Archive for the 'LatinAmerica' Category

August 5, 2002

Argentina: Premier Basket Case, who is next?

Today the NYT carries a story about how Argentinians who used to dislike Brazilians, are slowly learning to love them as their crisis has deepened without Europe or the US giving much of a helping hand. While the article seems somewhat exaggerated (for Argentinians, Brazil winning the World Cup was a non-event), it is interesting that the country that used to be the most “developed” in Latin America 100 years ago, has now become one of the biggest basket cases. As pointed out in the book Del Buen Salvaje al Buen Revolucionario by Carlos Rangel, in the 1850’s Argentina had a higher per capita income than the US. As a country, Argentina is bigger in area than India, which just passed the 1 billion mark in population, but has less than 37 million inhabitants. But decades of mismanagement, have turned Argentina into an economic basket case.

After years of hyperinflation, ten years ago Argentina pegged its currency to the US dollar. Argentinians really believed that their currency was pegged, which lowered inflation and helped growth for the next few years. But the peg was mostly an illusion as the Central Bank did not have the one to one equivalent between a peso and a dollar. In time, this illusion was revealed, forcing the current crisis.

It is interesting to understand however, why Argentina is in such dire straits and whether Venezuela or Brazil are anywhere where Argentina is today. What makes these three cases different is that Argentina, as a State, has few productive assets that it can sell to pay its debts. Unfortunately, most assets were sold ten years ago to create the illusive peg. In contrast both Venezuela and Brazil have real, productive assets which could be used if an extreme situation arose. Venezuela even has important assets abroad, such as Citgo, four refineries in the US and one in Germany, while Brazil has most of them at home. Thus, both countries are far from reaching a crisis like that of Argentina. Brazil has going for it the fact that it is an industrialized country, while Venezuela the huge (70-200 trillion barrels) oil reserves underground. While neither is immune to having serious difficulties, only the immense  incompetence and creativity of their politicians in the future could create an Argentinian-like crisis.



August 4, 2002

Banana Republics 101 Part I

Most people who live in or are from underdeveloped countries take offense when anyone refers to their own or, for that matter, any other country, as a Banana Republic. The term originated in the Central American countries were the United Fruit Co. operated, but has come to signify countries which may not even qualify to be called countries because of the way they are run. I do feel like I live in one, when I try to explain to my friends from abroad any of the following:

-For the first time in ten years Venezuela has economists in both the Minisitry of Finance and the  Ministry of Planning. In the past, we have had a Mathematician, a Sociologist, an Urban Planner and an engineer, to cite a few.

-Venezuela is part of OPEC, where it gets together with its most important competitors to decide how much each country should produce per day. Interestengly enough, Venezuela is the OPEC country, other than Iraq for different reasons,  that has reduced its production the most in the last thirty years. Despite this, few Venezuelans are convinced we should split from OPEC. Thats ok with me, but don’t you think we should even discuss it?

-There were mudslides in the coastal zones near Caracas in Dec. 1999. Estimates are that close to 40,000 people died. The US Army Core of Engineers offered to rebuild the coastal highway (for free!!) an send ships to Venezuela. The Government refused to accept the aid and the ships  turned back. To this day, three years later, the highway has yet to be completed.

-We say we live in a democracy. Despite this, only one candidate in the last ten years was elected in a primary of his party. He lost.

-There were riots this week in Caracas. Government supporters rioted for two days, shot people, blocked streets and created chaos in the city. The Government announced today that it had asked the Attorney General to investigate the abuses of the police when they used tear gas from a helicopter. The President has banned the flying of police helicopters over the city. There has been no call to investigate the rioters, where they got their weapons or who leads them.


Hate to see what a Banana Republic would be like…..