Economy Economic Storm Clouds Brewing for Argentina?

[earlyretirement]

And the ability to accurately forecast out for more than 3 months in advance

I posted a while back - we stopped adding projects and HC in Arg b/c of the ridiculous costs of doing business here.

My latest - I had an employee that I had to let go. He wasn't performing on one project, and client wanted him off the project I offered him a transfer to the other project b/c he wasn't bad, just wasn't a good fit at the same salary. he refused so we had to terminate him even though really, he defacto quit b/c he wouldn't accept the transfer (again, same salary, same level of responsiblity, same title even).
Total cost of pay out: about 3.5 months worth of salary.

I had an employee quit. The law here says that an employee has to give 30 days notice. The employee gave no notice. Puts me in a terrible position since there was no work handover, client is upset, I'm upset, directly impacted my project.
Things I can do even though the employee broke the law and handled it completely unethically: NOTHING. Zero. And I still have to pay out the employee.

You have to be a masochist to have employees here. It's the sad truth.

Exactly! Those kinds of things I ran into all the time. You and I can compare notes sometimes and have some laughs. The typical expat on these boards I'm sure doesn't own a big company or have many employees. I do realize several do but the majority probably don't.

When you do everything "white" and legal it makes things much more difficult and typically no matter what...the employee always wins. You'd think the fact you are doing everything white would protect you as the employer but it simply doesn't. That's why few companies have an incentive to do everything in white.

The system there is really horribly inefficient. And sadly probably always will be.

 

[MDirtBoy]

Just general cost of living to include living in a good area and a good property. Quality property rentals in the best parts of Buenos Aires aren't cheap. Plus you have the hassles with dealing with some owners that want guarantees or pre-payment in advance, etc. Sure, there are exceptions to the rule but my point is that quality rentals aren't cheap there. Also, nice furniture and electronics are very expensive there vs. the USA.

And if you're speaking of buying...... Buenos Aires is more expensive to buy vs. most cities in the USA with the exception of New York City and a few others. But the cost per sq. foot is very expensive in Buenos Aires compared to the USA now. I sold a 2 bedroom apartment in Recoleta for $250,000 recently. You can buy an entire house in most cities in the USA for that. A friend just sold his 2 bedroom flat in Puerto Madero for $950,000 recently. Oh and his monthly condo fees were $1,500 US per month.

Dining out is also no super value in Buenos Aires vs. most cities in the USA. You can actually eat quite well in the USA now for not expensive prices and there are HUGE choices of the places you can eat and the types of food you can get. You name the type of food you want and you can find it in any metro city in the USA and usually very cheap as well.

Look at the grocery store and the prices you are paying in Buenos Aires vs. the USA and again BA is no value. Plus you can often times find rotting veggies or fruits in the supermarket in Buenos Aires (I know I did plenty of times). I often times saw meat in the supermarket that was expired. Just not a whole lot of quality and it's not cheap in Buenos Aires. I'm not saying the supermarkets in the USA are cheap. But you can go to places here in California like Trader Joe's, Sprouts and the like and it's not bad. And again everything is quality products.

Cars and insurance there aren't too cheap either plus you can't finance cheap like you can in the USA if you wanted to. I was paying more to insure my car in Buenos Aires vs. the USA! Plus the registration fees and annual taxes of having an import car in Buenos Aires are very high. Here in the USA now if you have good credit, they will finance for almost 0%. When I went to buy my wife's car we had the cash to buy it but they had 1.9% financing and if you used BMW financial they rebated back $1,500 so essentially it was a 0% loan.

Medical insurance in BA isn't so cheap anymore either. The amount I was paying at OSDE for my family coverage is about the same as I pay for private coverage here in the USA with an excellent plan.

And to be clear I'm speaking strictly from a consumer side. Not the employer side or why a company might want to hire there.

So from a pure logistics and common sense standpoint of housing, dining out, groceries, medical coverage which are the main elements/expense for most people... Buenos Aires is no bargain.

What method would you consider Buenos Aires cheap?

Yes, that's probably true. If anyone wants to check the real estate prices in any city in the USA here is a great source: Altos Research

What I was getting at is whether you are using a straightforward $US to $US comparison using the exchange rate.

Or, if you were using some sort of proxy for Cost of Living and Salary Parity.

Thanks!

 

[earlyretirement]

Yes, that's probably true. If anyone wants to check the real estate prices in any city in the USA here is a great source: Altos Research

What I was getting at is whether you are using a straightforward $US to $US comparison using the exchange rate.

Or, if you were using some sort of proxy for Cost of Living and Salary Parity.

Thanks!

Yes, I was using a straight forward US $ to US$ comparison. However, things certainly will help now with the 6 pesos to $1 US rate. The peso is rapidly deteriorating very quickly compared to the official rate so that certainly will help but inflation should keep going up probably 25% to 30% a year.

Just on a true cost of living standpoint, by most measures, Buenos Aires isn't any bargain anymore and you have the "hassle factor" of many things there. Again, I love the country and always will. But I always believe in being honest with situations of how things are there.

Just like when the banks in the USA were giving anyone with a heartbeat a mortgage before and prices got out of control.....I moved to Argentina. Now as things get wacky in Argentina and real estate gets cheap in the USA... I move to the USA. You have to move with the cycles if you can.

 

[ZoeSio]

EXACTLY. I know many expats have been saying "the sky is falling" for many years. I disagreed with these forecasts years ago. But Argentina in 2012 isn't the same as Argentina just a few years ago. Just look at all the new restrictions and laws coming in place the last several months that weren't here before. That's a tell tale sign of the desperation.

You have to really be burying your head in the sand to deny there are severe severe problems in Argentina now and it's NOT a great place for foreigners to invest right now. I'm not saying there probably aren't opportunities to invest and make money. I just stand by my call that the risk/reward ratio for the vast majority of investments there aren't going to be good. Especially considering that Argentina doesn't have a working judicial system in case there are problems or disputes.

It's not even about nationalization fears. That is the furthest worry for small companies. It's just about survival due to all the controls and red tape involved with doing business in Argentina. Argentina, if you are running your business completely legal and white and paying all taxes is a VERY difficult country to make money in. That's the plain truth.

A couple of years ago while at a friend's bbq in San Isidro, I asked a small group of businessmen from various sectors, mostly successful Argentina entrepreneurs with many employees, whether they paid and complied with all the state rules and taxes. They laughed and told me that if they were to pay all taxes, had everything in white and 'legal', they'd be out of business very quickly. And this was BEFORE the currency and import controls. Us foreigners are just learning what they've always known.

 

[TechNow]

A couple of years ago while at a friend's bbq in San Isidro, I asked a small group of businessmen from various sectors, mostly successful Argentina entrepreneurs with many employees, whether they paid and complied with all the state rules and taxes. They laughed and told me that if they were to pay all taxes, had everything in white and 'legal', they'd be out of business very quickly. And this was BEFORE the currency and import controls. Us foreigners are just learning what they've always known.

I don't think any business in Argentina pays everything it owes in taxes. People do the best to pay what they can, depending on the business they are in.

The World Bank did a study and if you paid all your taxes and had 100% of your entire operation in white in Argentina you would pay 108% of your profits each year in taxes. So, if you count all the taxes that Argentina has, it is impossible for a business to actually make a profit. It would have an 8% loss each year.

That's the reality here. People do what they can and pay what they are able. I think very few people here are either 100% in black or 100% in white. What you have are shades of grey.

 

[earlyretirement]

I don't think any business in Argentina pays everything it owes in taxes. People do the best to pay what they can, depending on the business they are in.

The World Bank did a study and if you paid all your taxes and had 100% of your entire operation in white in Argentina you would pay 108% of your profits each year in taxes. So, if you count all the taxes that Argentina has, it is impossible for a business to actually make a profit. It would have an 8% loss each year.

That's the reality here. People do what they can and pay what they are able. I think very few people here are either 100% in black or 100% in white. What you have are shades of grey.

I've also seen that study a few years ago. It is accurate. Even the very biggest companies don't operate 100% in white. Even if you wanted to operate 100% in white, sometimes it's just difficult to.

What sucks when you operate almost all in white is you have a severe competitive disadvantage compared to all your competitors that are mostly working in black. I'd encounter that all the time as we were working in white and almost everyone else was in black. Their operating costs and salaries were a fraction of ours.

And the thing that really sucks about operating in white is once you do and enter the radar and system of AFIP it's almost impossible to go back and then operate in black.

Everything is kind of ass backwards in Argentina. You can be paying huge taxes each year and then AFIP will ask for even more. Yet the other guys that aren't paying any taxes and never have... AFIP doesn't even go after them as they aren't in the system or on their radar. I do think that is changing as AFIP is wising up...

The only small consolation to operating in white is that you don't have to really work in fear of AFIP. Years ago I remember our office got audited by AFIP and the inspector was actually very surprised that our books were in order. He said that wasn't typically the case and I had the feeling some of these guys asked for kickbacks.