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MACRO MUSINGS: Argentina's New Peronist President, US to Follow? - Tres Mujeres

Politics / Argentina Nov 07, 2007 - 01:42 PM GMT

By: Justice_Litle


Best Financial Markets Analysis ArticleNothing is built on stone. All is built on sand, but we must build as if the sand were stone.
– Jorge Luis Borges, Argentine writer

CRISTINA! CRISTINA! CRISTINA! the headlines chanted. On October 28th, Cristina Fernández de Kirchner became Argentina's newly elected President. She did so with the blessing of her husband, Nestor Kirchner… who also happens to be Argentina's outgoing President.

There was little traditional campaigning. The Sunday Times noted Ms. Kirchner's "enthusiasm for mascara and designer handbags," arguing that flash and glamour were the crux of her campaign. Due to the lack of credible opposition, the Economist dubbed it "The coronation of Queen Cristina."

Cynics whisper of a Kirchner family dynasty, with Cristina acting as placeholder before Nestor's eventual return to power. Supporters argue that Cristina is a proven leader in her own right, with a political track record to rival her husband's.

Either way, Cristina has succeeded in a way her mentor from the past, Eva Perón, did not. "Evita" sought the office of Vice President in 1951. In spite of the people's great love, her candidacy failed. (Evita was named "Spiritual Leader of the Nation" before her untimely death… but that's not quite the same thing.)

Powerful husbands, powerful wives. In the soap opera of global politics, Evita and Cristina are two of the tres mujeres (three women) who sought to follow their spouses in the corridors of power. You can probably guess the third. (Hint: she wants to be President too.)

Speaking of which, the next President of the United States—be it man or woman—will have an irresistible urge to 'do something' about the falling dollar and the economic turmoil sure to follow in its wake. The implosion of the world's reserve currency is under way, with major political consequences to follow.

The Argentines know a thing or two about implosion, of course… and what Argentina has experienced, American may yet experience in some form. Like Blanche Dubois, the United States is all too dependent on the fiscal kindness of strangers—much as Argentina was prior to the economic collapse of 2002.

Journalist Paul Blustein recounts the horror and the spectacle of the Argentine collapse in his book, And The Money Kept Rolling In (And Out): Wall Street, The IMF, and the Bankrupting of Argentina. It makes for grim but fascinating reading:

Like an engine that has seized up for lack of oil, the Argentine economy ground to a virtual halt, as additional restrictions on bank withdrawals led to a breakdown in the system by which people and businesses paid each other, and the bank credit that companies needed for day-to-day commerce dried up. National output shrank 11 percent in 2002, leaving nearly one quarter of the workforce unemployed and a majority of the population below the poverty line, even as prices soared for basic food items such as bread, noodles, and sugar. Average annual income per capita, which in the late 1990s peaked at $8,500—double Mexico's level—sank to $2,800 in 2002. Although that low level was attributable in substantial part to the 75 percent decline in the exchange rate of the peso against the dollar, it reflected the privation felt by millions whose living standards plummeted and personal savings withered in value.

The impact struck Argentines of every social class. One of the country's richest women was forced to auction off paintings by Gauguin, Degas, Miro, and Matisse. Members of the middle class became nervous wrecks over their lost nest eggs; in one widely publicized case, a fifty-nine year old woman who could not get her dollars out of her bank account walked into her bank, doused herself with rubbing alcohol, and set herself ablaze. Hardest hit, in general, were people on the bottom economic rungs. Among the most heart-rending tales were those of children suffering in rising numbers from malnutrition, and even dying from it—a shocking phenomenon in a country abounding with cattle ranches and wheat fields. Residents of fashionable Buenos Aires neighborhoods grew accustomed to averting their gaze when hordes of people called cartoneros would descend on their streets in the evening, ripping open plastic trash bags in search of anything saleable. In a grisly symbol of the nation's abasement, an overturned cattle truck outside the industrial city of Rosario in March 2002 attracted hundreds of shantytown residents wielding machetes and carving knives, who slaughtered and diced up twenty-two Angus steers on the freeway, then fought over bloody hunks of meat.

Elsewhere Blustein notes the tragic popularity of dollar-denominated mortgages. When the peso plummeted, millions of Argentine homeowners woke up to discover their financial liabilities had swallowed them whole. (Shades of subprime?)

And yet, despite the fiscal carnage, life carried on. Buenos Aires—the bustling capital of Argentina—is still a beautiful city with a beautiful culture, as your Macro Musings editor recently discovered. (Whoever said "don't mix business and pleasure" must not have traveled much…)

During our brief stay in Buenos Aires, we took in the Casa Rosado —Argentina's salmon-colored version of the White House—against the backdrop of a Che Guevara youth rally on the Plaza De Mayo. We wandered the oddly sterile pathways of the Cementerio de la Recoleta, where Eva Perón is discreetly buried. We marveled at the feral cats (who look just like housecats) and beautifully groomed dogs roaming all over the city. We sampled weekend street fairs, a tango performance, and multiple helpings of Buenos Aires nightlife (which really doesn't get cranking until 11 p.m. or so.) Overall, we soaked up as much Argentine culture as five days would allow.

The city of Buenos Aires was founded in 1536 by Pedro de Mendoza, a Spanish conquistador. Originally dubbed Ciudad de Nuestra Señora Santa María del Buen Ayre , or "City of Our Lady Saint Mary of the Fair Winds," that considerable mouthful was later shortened to the current name, Buenos Aires, which translates to "Good Airs."

The citizens of Buenos Aires are known as Porteños, or "people of the port." Some Porteños joke their city's name should be changed to Malos Aires (Bad Airs) on account of the pollution. Fortunately there is ample wind and rain to cleanse the skies—usually with warm sunshine to follow.

The Porteños are famous for their sense of style and infamous for their vanity. Among other things, Buenos Aires is known as the cosmetic surgery capital of the world. If you visit, you'll quickly see why the city is also known as the "Paris of South America"—the combination of old world architecture and South American flair is unforgettable. (In what other city of thirteen million, for example, can one find palm trees next to the French Embassy?)

On our first night in town, an expat dinner companion highlighted a key difference between Buenos Aires and London. "When I go to London these days," he said, "I feel like a penniless refugee with my nose pressed up against the glass."

Prices have skyrocketed across the pond, but they are still reasonable in South America. The US dollar looks seasick next to the Euro, but continues to hold up against the Argentine Peso. Good hotel rooms, good steaks, and good wine can thus all be had for a fair price. (If you are bargain savvy and at all handy with castellano —the Castilian Spanish spoken throughout South America—you might even get a great price.)

Though the Argentine economy appears to be back on track, the new president will have her hands full containing inflation. Argentina's official inflation rate for the past 12 months is 8.6 percent, but private observers estimate the true rate to be at least double that.

Indec, the country's national statistics institute, has lost all credibility as a reliable data source. Accusations of data manipulation run rampant, and Indec officials seem to come and go through a revolving door. In a truly cringe worthy statement, Ms. Kirchner has promised to copy US methodology to ensure the accuracy of future inflation measurements. Doh! To us, that sounds like shoring up a rubber yardstick with silly putty… but hey, what can you do. 

Part of Argentina's inflation trouble is an addiction to exports, which requires keeping the peso "competitive" (i.e. weak). As the US dollar falls (and falls), more pesos must be printed to keep pace with the downward slide. Like a number of other job-hungry countries, Argentina has chosen to import inflationary US monetary policy for the sake of export-led growth. It's not a sustainable path.

And what of Hillary, our third mujer who would no doubt love to emulate Cristina's path? If Hillary becomes the next POTUS (President of the United States), she may well take a page from the Peronistas … and possibly enact her own version of Peronism, with an American twist.

Peronism—the political movement Cristina and Nestor Kirchner are aligned with—is a bit of a strange brew. It has a strong whiff of populism to it, but a slight tinge of fascism too. (Juan Perón, husband of Evita and eponymous founder of the movement, was a fan of Mussolini.) Upon describing the various flavors of Peronism, Wikipedia offers the following general characteristics:

* Strong authoritarian centralized government, with strict control of opposition forces.

* Freedom from foreign influences.

* A third-way approach to economics which purported to be neither socialist nor capitalist, but to  incorporate elements of both in a corporativist manner.

* The combination of nationalism and social democracy.

That sounds a bit like what the US may be in for. As America's social fabric is rent asunder by economic hardship, calls for political action will only grow louder. "Freedom from foreign influences" could translate into protectionist sentiment. And as free market criticism grows—look what Wall Street has done to us! etcetera—the fuzzy notion of a "third way" could grow more appealing. And if things get hairy enough, the general populace could start baying for blood… or treasure… or both.

An increase in "authoritarian centralized government" thus seems practically guaranteed for the United States, as evidenced by the fascistic tendencies of the frontrunners in both parties. What's worse, the average American seems to like all the iron-fist talk… explaining why said front runners are so happy to deliver it. 

Don't cry for Argentina—but remember what happened in Argentina, and remember that something like it could happen elsewhere. In preparation for what's to come, getting a little money out of the country might not be a bad idea. (Getting brushed up on international investment opportunities couldn't hurt either.) The timeframe is unclear, but a Katrina-sized political backlash seems inevitable at this point in the game. It's just a question of how and when and how big.

And that leads to another twist… even if (or rather when) the dollar completely breaks down, and the US economy lurches toward a period of iron-fisted intervention and madcap political scapegoating, not all markets will crack. Some could continue to rise. Others could fall sharply, stay down just long enough to fool the majority, and then head up with greater resolve than before. (There is still a lot of money sloshing around out there… a lot of potential growth… and room for potential manipulation too.)

Whoever next occupies the White House, and however Argentina's new President fares, the coming years will be a time for caution and courage in equal measure. The key will be finding ways not just to survive, but to thrive. As the Porteños like to say, "Buena Suerte!" (Good luck!)


Copyright © 2007, Angel Publishing LLC and Justice Litle

Justice Litle is the editor and founder of Consilient Investor. Consilient Investor is a broad ranging collection of articles ( written by yours truly) on markets, trading and investing... and big ideas related to such. It is also home to the Consilient Circle, a unique trading and investing service.

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