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Argentina Economy

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Zero Hedge has a nice summary of the economic problems in Argentina [4].

A fantastic country to visit, but over the years Argentina has often been an economic disaster.

A few things to focus on in the Zero Hedge post. 

Argentina Was an Economic Superpower

Not part of the Zero Hedge post, but I should note that Argentina was once an economic superpower [5].

In the early 1900’s Argentina’s economy ranked in the world’s top 10. For those of you who have visited Buenos Aires you can easily see its history of prosperity. A beautiful city. The country itself is amazing, with incredible scenery and friendly people. I am not sure now is the time to visit given the potential for further upheaval, but it is a wonderful place to tour.

Prosperity is not necessarily forever.

Global economic conditions and internal government policies can greatly impact a country’s future. Zimbabwe [6] is another wonderful example of how policies can destroy a country [7].

Bear that in mind when investing over the long-term. Companies, industries, regions, and countries, can all change.

Short-Term Policies Often Fail

A two month freeze on prices? Will it have any long-term impact? Highly doubtful.

As Zero Hedge points out, people will try and stock up now, companies will try and adapt, and then at the end of two months, what happens? If the government continues to freeze prices, companies will shut to avoid losses. I do not think that is what Ms. Kirchner wants.

I am not sure that short-term policies work well to alter individuals’ actions. I am even less confident when the longer run ramifications of short-term actions are not realistically considered prior to implementation. Sadly, with governments in many (all?) countries, that is par for the course.

Governments Can Lie

Or intimidate others to create a scenario more conducive to the government.

This has gone on in Argentina [8] before. It is highly questionable [9] whether government data is accurate.

There are many other countries that “massage” official data. China is one large economy [10] where it is difficult to verify [11] the public data. How many others are out there? When investing, do your own analysis. You may be in peril if you blindly accept official information from any country.

I include “transparent” nations such as Canada and the United States in that mix. Do not like the results, change the methodology [12]. Or perhaps go after the messenger [13].

Europe? Already long gone. Stability Pact conditions [14]? Ha.

That said, even the official data is scary [15] in many countries these days.

IMF Censures Argentina

The International Monetary Fund censured Argentina [16]. Powerful stuff (and typical of the IMF). Bad Argentina for fudging your economic data!

Well, actually they provided false information to people who relied on that data to make financial decisions. Kind of like buying a house without the seller disclosing the mold or termite problem. I am sure you would be a satisfied buyer so long as the seller received a sternly worded letter.

Oh, but we will give you another 9 months before taking further action against you. No doubt another letter (or hitting the Argentine Finance Minister with a feather pillow – assuming the Minister is not allergic to feathers).

Never trust international organizations to take care of the people. Just the governments behind them.

Stock Performance 

You always, always, need to look at investment portfolio relative to your home currency.

Argentinian stocks performed well over time. Not a bad looking graph of the MERVAL [17].

But in your home currency (e.g., US dollar for an American), the real return actually went negative.

Whenever you consider investing outside your own country, always assess foreign currency risk [18].

Read the Zero Hedge article. While so doing, think about the above points and how they may relate to potential fixed income and equity investments in other countries’ markets. Taking them into account may save you some problems in your own investing.