Argentina is still doomed

by Simon Black · 18 comments

Argentina is still doomed.

If you don’t know Argentine politics well, I’ll give you a quick history: the country has vast natural resource wealth and was once one of the richest in the world. It has been serially run by a group of incompetents ever since the Perons first came to power after World War II.  After years of military dictatorship, several revolutions,  and a crippling financial crisis, Argentina has never regained its status as a stable, developed nation.

The current president of Argentina is Cristina Fernandez Kirchner, wife of her predecessor Nestor Kirchner.  The couple has been in power since 2003 and has been extraordinarily effective at consolidating power at the federal executive level.  They are among the most anti-market leaders in the world whose policies have continued to waste and squander Argentina’s natural wealth.

This past weekend, Argentines took to the polls (which, by the way, is cumpulsory for Argentine elections).  Similar to the US mid-term elections in 1994 and 2006, the people grew tired of the ruling party and cast them out.  Cristina’s party was soundly defeated– even her husband, a former president, lost his bid for a congressional seat.

While Argentines clearly voiced their dissatisfcation, nothing will change.

The problem with Argentina is not the Kirchners, or even the long history of criminals who ran the country before them.  The problem with Argentina is Argentines.

I have spent a great deal of time there and agree wholeheartedly with Governor Mark Sanford– the women are beautiful and it is full of natural splendor… great place to visit. But I’m worried about the future of Argentina, so with few exceptions, I don’t think it is a great place to live permanently– especially considering the nearby alternatives that I will be discussing in future letters.

While there are certainly plenty of individual exceptions, Argentines as a collective are fatalistic and inefficient. More importantly, though, they are unwilling to take personal responsibility for problems and blame the government for negative outcomes. This is perhaps human nature but is more acute in Argentina, and in Buenos Aires in particular.

Argentines have revolution flowing in their blood; they are intolerant of their politicians and in years past installed a new leader every other Tuesday. They think it nothing to take to the streets and demand resignation, revolution, or just plain ole’ handouts (real change is spare change, after all)… and yet each president was more incompetent than the previous.

Sure, the Argentine government is terrible– but it is the great scapegoat of the Argentine people; rather than take personal responsibility to change their own behavior and improve their own lot, Argentines as a culture will collectively bemoan government policy.  Naturally, the situation never improves because the people never look inward.

What makes a country great, wealthy, and competitive is not related to its government, but to its people.  Despite its communist, centralized government, China prospers because its people are industrious and thrifty. They work hard and save their money.  Argentines don’t come to work when it’s raining outside.

I’m convinced that Argentina is going to experience another revolution, and this will affect mostly Buenos Aires province.  Their economy will likely continue to deteriorate, and I doubt Cristina has the capacity to survive.  Unlike Honduras where the present coup is political in nature, Argentina’s will be economic and likely result in substantial instability in Buenos Aires… remember, these are the people who set the trains on fire last year because they weren’t running on time.

Bottom line, regardless of a change in political parties, I would not invest in Buenos Aires at this time; Argentine bonds have surged in recent days, and I consider this to be ignorant optimism and worthy of a short position.

I’d like to find out from readers who have been to Argentina– what are your thoughts on the government and future instability? Add your comments.

Want More Information Like This?
 Sign up below for the free newsletter Sovereign Man: Notes From The Field to get more information like the article you just read, plus exclusive information that is not posted publicly.


Tagged as: , , , , , , , , , , , , ,

  • Bill

    Doesn’t Doug Casey have a new real estate development in Argentina? Will it still be a safe investment if your predictions are true?

  • Al Omen

    I love Argentina, but business is difficult there. I ran a NY office for a big Argentine company back in the sevenites. I remember a couple of telling anecdotes. One of my bosses told me after vacationing in Italy. “It was just like home. Everywhere I turned people were trying to cheat me.” Another superior told me that Argentines had an inferiority complex because their location at the bottom of the globe made them think people were looking down on them.

  • Matthew Kelley

    Argentina is a country blessed by god but cursed by their government. Argentina has an unbelievably diverse growing climate with very fertile soil. It has breathtaking sweeping mountains and ski slopes with blue water rivers where you can throw a dime in 20 feet of water and see it on the bottom and pull out 15 LB trout on a fly rod. It has beautiful beaches with clear and cold water for diving and spear fishing. It is a climate paradox with places on the Atlantic coast having the overlap of penguins and parrots occupying the same geographic areas. There are places where killer whales beach themselves to grab seals off the beach. The people believe in solidarity. It is really true what you wrote about them having revolution in their blood. The national hero is Che Guevarra and being called “Che” is an effectionate nickname. But then there is the government issue. And the banking issue. The government is horrible and there really is no dependable banking system in the country. However, there is no perfect country to live in. Perhaps it is best to live or invest in more than one place. Live in Argentina for less then 6 months to avoid world wide taxes on assets and income and invest somewhere else. That way one receives the best of two worlds.
    As for stability of Argentina that depends as does all Latin America on the vecinos to the north. If you examine ALL of Latin America’s historic “instability” (dirty war, pinochet, Iran contra Nicaragua,ect.) it had one common denominator. Latin America has been very stable since Capitalism’s Invisible Army lost resources to the Iraqi conflict.
    As for Cristina’s survival in Argentina, she has doubts about it if we can really believe some of the articles from some spanish language publications alleging that the Kirchners are seeking legal residency in Germany.

  • Jeffry Gray

    Simon,

    I have enjoyed your posts from the field. In the past, you have asked us to let you know of places we would like you to assess. I have made many trips to Brazil over the last eight years and love many aspects of that country. I would be interested in your general take on Brazil and specifically, Rio, Sao Paulo, Fortaleza and Recife. I will be in Sao Paulo and Rio next week.

    Keep up the good work,

    Jeff

  • Marion Broussard

    My wife and I visited Argentina 1 1/2 years ago for the first time. We were only in country a week and spent a couple of days in B.A., Salta and Cafayate to look at Doug’s development there. We thoroughly enjoyed ourselves but your comments are giving me pause with respect to any long term committment there. Any thoughts you might have concerning Cafayate and owning a getaway on a part time basis there would be appreciated. We have not committed yet but are seriously thinking about buying a place. My idea was to build a place, hopefully rent it out most of the year and spend time there during the North American summers.

  • Ben Lee

    Have to agree with you on your view of Argentina Simon. I went to live there at the back end of 2007, all excited of potentially buying some undervalued property or starting up a business based on all the good reports I had read (a lot admittedly from the casey crowd!). From that angle anyway I was sorely disappointed and goes to show no matter how much you read on a place, nothing replaces seeing it for yourself. For what you get, the property isn’t that cheap and neither is starting a business. I had an interest in starting a bar or restaurant but with all the red tape you have to get through and not to mention the places that exist purely to launder money, my enthusiasm quickly faded. Whilst a great place to go and have a great time for a holiday I wouldn’t be investing any money there. The govt you mentioned but the people, and I’m referring more to los portenos, believe they should be as well off as they were 100 yrs ago like it’s their right. And I don’t know what your opinion is of the average level of service you get in restaurants, hard work doesn’t seem to be top priority. There are lots of positives on the place but investing money isn’t one. Anyway I’m off to Colombia for a while in October – I’m assuming you’ve been there given you hang out in Panama a lot?

  • John

    Simon,

    I have only made one trip (in April) to Argentina and Uruguay, so can’t offer too educated an opinion here. But I did discuss the economy with various Argentines (a bond broker from BA who has house in Uruguay, a senior diplomat (and Obama lover), a retired lawyer-now wine maker, and the son of the Ex-Salta governor who is working on the La Estancia project in Cafayate.

    Interesting takes from these folks were:

    o The bond dealer who has a second home in Punta del Este confirmed everything you wrote about Uruguay in WOB. I handed him the letters on the flight and he read them word for word, commenting as he read. He also is buying farmland in Uruguay. Interestingly enough, he had no interest in owning gold bullion.
    o The diplomat is buying farmland in the USA. He also gushed on about Obama and his book Audacity of Hope.
    o The diplomat and the retired lawyer both had a fatalistic slightly amused take on politics. Its corrupt, but what can you do. They both laughed and shook their heads about the nice airstrips at Cafayate and Cachi that were built on the people’s dime (because the governor had property and/or relatives there).
    o They all felt the Kirchners were out…and now they are.
    o The governor’s son felt that since Argentines have repeating crises every few years, they are better prepared (psychologically and family support network-wise). They know how to cut back. In countrast, he worried about how the American psyche is not prepared for bad times…and what that means for stability in the USA.
    o Local hotel owners in Cafayate liked the Estancia project, and see real growth potential for Cafayate.
    o All of these people have traveled extensively, and have lived in, or have relatives in the USA.

    I bought into the Estancia project. At the time I had no time for investigation, so since it was turnkey and easy to do remotely, I did it as a first step to get an asset out of the USA.

    I feel like when you and Fitz were with Casey Research, you couldn’t offer an opinion on it since it was the boss man’s pet project. But I am very interested if you think it is a decent investment or not. I promise not to quote you on it! Do you have an opinion on La Estancia de Cafayate?

    Thanks for all you do. I love WOB, and am enjoying the new daily missives.

    John Ueckert

    P.S. BTW, thanks for the tip on the La Huella restaurant in San Ignacio (beautiful spot).

  • Kent

    Simon:
    I can’t disagree with your assessment of Argentina. If one is looking for political or economic stability, there’s got to be better places than Argentina right now. But I would like to know more about why you make a distinction between BA and the rest of the country. I just returned from Argentina today where I spent most of the 8 days I was there in the province of Salta – more specifically in Cafayate. The people in Cafayate don’t seem to be as much like Argentines, in general, as you described them (fatalistic, inefficient, and looking to the state for every need), and I had several experiences while there that supports this view.
    On Saturday night my wife and I were in a restaurant that borders the town square in Cafayate when two law enforcement officers (a man and a woman) came into the restaurant and began talking with the waiter who had served us. We were just out of earshot, but from there occasional glances at us, we could tell that we were the subject of their conversation. I was not aware that we had broken any local laws, but I was somewhat relieved when the offices turned to leave the restaurant. Upon their departure, the waiter came over to our table, picked up the half empty one-liter bottle of Quilmes, and poured the remainder into our glasses. He then explained that our beer drinking had entered the window of alcohol prohibition for Sunday’s election, and to avoid openly disregarding the law, he wanted to remove the bottle from the table. The next evening in Salta City the waiter refused our order for alcohol by pointing to his watch as if to say there were still sober voters at the polls.
    With respect to the “requirement” that all Argentine citizens vote in government-sponsored elections, based on my conversation with several locals, it appears that the voting turnout nevertheless falls considerably short of 100%. One of the rights I value in the US is my right not to vote. Although Argentines don’t share this right, many of them are still willing to show their displeasure with all options offered by the state by staying away from the polls on election day.
    Bottom line, the people of Buenos Aires are not a microcosm of Argentina. Argentina is a large and diverse country. After numerous visits to the Salta province, I have found people in the small towns to be independent, hard-working, and at times the antithesis of those in the larger cities.
    From reading every issue of Without Borders I have come to value your take on the subjects you cover. Can you elaborate on your view of areas outside of Buenos Aires?
    Kent

  • Me

    Outside of Buenos Aires I think real estate makes some sense. Debt attached to real estate is still incredibly low compared with most countries in the world. If we see….as I suspect, government bonds coming under pressure across the world, the corresponding rise in interest rates will have little to no effect on assets like real estate in Argentina. Nor necessarily bullish on it but I think the risks are less than elsewhere.

  • David Greenawalt

    I have only been to Argentina once so don’t feel that I have enough experience to comment, however, would appreciate your comments on corruption within the country. Do foreigners tend to get taken advantage of or charged higher prices than normal? Also, what do you think of Casey’s project in Cafayate — would this area be a exception to living there?

    Thanks for any information you can provide.

  • Bobby Joseph

    Hi Simon:

    Like several people who left comments above, do you feel the same about provinces outside BA, i.e. Salta and Cafyayate? What do you think about Casey’s Cafyayate project? Thanks.

    Bobby

  • Subscriber X

    As a Without Borders/Casey subscriber just want to clarify as there seems to be some confusion amongst some readers…

    - David Galland announced that WOB is leaving Casey Research stable.
    - Started receiving your daily Notes from the Field emails – thinking this is the new WOB platform
    - Now received the new independent WOB from “Fitzroy McLean” saying you have left WOB.
    So in effect yourself, “McLean” and Casey are now separate entities.

    I am happy to receive your bulletins and wish you all the best with your ventures – just think the transition could have been made a bit clearer to subscribers.

  • geo

    this from a friend an american expat now living in a beautiful suburb (martinez) of b a The continuing core issues here are the non-existence of the rule of law (and not much interest in creating and defending it), and the power of various oligarchies — farmers, rich people with most of their money offshore, and those who bribe and receive bribes. The Tammany Hall or Pendergast style of control by the power groups is so widespread and insidious that only a rededication by the Argentine people to the idea of creating a truly politically free and independent government will ever create change.

    The main result of decades of frustration is simply a profound sense of apathy on the part of those who could make things happen. Without endorsing yet another old saw, there is a lot of truth to the idea that all that’s required for evil to triumph is for good people to do nothing.

    That said, it remains a wonderful place to live — in the midst of paradox, to be sure — and the Argentine people at heart are superb. Many of us just wish for some inklings of fundamental change.

  • Jeff

    Simon,
    I’ve yet to visit Argentina, but from the sound of it—inept politicians, lazy entitlement-seeking proles, etc—it sounds like, as an American, I’ll probably feel right at home!

    Then again, I think I’d rather be surrounded with rural Utah’s Mormons than Argentines who act like Americans.

  • david g.

    Simon;
    thanks for insights….i spent 10 days in Argentina last year (5days in B.A.).the conflicts between landowners in countryside and “workers in B.A. won’t be solved in near future regardless of govt.

  • redrum

    simon,

    i have been living in argentina for the better part of 6 years and agree with about 95% of what you mention in your article. if i may, i’d like to throw my 2 cents in as well…..

    we’ve all been following the woes of the dollar. i personally believe the US dollar is headed for a serious, possibly disastrous decline before the end of this year or sometime early next.

    World events appear to be occurring at an accelerated pace right now. whether that decline is sudden or a gradual, controlled drop, who knows. the damage however, has already been done by our federal reserve i.e. the printing of more than a trillion dollars out of thin air. the Obama solution, unfortunately, is to give the fed even more power to print even more money. thus, we can expect even more “quantitative easing” in the near future. warren buffet has mentioned that severe inflation is almost a guaranteed certainty now, it’s simply a matter of time.

    what i’m getting at is this.

    any country who’s central bank, i.e. argentina, that buys/sells dollars in order to support it’s own currency will be in extreme danger. this is the problem when the world’s reserve currency goes into a tailspin. Inflation is an issue because as the US inflates the dollar, argentina must inflate the peso if they want to hold the peso at a certain level.

    how bad will the chaos here in argentina be? it’s difficult to say. i don’t think it would be a bad idea however to have some money in euros as well as gold and silver coins. One ounce gold coins can be bought at Banco Piano in Microcentro on Reconquista or at a casa de cambio on Corrientes.

    one thing is for sure, things will never go back to the way there were in the US. The US standard of living will drop drastically. I think some Americans must be sensing this, thus the increase in migration to argentina. after the dust settles, argentina may not be a bad place to be. brazil could be quite good as well. any nation that has an abundance of commodities and natural/tangible resources should be in good shape. as you mentioned, argentina has all these things, just the wrong people running the show.

    Again just my 2 cents. i hope i’m wrong and nothing like this happens however doesn’t hurt to be prepared.

  • Todd

    Having spent 3 months for each of the past 2 years in Argentina can do nothing more than reiterate what Simon says. There is even a saying in Argentina where the best business is one that can sell things for what an Argentine thinks he/she is worth and/or buy things for what an Argentine is really worth. I have spent most of my time in BA for convenience/business reasons, but did spend fair bit of time up in Corrientes province(NE bordering on Paraguay/Uruguay) and can really agree again on the bad opinion that people in those parts have of Portenos. Even in BA I find that the nicest people tend to be people from other countries or Argentines not from BA. Next year I plan on spending one month up in the city of Corrientes(some good outdoor events up there with better weather as it gets close to SA winter).

    As far as investing money in Argentina think a person would have to be crazy as the single biggest threat(even bigger than the USA) will be taxes that the govt absolutely has proven they will resort to to “solve” any of their many fiscal problems.

    As an idea for future editions I am currently in South Africa(ZA) and have been for the last 2months. For my money Cape Town is the most beautiful city relative to natural geography, climate, and value that I spend any amount of time in. Living in ZA is at least as cheap, if not cheaper than in BA. Property is quite a bit more expensive than in BA or even Rio, but the quality/convenience of the lifestyle is much more comparable to NA stds – above anywhere I have spent time in SA. Property can really not be leveraged more than 50%(there appears to be stimulus pressure on banks to change this), however there has been a combination of events(world problems timing with anticipation of 2010 World Cup) that has pressured property here and for a nimble speculator there probably is an opportunity to get positioned now ahead of World Cup. There is no question that ZA is very popular with Europeans as the recent Lions rugby tournament(some big deal sports event that I had never heard of – it goes off ever 12 yrs in ZA?) brought in 50000 people from British Isles and some Indian sponsored cricket tournament(another one that have never heard of) sounded like it brought in many people in the months before the rugby. ZA right now absolutely is booming – even though they publicize unemployment rates close to 25%. As for a business perspective think there are plenty of problems between BEE(black economic empowerment) and foreign capital restrictions. The one other important item that is even inferior to SA and seems funny is the internet – on cost/quality/even access basis. There is an ocean cable coming very soon(like end of this month)via Europe that has to add bandwidth, but do think there even some regulatory issues that may be inhibiting “free”/fast internet in ZA. Developing cheaper computers will do nothing for poor Africans until they get this fixed.

  • Laceylea

    When was this post written and do you still feel the same?

Previous post:

Next post: