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Stratfor reported “Argentina: The Latest Nationalization Threat.”

The Argentine government is analyzing the possibility of nationalizing grain commerce, La Nacion reported Feb. 27, citing sources in the Federal Administration of Public Income (AFIP). The nationalization would be carried out by way of presidential decree and would create a single state entity to buy all the country’s grain, flour and oil production.

The announcement comes at a time when the Argentine government is negotiating with the agricultural sector over export taxes and domestic price caps. Commodity export taxes are an important source of revenue for the fiscally overextended Argentine government (total export taxes were about 13 percent of government income in 2008). For the farmers, however, the taxes impede revenue generation. With the domestic market price-regulated, the international market offers the only real profit-making option.

At the same time, Argentina also faces its worst drought in 50 years.  (And their airline industry is no fun either.)

Even before the drought, however, plantings in Argentina were down 25 percent due to the poor investment climate. With nationalization, the government would also pocket the export profits that the farmers used to get.

If Fernandez follows through on the threat to nationalize Argentine grain distribution, the net effect will be of establishing complete control over Argentina’s exports. Depending on where the purchase price is set, it could have the same effect as raising the export tax across the board. In that event, the farmers would lose all incentive to produce. Farmers were already operating at or below their costs, and this could very well put them out of business — which not only ensures more civic protest from the farmers, but also makes the possibility of food shortages increasingly real.

Terrible decisions by state governments around the world endanger us all.  States do not create wealth.  Private interests do.  States can only take wealth through confiscation.  Such heists are getting seriously out of hand.  Expect them to get even worse as states grapple with their deepening moral and financial bankruptcy.

Look out.

[photo source]

Regarding a prior post on Argentina, I had a nice exchange via Twitter with @thedecliner, who directed me to this WSJ opinion piece:

Argentina reportedly intends to file for Securities and Exchange Commission approval to re-enter U.S. capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: “This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer’s bonds unless you have a platoon of lawyers and a Navy to back them up, and you’re prepared to use both.”

Colorful, eh?  I’m glad to see this angle to the story.  Thanks, thedecliner and Twitter.

The WSJ piece continues:

In this global economic crisis, Argentina’s financial behavior is especially worrisome. Its status as history’s largest sovereign debt defaulter; its unprecedented repudiation in 2005 of bonds held by those who balked at substandard terms for restructuring; and the lack of transparency and fulsome disclosure surrounding its current capital raising efforts set a dangerous example.

If the SEC fails to keep Argentina out of our capital markets — or set clear terms for its re-entry — it could encourage other nations to follow that country’s irresponsible path.

Ignoring the blatant hypocrisy for the moment, let’s note an element sure to erupt soon, namely …

No, wait, let’s address that hypocrisy.  Mr. Shapiro and Ms. Soderberg, two Clinton-era officials who now represent those burned by Argentina, authored the WSJ piece. “Irresponsible path?”  “Lack of transparency.”  “If the SEC fails…”  “Especially worrisome.”  They also mentioned “its grossly understated inflation rate” and “its recent binge of expropriating assets within its reach to meet its mounting financial obligations.”  Puh-lease.

The United States government has abused its safe-haven status to, ironically enough, endanger markets, capitalism, and their attendant progress the world over.  In addition, with each passing week, the Feds further disrupt markets and do more damage.  Our leaders, so-called, are nationalizing and socializing everything in sight as fast as they can before citizens wake up and figure out how to stop the insanity.  With all due respect, give such grandstanding a rest.  Yes, $35 billion reportedly was lost when Argentina repudiated its debts.  That’s terrible, and Argentina should face the consequences.  Meanwhile, get in line.  We’re trillions in hock in case you’ve failed to notice, and thank you very much for that.

Mr. Shapiro and Ms. Soderberg also offered:

Already, Buenos Aires’s scofflaw behavior is being imitated. Citing Argentina’s example, Ecuador recently defaulted on sovereign debts issued in the U.S., though it has the means to meet its obligations. The default drove down the market price of the bonds. The Correa government then entered the American secondary market with a massive repurchase program, scooping up much of its own debt at a very steep discount.

Ha! Argentina isn’t leading this charge. I mean, come on.  This PSA from the 80’s captured it well.  “I learned it by watching you!”

That said, let’s leave the topic of hypocrisy to note an element sure to erupt soon — states are going to rev up their PR machines to blame each other for making exactly the same moves.  While this period will offer tremendous theater in this regard, in the end, it’s a tragedy because trade, markets, and individual liberty will suffer.

Speculation about failed states is increasing.  Is Ireland the next Iceland? Will Mexico collapse?  Pakistan?  Etc.

Meanwhile, states everywhere are failing and flailing.  Perhaps, in this, there is good news to come.  Current events will convincingly demonstrate yet again that markets allocate scarce resources better than central authorities do.  And it is clear already that many disbelieve the “official” story that markets are to blame for this mess.

On October 24, I wrote that not all is lost. I still hold this view, even more strongly now.

Wasn’t it Churchill who said, If you’re going through Hell, keep going.  Let’s each do what we can now.  Study.  Share.  Work.  Keep going.

Today the AP reported “Argentina summons US ambassador to talk about CIA.”  Apparently, newly installed CIA Director Leon Panetta played poor politics this week by naming (many) names.

President Cristina Fernandez understandably went into damage control immediately. Pursuing Keynesian folly like every head of state, she must borrow as much money as possible as quickly as possible as cheaply as possible.  She has to appear strong not just to international lenders, but also to her constituents at home, so:

President Cristina Fernandez on Thursday summoned the U.S. ambassador to discuss the CIA director’s speculation that the world economic crisis could destabilize some Latin American governments.

Argentine Foreign Minister Jorge Taiana said “we will demand explanations” from Ambassador Earl Anthony Wayne.

CIA Director Leon Panetta listed Argentina, Venezuela and Ecuador on Wednesday as countries in dire economic straits that could be destabilized by the global financial crisis.

Taiana said he was surprised by Panetta’s comments.

“We consider the statements an unacceptable interference in the internal affairs of our country, even more so coming from an agency that has a sad history of interference in the internal affairs in the countries in the region,” Taiana said, referring to the CIA’s involvement with South American dictatorships during the 1970s and 1980s.

Well played, Madame President. You successfully changed the tenor of this story within one news cycle.  Note the headline focuses on US intelligence efforts as opposed to the economy of Argentina.  Congrats on your success.

Countering with the CIA’s ugly track record was good misdirection.  Feigning surprise and offense also worked nicely.  Finally, tossing around terms like “interference” and “internal affairs” also made it seem like you actually believe that Argentina enjoys solid sovereign authority over its economy.

Diplomatically, the US had no choice but to make a play which positioned you a little better before your lenders and voters:

Ambassador Wayne said Panetta’s remarks had been misinterpreted. He told C5N television that the CIA director was simply relaying the opinion of a “foreign source” who had visited the three countries, not expressing official concern about Argentina’s economic stability.

“We value the participation of Argentina in international efforts to contain the crisis,” the U.S. Embassy said in an e-mail to The Associated Press. “The list of countries in the world facing serious economic difficulties amid the crisis is very extensive,” and includes the U.S., it added.

While this response may have met the pressing PR concerns of President Fernandez, it is also quite sly.  Even as it dodges the issue of the CIA’s history, it puts Argentina squarely in its place.

And let’s be clear: of course Argentina is in grave danger.  This economy has already experienced a major collapse within the last decade.  Who on earth would believe that this place isn’t vulnerable to serious difficulties in the face of this rolling, still-building macroeconomic storm?

Taiana said Argentina, South America’s second-largest economy, is well prepared to weather the crisis, which he blamed squarely on the United States. He lamented its spread to countries such as Argentina, where a half-decade of strong economic expansion has suddenly stalled.

As Niall Ferguson mentioned, the world is unfair.  The US irresponsibly leverages its safe-haven status to endanger the world.  The US will continue to do so as long as the rest of the world mistakenly treats the dollar like gold.  With all due respect, Foreign Minister Taiana, you cannot plausibly blame the US alone given that grave error on your part.

[photo source]

Memoria de Saqeuo, a documentary film by Fernando Solanas, covers Argentina’s 2001 economic collapse.  Subtitles are included.  Here are links to parts 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12.

saqueo
masculine noun
1. sacking (de ciudad); looting (de tienda)

saqueo [sah-kay’-o]
noun
1. Pillage, plunder, foray. (m)

What builds trust?  What destroys it?

Interventions continue exploding ‘round the globe:

• France: “With shares of some prominent companies trading at beaten-down prices, President Nicolas Sarkozy of France suggested on Tuesday that European leaders should set up sovereign wealth funds to buy stakes in crucial industries to shield them from foreign raiders.” — via “France Suggests Wealth Funds for European Stocks” in the NYT.

• Argentina: “Argentine stocks plunged 13 percent Tuesday after the government announced plans to nationalize nearly $30 billion in private pension funds.  The government of President Cristina Fernandez said that it had to protect retirees as stocks and bonds fall amid the global financial crisis. But her political opponents called it a naked scramble for cash to prop up falling tax revenue.” — “Argentina Nationalizes $30 Billion in Private Pensions” via the NYT.
  

• USA: “Adding to its efforts to unclog the credit markets, the Federal Reserve said on Tuesday that it would provide financing to shore up money market mutual funds, the consumer investment funds that have traditionally been considered as safe as bank accounts.  Under the program, the Fed will help buy up to $600 billion in short-term debt, including certificates of deposit and commercial paper that expires in three months or less.” — via “Fed Adds to Its Efforts to Aid Credit Markets” in the NYT.

• USA: “ The chairman of the Federal Reserve, Ben S. Bernanke, said on Monday that he supported a second round of additional spending measures to help stimulate the economy… Mr. Bernanke’s testimony strengthened the hand of Democrats, who are pushing for a package of spending that could total $150 billion to $300 billion. The testimony could put pressure on Mr. Bush to either enter discussions or risk losing the initiative and appearing behind the curve.” — via “Fed Chairman Endorses New Round of Stimulus” in the NYT.

• Canada: “The Bank of Canada reduced its key lending rate by a quarter of a percentage point on Tuesday, about half the amount most analysts had expected.’Some further monetary stimulus will likely be required’… the bank said.” — via “Canada Cuts Key Rate and Signals That More Cuts Are Likely” in the NYT.

• China: “China’s government will pump $19 billion into Agricultural Bank of China and remove most of its $120 billion of bad loans, paving the way for the lender to restructure and sell shares to the public... The bailout completes a decade-long, $500 billion-effort to reorganize China’s banking industry after years of state-directed lending caused bad debts to balloon.” — “China Caps Bank Overhaul With $19 Billion for Agricultural Bank” in Bloomberg.

• South Korea: “South Korea, saddled with a record current account deficit and shrinking foreign-exchange reserves, pledged the equivalent of 14 percent of gross domestic product to support its banks as the global credit crunch sapped access to foreign funding. The government agreed to give lenders $30 billion in U.S. dollars and guarantee $100 billion of foreign-currency debt.  The government yesterday announced an 8 trillion ($6 billion) package to help the construction industry, including buying unsold homes and vacant land from developers.” — via Bloomberg’s “Korea Ready to Take More Financial Measures If Needed, Jun Says.”

Whom do you trust?

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