Thursday, May 29, 2008

Argentina and Indonesia Act

"Barely six years after Argentina committed the biggest sovereign-debt default in history and devalued its currency, locals and Wall Street investors are asking an unsettling question: Is is about to happen again? ... Nonetheless, troubling signs of financial panic have appeared. Middle-class Argentines are rushing to cash out savings accounts to buy dollars, a sign they think the government is in big trouble and the currency will plunge. ... The X-factor is Argentina's first family: President Cristina Fernandez de Kirchner, the irascible former president who many believe still calls the shots. With the government's popularity in decline amid a 23% inflation rate and a failure to end a farmers strike, concerns are mounting over the long-term sustainability of the Kirchners' populist policies. ... 'The objective probability of a crisis similar to those of the past is, in the Argentina of today, virtually nil,' Central Bank President Martin Redrado wrote in Sunday's La Nacion newspaper. ... Complicating matters, the government must still contend with the still-painful memories of the 2001 financial crisis, when a deperate government froze deposits, wipiong out the savings of many middle-class Argentines. ... 'There is no confidence in the Argentine financial system, period,' said Ernesto Bodenheimer, 59 years old, an activist who led an organization of bank account holders seeking access to savings frozen during the last crisis. 'The slightest noise and you get your money out.' ... We suspect that the authorities are under some pressure to engineer a devaluation of the peso in order to protect local industries from import competition,' Morgan Stanley economist Daviel Volberg said in a research note. 'This would of course be a high risk move'," WSJ, 19 May 2008.

"Indonesia increased fuel prices by almost 30%, a move that shows how Asian nations are grappling with the financial pressures of high fuel subsidies in an era of $130-plus oil. China, India and Malaysia face a smiliar dilemma. ... Indonesia's energy minister, Purnomo Yusgiantoro, said the government could no longer afford subsidies that have kept fuel prices here about half the level of the U.S. ... China's oil subsidy program stood at $8 billion in 2007. It was just 0.2% of gross domestic product, according to Citigroup. .. In India, fuel subsidies represent about 0.9% of GDP, according to Citigroup", WSJ, 24 May 2008.

Buy dollars? Are the Argentines nuts? Buy gold! Does anyone remember Walter Wriston, Citigroup head, 1967-84? He used to say, "Countries don't go bust". What a fool. I look at Argentina and see the US. We Americans see a commodities boom. I think it's a flight from the dollar. Congress is considering legislation to control "speculators" which some Congressmen think "unceccesarily" increase oil prices. Self righteous, arrogant fools. Are foreign exchange controls next? Does anyone remember 1963-74's Interest Equalization Tax? If you want commodity prices to stop rising, have Helicopter Ben (HB) "stop the presses!". Study the British pound devaluations, see my 27 September 2007 and 12 May 2008 posts. Argentines should ignore Redrado, just like Americans should ignore HB. US Congress take note. Why a "high risk move", Volberg? For whom? I think all US dollar denominated long-term bonds are a sell.

When all else fails, even governments act rationally. See my 22 May 2008 post. Eventually I expect most of the world's countries to end commodities subsidies. Who knows, maybe Congress will end food stamps?

1 comment:

Anonymous said...

Hello ia,

CONgreffs doesn't really care but they must act concerned in an election year. Capital controls have already been discussed. The problem is that the billionaires have all the capital and no way no how they are gonna write any laws which negatively impact the uber-wealthy.