina's economy. The article discussed that Argentine exports to Brazil had become increasingly uncompetitive because Argentina was maintaining a peg between the Peso and the US$. In the couple of years running up to that article, the Real had lost something like 2.5x its value versus the US$ while the Peso had remained pegged to the US$. Therefore the Argentine peso had appreciated 2.5x relative to the Real.
Given that Brazil was Argentina's largest trading partner, it was clear that there was trouble on the horizon. It's exports were simply becoming too expensive in Real terms.
I read the article in the morning before breakfast. I was concerned about our Argentine exposure as I knew we had several million dollars of open account AR to Argentina. I confirmed this number as $3.56M when I came into the office. Right then and there I decided that we'd have to get every single dollar out of Argentina we could. We got our last $1 out the Friday before Argentina devalued it's currency sending the economy into a mess.
Moral of the story - currency pegs and other strategies can't be implemented in a vacum. You must analyze the impact of the FX policies in light of your major trading partners and where your capital comes from.
While in certain instances dollarization or a peg can be useful to control inflation or to add stability to a traditionaly high to hyper-inflation economy, it is not a one size fits all solution. Argentina's rigid adherence to the peg resulted in a massive immediate correction that was far worse than gradual devaluations. Capital wants to reach its own equilibrium point. If you use too many external controls to keep it from reaching that equilibrium, the pent up energy will eventually break whatever dam you put in front of it.
TACAA320 From , joined Dec 1969, posts, RR:
Reply 2, posted (8 years 9 months 2 weeks 3 days 21 hours ago) and read 1830 times:
The economy of Venezuela is still based on oil, although efforts have been made to develop heavy industry, e.g. steel and aluminium, and revive the agricultural sector. From the 1950s to the beginning of the 1980s the Venezuelan economy was one of the strongest in South America. The continuous growth during that period attracted many immigrants. With the collapse of oil prices in the mid 1980s the economy contracted. As oil prices have increased, particularly since the invasion of Iraq, Venezuela's economy has strengthened.
In the 1950s, during Jimenez' dictatorship, Venezuela enjoyed remarkably high GDP growth, so that in the late 1950s Venezuela's real GDP per capita was close to West Germany's. However, the democracy established in 1958 has not brought First World status from an economic point of view: on the contrary, in some years GDP contracted.
In the view of the conservative Russian economist Mr. Illarionov, Venezuela's policy of state capitalism (successive governments carried out wide-ranging nationalisations from 1958 on) was a debacle: The “patriotically motivated” economic policy proved devastating as Venezuela slid into its deepest economic crisis. By 2004 its per capita GDP was 37 percent lower than half a century before that. The degrading impact of state command in the economy spread beyond government institutions – it caused the degeneration of Venezuelan society, affecting two generations of people who grew up during state capitalism. Today, Venezuela has no political forces capable of leading it out of the historical deadlock. 
The last sentence of the above quotation is more than a little controversial, given the differing views on President Chavez' programme. Certainly, there is widespread disillusionment among Venezuelans concerning the use of Venezuela's oil wealth in recent decades; and political instability has not helped the search for a solution to the country's economic woes..."
Luisde8cd From Pitcairn Islands, joined Aug 2004, 2577 posts, RR: 29
Reply 3, posted (8 years 9 months 1 week 6 days 21 hours ago) and read 1798 times:
Quoting TACAA320 (Reply 2): The “patriotically motivated” economic policy proved devastating as Venezuela slid into its deepest economic crisis
Indeed. We had some horrible economic policies which were meant to "straighten the national industry" by forbidding imports and handing out grants to set up factories. This policy failed because many left the country with money from the loans and the factories that actually worked, produced low quality goods with a very expensive price tag. That's was the main reason behind Miami-Shopping Sprees back in the 60's and 70s.
The economy grew each day more Dependant on oil and we became an unstable economy Dependant on oil prices.
The only time in which the economy was remotely close to free market was during Carlos Andres Perez 2nd government in (1989-1993) when he eliminated state subsidies and let the Bolivar trade freely against the USD. That was the only time in history that the Bolivar actually gained some value against the USD. Nonetheless, those policies were eradicated because of social unrest and riots that followed the elimination of subsidies. I wish that government would have taken poor people into consideration before implementing them so fast. I believe a step by step approached could've worked. Current president Chavez threw a coup d' etat to this president.
Ussherd From United Kingdom, joined Feb 2000, 329 posts, RR: 0
Reply 6, posted (8 years 9 months 1 week 5 days 21 hours ago) and read 1774 times:
Actually, my mistake for not reading your post correctly. The official exchange rate is still 1US$ = 2150 VBs. However, the actual market value of the bolivar is 1USD ~ 3200 VBs. This shows how badly the venezuelan currency has performed over the last year.
Derico From Argentina, joined Dec 1999, 4356 posts, RR: 11
Reply 7, posted (8 years 9 months 1 week 5 days 18 hours ago) and read 1765 times:
Quoting TACAA320 (Thread starter): Countries like Venezuela [among the richest countries in LatAm along with Brazil and Argentina] has many people living in poverty, as well as Bolivia and Perú, just to mention a few one.
And not some few new brand Presidents elected, that are trying to follow the "Cuban model".
Venezuela and Brazil have a very well off entrepenurial class, in some ways better off than Argentina's. On the other hand, overall poverty is certainly higher in those two countries and abject poverty is much higher. Argentina has it's slums, but nowhere near the size of those around Caracas or big cities in Brazil. In turn, I think you can't compare Venezuela or Brazil to Bolivia...
But I think this is why you see greater social tensions in those and other countries in Latin America, witness Brazil's huge problem with gangs and drugs, or the 'Chavez effect' in Venezuela, or the situation in some Mexican states where there are problems.
Chile, Argentina and Uruguay have somewhat better social safety nets, better human development, and better income distribution (although Chile's is rather unequal, and Uruguay is more equal but has sluggish growth, Argentina is in between the two, even as now it is growing faster than any economy in the region save Venezuela), so you see far less, or none, social or regional rebellions and the like.
I myself am cautiously very optimistic on Argentina, there has been some major economic improvements, you can see it now most certainly: even the most negative argentines say things are 'good'. There was nearly a 300% increase in garbage this last Christmas, Argentina produced by far the highest garbage per capita in the region (carboard, old computers, electronics, nylon, bags, food, etc). Believe or not, economists take those stats as evidence of 'good times'. People in Argentina are the most economically optimistic in almost all categories in the Western Hemisphere (including North America, according to Manpower, Nielsen, etc).
Some of it is windfall (higher commodities), some a bit of populism (below international prices for electricity), and some real good solid orthodox policy from populist Kirchner even orthodox neo-liberal presidents don't do anymore (surplus budgets, surplus trade balance, and amazingly, ALL provinces with balanced budgets). Back in 2002 they said it would take a decade for the country to recover.
Perhaps not too much and not too little is really the best economic policy afterall.
Edit: I forgot to mention that the US dollar will no longer be used for trade and exchange of goods between Argentina and Brazil: all prices will be quoted and traded in the local currencies. That is about 6 billion dollars that will no longer be used in bilateral trade, which will tend to weaken that currency even more in the next year.
[Edited 2006-12-31 22:00:12]
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