Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14
Sheffield Roma Crisis School Place Application's Fraud Perfect Storm - 17th Oct 14
Stock Markets, Commodities and Indicators - 17th Oct 14
“Save Our Swiss Gold ” - Game Changer For Gold? - 17th Oct 14
How to Trade the Ebola Stock Market Sell-Off - 17th Oct 14
When... Not if... Crude Oil Price Drops Below $70 - 17th Oct 14
Either You're The Butcher or You're The Cattle - 17th Oct 14
Gold Benefits from Market Uncertainty - 17th Oct 14
Stock Market Pullback Underway, Euro downside, Commodities - 17th Oct 14
Stock Market Seven Year Cycle and A Correction Ahead? - 17th Oct 14
Three Ways to Play Uranium: Top Stock Picks - 17th Oct 14
America Flirts With Deflation - 17th Oct 14
Why the Fed Should Consider Delaying the End of QE - 16th Oct 14
Gold Prices Since 9-11 - 16th Oct 14
The Inflation Imputation, Dear Saver, May You RIP - 16th Oct 14
Flight To Safety - Gold Rises As Stocks, European Bonds Sink - 16th Oct 14
The March Of History And The End Of Nations - 16th Oct 14
Stocks Bear Markets Move Fast and Are Intensely Emotional - 16th Oct 14
Stocks Got Their Piece – Now It’s Our Turn - 16th Oct 14
Why This Stock Market Selloff Is the Next "Buy the Dip" Opportunity in Stocks - 15th Oct 14
Possible Stock Market Runing Correction - 15th Oct 14
Get Your Tactics Ready for the Ebola Stock Market Event - 15th Oct 14
Secret Scheme To Manipulate Silver Price - Lawsuits Against Banks Proceed - 15th Oct 14
Stocks Bull Market Over? Trend Forecast to End Jan 2015 - Video - 15th Oct 14
Stock Market Dow The Contrarian Play - 15th Oct 14
The Ukraine, As We Know It, Is Gone Forever - 15th Oct 14
We Can Police the Dark Web / Bitcoin - 15th Oct 14
The Safest Stocks in the World - 14th Oct 14
Building an Ark: How to Protect Public Revenues From the Next Financial Meltdown - 14th Oct 14
9 Ways to Retire Rich - 14th Oct 14
Silver, Warfare and Welfare - 14th Oct 14
Swiss Gold Referendum “Propaganda War” Begins - 14th Oct 14
What Happened To The Fourth Estate? - 14th Oct 14
How To Blow Up OPEC In 3 Easy Steps - 14th Oct 14
Investment Myth - Wars are bullish/bearish for Stocks - 14th Oct 14
Powerful Reversal and Shakeout in the Junior Gold Mining Stocks at May Lows Around $33 - 13th Oct 14
When The Economy Went Ponzi - 13th Oct 14
Stock Markets Get Ugly – and May Be Getting Uglier - 13th Oct 14
Cycle Failures Point to a Stock Market Correction - 13th Oct 14
Bill Ackman: I'm not a Crybaby Shareholder - 13th Oct 14
U.S. and World Stock Markets Chartology - 13th Oct 14
Stock Market Intermediate Downtrend Confirmed - 13th Oct 14
Gold and Silver Price To Rally Or Not To Rally - 13th Oct 14
Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - 12th Oct 14
Has Obama Changed His Mind About Syria? - 12th Oct 14
New Zero Bound Only Game In Town - 12th Oct 14
The 5–Year U.S. Treasury Bond is Emblematic of Careless Risk Taking in Bond Markets - 12th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Venezuela vs. Argentina, Which Will Run Out of Money First?

Politics / Emerging Markets Oct 17, 2012 - 01:12 PM GMT

By: Money_Morning

Politics

Best Financial Markets Analysis ArticleMartin Hutchinson writes: After a surprisingly comfortable re-election, Venezuela has decided to stick with Hugo Chavez and all that comes with him.

That has prompted The Wall Street Journal and other pundits to forecast nothing less than economic doom for Venezuela in 2013.


But when it comes to poorly run South American countries, Cristina Fernandez de Kirchner is someone that could easily give Chavez a run for his money.

As Argentina's president, Fernandez de Kirchner is a master of economically inept policies in her own right.

So who will win this race to the bottom?

Let's examine which one of these losers will run out of money first, starting with Venezuela's Chavez.

After all, when it comes to wealth destruction, Chavez has had a pretty big head start. He was elected in 1998, while Fernandez's husband was first elected president in 2003 (she succeeded him as president in 2007; he died in 2009.)

What's more, the wealth destruction in Venezuela did not begin with Chavez. The Conference Board Total Economy Database shows that Venezuelan productivity was more than 20% lower in 1998 than it had been in 1970.

In fact, I did a study on the potential for Venezuelan corporate finance for a client bank back in 1990 and came to the conclusion that there was very little potential for it.

Other than the oil company PdVSA, there were very few corporations in Venezuela for which one could imagine doing corporate finance deals of any substance. There were a few local monopolies like the tobacco company, but essentially all business activity beyond the mom-and-pop store level centered round the oil sector.

That same thing was not true in Argentina.

Venezuela vs. Argentina
Argentina was genuinely rich in 1929, and its minerals and commodities business was sufficiently diversified that even when I was there in the 1980s - a low point - there was obviously lots of locally owned stuff going on.

What's more, the Argentine economy was decently run in the 1990s, with the currency pegged to the dollar. At the time, free market policies were basically in force and the level of corruption was reduced to a manageable level under President Carlos Menem.

However, commodity prices were low throughout the 1990s, so the budget and balance of payments ran into difficulties. That resulted in a default on debt and a sudden devaluation of the peso from parity against the dollar to 4 to 1, wiping out many middle class savings which were forcibly "pesified."

The skills needed to run a decent economy in the two countries thus are different.

In Argentina, while commodity prices are high, you just need to run a free market system and keep the government from bloating itself. If you can stick to that, wealth will come.

Of course, since Argentina ran more or less free-market policies in the 1990s, which ended badly, and admirably free-market policies in the 1930s, which coincided with the Great Depression, the chances of the Argentine electorate accepting decent policies is pretty slim.

By comparison, Venezuela is more difficult.

If PdVSA is run properly (a job at which Chavez is failing - Venezuelan oil output is down by about a third since 2001), then there will generally be enough revenue to keep the place afloat.

However, it will all be concentrated in the government.

Even if PdVSA were fully privatized, a rational government would charge it huge royalties and produce the same effect. Thus Venezuela has not had free market policies since the 1950s, and is unlikely to get them as long as the oil lasts.

Even if the Venezuelan electorate underwent a mass conversion, Venezuela would still remain badly run; its troubles are far less the fault of its people's foolishness than in Argentina.

Argentina Takes the Lead
So while the two countries are fairly close on their road to ruin, Argentina has the lead.

Here's why.

Venezuela has nationalized almost all the foreign companies operating in the country, whereas Argentina has only begun by nationalizing the oil company. Indeed, in Argentina several mining companies are expanding, foolishly imagining they will avoid the treatment.

Both countries operate rigorous foreign exchange controls, both countries have "free market" exchange rates far lower than the official rates, and in both countries the governments have taken steps to seize the foreign exchange reserves.

Still, even though Venezuela has been slightly more hostile to foreign investment, my bet would be on Argentina running out of money first.

The reason is that Venezuela already controls its main source of export earnings through PdVSA, whereas Argentina is reliant on its agriculture sector and foreign mining companies to provide foreign exchange.

Thus bad behavior by the Argentine government will eliminate the flow of foreign money, whereas provided Chavez can find even a few top managers for the oil company, Venezuela's foreign money flow is guaranteed.

So here's the bottom line: unless Chavez gets sick again, Venezuela can probably stagger on for some years.

Argentina, on the other hand, could collapse within a year.

Needless to say, you should avoid investing in either one of these black holes.

Source :http://moneymorning.com/2012/10/17/which-one-of-these-losers-will-run-out-of-money-first/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014