A Gathering Storm for Argentina

Bad news for Argentineans; a gathering storm above them threatens the prosperity of their nation. The major components of this storm are in complete contradiction to the fundamentals liberty, wealth and prosperity.

It is only fair to mention that currently Argentina has reported strong economic growth, but future prospect are rather dim. President Kirchner’s government has decided on the following policies which in his opinion will allow Argentina to prosper.

• The Argentine Government has opted for macroeconomic intervention to keep the peso weaker than it otherwise would be given the strong rise in exports receipts. Other countries have tried this policy before and have been unsuccessful. Although in the short term economic growth may pick up due to distortion on the prices of exports, in the long term these distortions tend to be corrected, growth will be hampered and it will directly injure companies whose sales depend on rising domestic incomes. If history has taught us a lesson, never has a government been able to out-smart market forces and shortcut a country’s passage to prosperity. The free people and free markets know better.

• The Argentine Government has continued to disregard contractual rights. Kirchner’s administration has suspended contractual agreements with private companies, contributing to uncertainty about legal protection of contractual and property rights in Argentina. Once you violate the Institution of private property you’ve crossed a line where you have destroyed the framework of conducting business and producing wealth. This can be observed in Argentina’s Energy Utilities Sector. The government’s failure to resolve contract and tariff disputes with this Sector is leading to delays in investment in energy production, raising the possibility of energy capacity constraints that will impede future economic growth.

• The Argentine Government has pursed an interventionist approach to price setting. In less regulated industries that do not operate under concessions or operating agreements, the government has used executive power and the implicit threat of sanctions and expropriation to influence final product prices charged by private companies. While the government does not set prices formally, an implicit (yet opaque and unpredictable) form of deflationary price controls is clearly in place. In addition to price controls, the government has also implemented new industrial regulation and export taxes. This is pure evidence that in order for Kirchner to move away from neo-liberal-free-market economics which he so dearly objects, he has done so by removing the individual freedoms of his citizens and companies.

Kirchner’s Policies disregard the institution of private property, free markets and limited government, which are pillars of prosperity. He has just started where Peron and others left off in their inherent task of destroying the once great nation of Argentina.

Commentary in italics was taken from Bear Stearns Research.