Economy

Piñera clearing the air

By Peter Krupa | Published: February 5, 2010

Divesting.

Here’s a nice problem to have: You’re the third richest man in Chile, and then you get elected president. How, oh how, will you possibly avoid conflicts of interest? The man confronted with this agonizing real-life dilemma is Sebastian Piñera, who is a billionaire.

Piñera was elected Chile’s new president last month, and now he’s got to figure out what to do with his vast, diversified business holdings before he gets sworn in on March 11.

Wrote the Financial Times:

The silver-haired magnate, who introduced credit cards into Chile and built a reputed $1.2bn fortune with assets including interests in flagship airline Lan, a television channel and Chile’s most popular football team, has already put some money into blind trusts to head off conflict of interest charges.

The latest is that today, he committed to selling off his 26% stake in Lan, part or all of which will be picked up by the Cueto family, according to Reuters.

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Loose money

By Peter Krupa | Published: February 4, 2010

Source: Ámbito

Argentina has a new Central Bank president, and by all accounts her appointment puts an end not only to autonomy, but to orthodox monetary policy in the management of the nation’s currency. Ámbito says Mercedes Marcó del Pont describes herself as a “militant developmentalist,” and Página/12 has a really well-done explanation of how her “developmentalism” will effect the way the Central Bank operates.

Basically, if you’re a traditional Central Bank president like Redrado was, you proceed under the assumption that creating more money will cause inflation to rise. Since this is considered to be a bad thing, you think long and hard before lowering interest rates to stimulate the economy in the short term, especially if your inflation rate is already estimated to be the third highest in the world.

Marcó del Pont, however, has in the past proposed running things under a Brazilian model that places the Central Bank in a National Monetary Council along with the Treasury and the Planning Ministry. Thus, any decisions about the currency are made according to how they will help the country “develop.”

I think it goes without saying that different people have different ideas of what “develop” should mean, and that a lot of those people would essentially use their definition as an excuse to lower interest rates and crank the money supply in a show of cheap populism. Not surprisingly, U.S. analysts are predicting doom:

“The new president is very closely aligned with the government and won’t have an independent voice,” (Goldman Sachs analyst Alberto) Ramos said in an interview last night. “The government wants to continue spending at elevated rates to have short-term growth and the central bank won’t raise interest rates, it won’t have its own voice.”

Marcó del Pont has said she does “not think (the Central Bank) can be independent of the nation’s economic policies,” which pretty much says it all.

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TACA and Avianca merge

By Peter Krupa | Published: February 3, 2010

El Salvador’s Grupo TACA and Colombia’s Avianca have completed a “strategic” merger. TACA has hubs in El Salvador, Costa Rica and Lima, Perú, while Avianca mainly flies out of Bogatá, Colombia. In a statement, the companies blather on quite a bit about synergy, which I hope means that they’ll be consolidating operations to make it cheaper and easier to travel in Latin America.

The new Avianca-TACA Limited conglomerate controls 13 carriers in 10 Latin American countries, serving a combined 75 Latin American cities with 129 aircraft. It is now the largest air travel conglomerate in the region.

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Redrado steps down

By Peter Krupa | Published: January 30, 2010

Martín Redrado resigned his post as president of Argentina’s Central Bank last night. Bloomberg News has a comprehensive round-up. Most interesting was a quote from an analyst to the effect that this is not a huge deal because the Central Bank lost its autonomy years ago, and that Redrado is mostly at fault for the loss of autonomy because he did not stand up to the Kirchners until it was too late.

Early in the showdown over the Central Bank’s reserves, Redrado had threatened to expose “friends of the power” who purchased dollars from the Central Bank, possibly on inside information that the Central Bank was set to devalue the Argentine currency. The executive responded by threatening to prosecute Redrado for a cover up if he does not release the names. It will be interesting to see if Redrado is now forced to follow through on his threat.

Somehow, I doubt he will be.

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Honduras: Broke.

By Peter Krupa | Published: January 29, 2010

Money all gone. (ht germeister)

Honduras is, for all intents and purposes, broke. That is, incoming Finance Minister William Chong told the AP that Micheletti left the government with only about $50 million in its coffers (note to self: Do governments really still use coffers? Because if so, no wonder they can’t keep track of their money).

This is not at all surprising. It’s what six months of international isolation do to a government’s finances, especially when the country is a poor one like Honduras and partly dependent on international aid. According to an article in El Heraldo, President Lobo is calling for swift reinstatement of Honduras into the international community so that international funds and aid can begin flowing again.

However, there is one problem: International aid is about publicity as much as it is about actually aiding people, and the popular place to give money right now is Haiti. More than $1 billion $2 billion has been pledged there by governments at last count. Also, I think it’s safe to assume that international aid is something of a zero-sum game, which would mean that at least some of the aid flowing into Haiti is flowing out of a different program (at least those are the rumblings I hear from friends working with NGOs).

Anyway, at least one Honduran is doing pretty well: Mel Zelaya. He’s camped out at an exclusive resort in the Dominican Republic. No word yet on any “international aid” he might be receiving.

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Currency woes

By Peter Krupa | Published: January 29, 2010

A very interesting article in Bloomberg yesterday about Chávez’ attempts to prop up the boliver and whack black market currency exchanges by meeting dollar demand with the government’s reserves:

The plan will fail because Chavez’s nationalizations and land seizures are prompting Venezuelans to pull money from the country, said Alberto Ramos, a Goldman Sachs economist. More than $93 billion has left the South American nation since 2005, according to the central bank’s capital account data.

The article says the Central Bank has been throwing about $100 million a week at propping up the bolivar, when real dollar demand is something closer to $100 million a day. Demand is high because no one who owns anything wants to keep it in Venezuela:

Venezuela, which last had a capital account surplus in 1998, the year before Chavez became president, posted a capital account deficit of $10.8 billion through the first nine months of 2009, the most recent central bank data show.

That means billions of net dollars in capital are fleeing Venezuela every year, despite strict foreign currency exchange controls. It’s going to get worse. With the bolivar now devalued by 50% against the dollar and the vast majority of goods consumed in Venezuela being imports, Morgan Stanley is projecting an incredible 45 percent.

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Venezuela: Still on the brink

By Peter Krupa | Published: January 27, 2010

Nothing to see here.

The recent move by the Chávez administration to shut down cable TV channels has called down harsh criticism from basically everyone: Human Rights Watch, Reporters Without Borders, the Organization of American States, hell, even France. What will happen as a result is approximately nothing. The international community (excepting the King of Spain) lacks the cojones to take on Chávez in the kind of international diplomatic games of chicken that he lives for.

Of course, Chávez still has plenty to worry about. Power and water rationing are angering basically everyone, a 50% devaluation of the bolivar is going to cause inflation to fly even higher (it’s already the highest in the region), soaring crime means Venezuela has the second highest murder rate in the world, and the price of oil has been falling all year even as Chávez continues to give the stuff away to buddy countries.

With legislative elections coming up in September, it’s no wonder Chávez is stepping up his efforts to silence the media. Even a perfectly objective reporter would have to write or speak some incredibly negative things about the performance of the Chávez administration. The last 10 years have been quite frankly disastrous, even though some of the country’s extreme poor are supposedly better off thanks to expanded social spending.

But while it’s good to see people getting angry about Chávez’ power grabs and mismanagement, student and popular protests have happened before with no result. Venezuela has seemed to be at the breaking point for years now. The smart money says that these protests will fade as well, and the international community will go back to standing around looking sheepish.

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Central Bank autonomy at stake

By Peter Krupa | Published: January 27, 2010

Redrado turned away from his office on Sunday night.

The New York Times published a nice article the other day on the controversy over Argentina’s Central Bank. Over the next few days, the Argentine Congress is going to be looking at the situation and deciding whether to fire Redrado – as Kirchner wants – or to keep him on.

I imagine what most observers are worried about is autonomy. Take a populist executive and give her control over the currency, and you pretty much know how that movie ends: She prints piles and piles of money to pump up government spending until inflation spirals out of control.

There’s precedent indicating that control over and manipulation of the Central Bank is exactly what Kirchner’s after. Apparently she took control of the National Institute for Statistics and Census (INDEC) in 2006, and the data have been unreliable ever since. La Nación reports that many Argentinian observers fear the same will happen at the Central Bank.

The taking of the Central Bank may have in fact already started. Clarín writes that the release of reports on the exchange rate and inflation have been postponed until today, when it looks like they’ll be released, but in a heavily edited form. Also, the Central Bank offices are being “purged” of Redrado supporters.

Not a good moment to invest in the peso, if you ask me.

Also posted in Argentina, Politics | Tagged , , , , | 1 Comment

Argentina’s China problem

By Peter Krupa | Published: January 24, 2010

Chile: Got it together.

What with a Central Bank president defying her orders and a rogue vice president whose actions in her absence would be unpredictable, President Cristina Kirchner elected at the last minute to stay home from Expo 2010 in Shanghai, China. She’s not the only one. Clarin reports that only 73 Argentine businesses will be present at the event, compared to over 250 at the last one in 2006.

Meanwhile, neighboring countries like Brazil, Chile, and Colombia are sending large delegations and building their own massive pavilions, like the one pictured, built by Chile. Argentina has to settle for a one-size-fits all model built by the Chinese.

Not the best way to make an impression.

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  • DAILY LINKS

    • The Nation has a long, wonky, wonderful article on Mexican maize cultivation, the effects of NAFTA, and the dangers of genetically-modified seeds. Author Peter Canby backs up his excellent writing with piles and piles of meticulous research. Not to be missed. [link, via SM] (Image from Joel Penner.)

    • Cuban dissident Guillermo Farinas ended his hunger strike yesterday after 134 days. Farinas decided to end his strike after the Cuban government said it would release political prisoners rounded up in the "Black Spring" crackdown of 2003. Get well soon. [link]

    • The Uruguayan selection, which has made it to the quarter finals of the World Cup, just received a shipment of half a ton of fine cuts of beef for the mother of all asados in preparation for a contest against Ghana on Friday: "450 kilos of lomo, 200 of entrecot, 75 of vacío, 75 of colita de cuadril, 150 of ojo de bife and 50 kg of picaña." [link]

    • Hitmen have assassinated the PRI candidate for governor of Tamaulipas State, Rodolfo Torre Cantú. Torre was gunned down along with six others at about 10:30 this morning on a highway on the way to a campaign event. Drug mafias are assumed to be responsible. [link]

    • From the days when coups were something of a regional sport, new documents detail a famous British ballerina's role in a plot to topple the government of Panama. The plan was to use her yacht to gather men and arms, then "land somewhere and collect in the hills." It didn't work. [link]

    • Mexico's Attorney General's Office has posted on its web site irrefutable evidence that gold-plated AR-15s and diamond-studded pistol grips are not nearly as cool-looking as they sound. The deadly knick-knack collection is said to belong to Valencia Cartel leader El Lobo. [link]

    • Two Brazilian ranchers were sentenced to 30 years in prison apiece for ordering the killing of an environmentalist nun: "Prosecutors said the pair offered to pay a gunman $25,000 to kill the 73-year-old [Dorothy] Stang because she had prevented them from stealing a piece of land that the government had granted to a group of poor farmers." [link]


    • This video of a kidnapping and car chase in Mexico is notable mainly for the bad-assitude of the TV journalists who were on this like white on rice. Well done, gentlemen.

    • The Economist takes a peak at the Mockus phenomenon in Colombia: "His moustacheless beard gives him the air of a Baltic pastor... He is financing his campaign with a bank overdraft. His supporters rely on Facebook and make their own posters; street vendors sell unofficial campaign T-shirts." [link]

    • Some cruise lines will cease traveling to Antarctica after this cruise season, as a ban on the use and carriage of heavy fuel oil goes into effect next year. The ban came after a 2007 incident when a Gap Adventures ship got punctured by ice and sank, causing a mess. [link]