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Depression News Down SouthEddie Zawaski for Salem-News.com
The effects of the worldwide financial crisis have been mixed here in the Southern cone and certainly not as devastating as they seem to have been in the north.
(EL BOLSON, Patagonia) - A sign in front of a cafe in the trendy recoleta neighborhood in Buenos Aires proclaims an “Anti-crisis menu” for lunch; 29 pesos for soup, main dish, beverage and dessert. Despite the under eight-dollar price tag, there are few takers on a warm May afternoon as this bustling metropolis slows to the beat of the worldwide economic downturn.
Stores that used to sport permanent liquidation sale banners are now shut and their former banners have multiplied and inserted themselves into other shops all along trendy Avenida Santa Fe.
Sadly, the shop owners report, both prices and sales are down. They blame it on “the crisis”.
Argentina was hit late by the international economic crisis. The first shock, the fall of the financial houses and their much sought after lines of credit, made little or no impact on business as usual here in the south. For most Argentines, the loss of access to credit was just somebody else’s problem.
Credit had been either unavailable or too costly since the home-grown economic collapse here in 2001. With mortgages unavailable at any price and platinum credit cards carrying 36% interest rates, Argentines managed by paying cash for their inflation-riddled growth of the last eight years. It would take some time for northern hemisphere problems to infect the economy of the south.
Throughout most most of 2007 and into 2008, Argentine growth and inflation continued at double-digit rates until the commodity bubble began to take its effect in this agricultural exporting nation. When international prices for soy, wheat, and corn soared, Argentina reacted with paralysis. Growers and exporters, hoping for big profits, were stymied by a new government tax of up to 95% on export gains.
Agribusiness responded by holding their harvest off the market and throwing up roadblocks all over the country that slowed all commerce to a crawl. The government, hoping for the additional revenues it would need in the months and years to come, held fast for months.
They only relented after the general economy had been damaged with extensive business failure and job loss. By that time, however, the commodity bubble had burst and nobody in Argentina could say they had won. Prices had fallen back to pre-bubble levels and the tax revenue that the government could eke out of smaller sales was inconsequential. The effects were pretty dramatic by mid-summer.
January and February are the height of the summer tourist season in Argentina. In this vacation-mad country, everyone, no matter how rich or poor, goes somewhere for several weeks to a month every summer. Argentines descend on the mountain lake region of northern Patagonia in ever increasing numbers every year. This year was different. While January started off with the usual bang, February fizzled. Early on, business operators in the mountain resort towns noted that tourists were crowding into only the lower-priced hotels and campgrounds and just looking without spending in the shops.
By the time February rolled around, everyone had gone, presumably back to Buenos Aires to look for work. The foreign tourists, usually 10% of the total, had failed to hold up their end either and far fewer pesos, dollars, and euros were left in local coffers. By summer’s end in El Bolson there were no more lines at the ice cream stands and the waiters at the town’s restaurants had all caught up on their reading. Yet not everything had gone completely downhill.
Construction kept roaring on into the fall. New houses continued to spring up with the help of busy carpenters, plumbers, masons, and electricians. Even now it is difficult to find a skilled building trades worker who is not booked up for many months in advance. Since mortgages have been unavailable for so long, Patagonians simply don’t buy or build except with cash. All the projects that had been started in the spring were therefore unaffected by any credit loss and have continued along apace.
Jobs have been lost to the crisis in Argentina, but not many. Retail businesses may be laying off many, but government and industrial jobs are holding steady. This is mostly due to the tough labor laws in Argentina that make firings and layoffs difficult and costly to the employer. Since the government has been running a surplus over the past several years, there has been enough money in the coffers to keep its workers on the payroll despite falling revenues. The crunch of falling income has not become so severe that people have been desperate as a result. A good example of this is the recent defeat of the airport removal measure in El Bolson.
A group of investors in this small northern Patagonian community wanted to move the town’s airport from its cozy niche at the northern end of town to a new modern facility 15 miles to the north. Backed by Joe Lewis, a billionaire currency trader from Britain, this group promised jobs building the new facility and outside investment that would come as the old airport would be carved up into building lots to be sold to new residents from Buenos Aires and from foreign countries. Mr. Lewis was also dangling the prospect of more jobs from the building of a high-end housing development located between the proposed new airport and his private estate.
The local investors had offered their own development project to sweeten the pot for the impoverished electorate. They mounted a slick and expensive campaign and provided food, beverage and transportation to the polls for the poorest and most desperate voters. When a local radio station launched an on-air campaign to stop the airport move, a group of thugs burned it down, just a week before the election.
Despite the obvious economic advantages in hard times, the people of El Bolson rejected the new airport proposal by more than a three to one margin. Apparently, the town is not yet desperate enough to sell off its property to realtors. The public service arguments that the community needed close access for life flights and summer fire fighting flights won out over cashing in on future giveaways. In fact, soon after the election, news began leaking out here that much had already been given away.
The group of investors had apparently acquired their proposed development property for a pittance in a secret transaction that they had hoped would turn them a hundred-fold profit once all their lots had been sold. Rather than giving high powered bankers and investors license to renew and increase their activities, Patagonians have elected to yank their ticket and send them packing. Unlike their counterparts in North America, they seem to feel they can get by without the easy credit crowd.
One of the effects of the world financial crisis here in Argentina has been the appearance of deflation. Prices on imported goods are way down due to overstock and a general lack of cash or credit to buy such goods. This would be a good thing except for the fact that even at deflated prices, most of these goods are still too expensive for most Argentines who couldn’t afford them before the crash. Food prices are another matter.
Since Argentina is a food-exporting nation and commodity prices and demand have both fallen, Argentines are stuck with lots of unsalable soy, wheat, meat, and fruit. The result has been a drop in food prices locally. While food price increases had been leading a 13% inflation rate over the previous five years, recent drops have helped to carve inflation down to something closer to 5%.
The effects of the worldwide financial crisis have been mixed here in the Southern cone and certainly not as devastating as they seem to have been in the north. The owner of a local auto parts store remarked that it meant nothing to a businessman here to say his line of credit was not available when he never had it in the first place. While Americans wonder if they are sliding into a depression, Argentines wonder if they will ever work themselves out of the depression that they’ve been in since the big collapse in 2001.
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