Economy Is Argentina on the verge of another crisis?

[PanaMio]

Hi
I am a newcomer to this forum. I have toyed with the idea of moving to Argentina for a few years. I have been looking at recent posts to get a feel for the current situation.

What I have read does not install much confidence in making this move.

It appears that inflation is running out of control. The official government statistics on inflation can not be believed. Bloomberg a major financial organization has recently taken the unprecedented step of no longer publishing the Argentine government inflation statistics because they don't believe them.

The latest decision to ban imports seems like a last ditch effort to control inflation by pretending it does not exist. After all, how would you know toothpaste for example has risen a lot in Pesos, if no toothpaste is available to buy.

The recent changes in taxes on real estate investments seems punitive to foreigners, essentially designed to trap their capital in the Peso, and prevent the free flow of capital in and out of Argentina.

What's next currency controls, changes to the residency rules, new punitive taxes aimed at expats.

I can't help thinking sadly a new crisis is on the horizon if you only read the signs.

 

[BenArg]

I certainly hope not. I am curretnly visiting Buenos Aires for the very first time. I am quite impressed with the city and all of the things there are to do and the french architecture. It's quite the contrast with all of the homeless people on the streets. I never knew Argentina had these problems. I am here visiting my company's offices and they are planning on sending me down for a project that would last for a year or possibly two. I am not sure what to think at this point, it's not really an economic issue as my salary woulnd't change, but I have read so many posts about the quality of life going downhill that I am thinkng twice about accepting their proposal.

 

[GatoNeko]

I have made the same consideration as you to move to Argentina, but I would advise against it, because of the bad and worsening economy. Instead, I changed my plans to divide my time between Argentina and Belgium (for now).

My plan is to set up a company at home. I will go to Argentina for a couple of months and research some ideas, without having an income. Therefore my company will be making losses, which I can recover from taxes the year after when I return to Belgium and earn over 10 times what I can make in Argentina. I might keep switching between Argentina and Belgium with the same strategy or I may move to another place indefinitely, I do not know yet.

Moving to Argentina permanently is a financially unsound decision. You cannot earn a lot and if you would have assets to compensate for that, you are required to pay a wealth tax.

Since 2001, Argentina has permanently been in crisis, the crisis just got a bit less severe by the big increase in soy bean prices, which allowed the Argentine government to stimulate the economy with subsidies. However, the effects of this are wearing out and you see the government becoming ever more desperate trying to maintain the status quo.

Unfortunately, the economy has not been restructured since the 2001 crisis (which would be the normal way out), instead it has been further dismantled. The family I stayed with last August-September complained that the government is destroying the middle class. The strategy of the current government is to buy votes by handing out subsidies. They have been spending more and more and while doing so ever taking more money from ever more sources.

The Argentinian economy could rebound after the default, because the high soy prices caused a budget surplus. Now the surplus has been spent as well. That is why the government is making ever more drastic measures to get quick cash:

Before the reelection of the government in October, Argentina had politicised the national statistics agency, to lie about inflation and economic growth and it forced every importer to export more than to import, that is e.g. why Porsche is selling Argentinian wine.

Since October, I remember the following happening:
* The government tries to fix the peso/dollar rate
* It makes it very difficult to exchange peso to dollar
* exporters are forced to convert the currencies they receive from exports to peso
* imports are blocked, even with countries that import more from Argentina than they export to Argentina
* now aparently Argentinian debit cards will be blocked in foreign countries as well.

All at a time when the economy of 2 of the 4 biggest trading partners of Argentina, the US and Europe is still weak and the economy of the 2 other biggest trading partners, Brazil and China is weakening.

I think it only makes sense to permanently move to Argentina if you want to become as insecure as a porteño

 

[PhilipDM]

The story goes that back in 1989/1990 inflation was so bad*it was advised to pay for your food when you made your order, because the price would change by the time the waiter brought your food.

 

[earlyretirement]

I think you will be perfectly happy as long as you're earning in US dollars, Euros, Sterling, etc. Just make sure your contract is in dollars.

It would be wise if you can negotiate some kind of inflation clause in your contract or work agreement. Or at the very least a cost of living adjustment.

Definitely the high inflation I don't see coming down any time soon. While I don't think a crash is coming this year or maybe not next.... you can't have the kind of inflation year after year after year without serious consequences. Just basic common sense.

You will see more and more small and medium sized businesses most likely going out of business in the next few years.

As long as you're getting paid in dollars you should be ok for a while. I'm not sure if you're company is paying for your lodging but it might be VERY wise to lock in a longer term rental at today's prices.

The utilities are still subsidized but once they completely end, costs will rise drastically and owners will pass that on to renters. Or if you're paying utility bills keep in mind they will go up drastically.

Do yourself a favor and before you move to Buenos Aires, open up some bank accounts with ATM cards that reimburse you for ATM withdrawals in Buenos Aires. Banks like Schwab are wonderful for that as you will always have a need to pull out pesos.

And before you move, you might want to invest in a good combination electronic safe as for sure you will need that wherever you live. I've found the ones in Buenos Aires aren't so good quality or are very small. You can buy one on Amazon.com before you move and bring it down with you. http://www.amazon.com/gp/product/B002ERVMJU/ref=oh_o01_s00_i00_details This is a GREAT one and only around $65 delivered to your front door. It will fit a laptop inside.

I wouldn't get too caught up on all the noise about banks, etc. there. The truth is the banks are HORRIBLE there. So is the entire banking system in Argentina. Odds are you probably won't even bother opening up a bank account or if you did it is only to pay bills online. No one in their right mind keeps any significant money in bank accounts these days. That's what separates this from the last crises. All my friends in Argentina this go around are fully expecting some kind of dramatic event and don't keep any large amounts in their banks. It's all under their "mattress".



Good luck.

 

[NadiaLIL]

All very good advice.

I won't be earning income down there, so the inflation-protected contract is a non-issue. I agree that life would be a lot harder trying to make it on local wage terms.