Buenos Aires, Argentina June 11, 2008

“And to think that I had to face a totally adverse situation… I wouldn’t have missed such an opportunity”… I can imagine what ex- presidents Raúl Alfonsín and Fernando De la Rúa are thinking to themselves about now, because although a substantial portion of what happens in a country depends on the capacity of governmental management, it cannot be denied that a good economic situation helps facilitate positive results.

Perhaps Lula would not have achieved all that he has so far, had he been elected president of Brazil in the 80’s.  The clearest example of this is demonstrated by the current management style of Alan García, the president of Peru… for there is no clear distinction in the way in which he governs from that of the past.  The fact is that although his style of governing has not changed very much, what have changed are the circumstances facing his administration.

With each passing day, the people are more and more aware of the fact that Argentina is failing to take advantage of a historic opportunity to leave the traditional cycles of growth and crisis (stop-and-go) which has plagued this country in the past. Argentina is being transformed into one of the few world-wide examples of a country that creates its own crisis at a time when the economic situation is quite favorable.

Even the most optimistic leaders could not have imagined circumstances as favorable as the ones Nestor Kirchner had during his presidential term.  Starting out during a period of such great international circumstances and with the opportunity to “fine tune” things, no one would have imagined that in just a few short years the situation would have come to where it is today.

The simple fact of the matter is that Argentina does not tend to move forward to establish solutions to the problems confronting it.  This Monday the government did manage to take a significant step, however it was one that advanced its problems even more.

On Monday, the Argentine president, Cristina Fernandez de Kirchner, let the public know what the government intends to do with the additional income generated by the agricultural tax retentions (ones that surpass 35%).  The strategy they are actually proposing is to hold their ground and not to reverse the decision to enforce the new taxes… Instead they are trying to justify those measures, by claiming to use them to provide greater social equality for all.

Cristina announced a “Program of Social Redistribution”.  With the money generated from the recent increase in taxes, the Argentine government intends to construct hospitals and to invest in housing and the country’s rural roads.  The execution of these public works will be realized in a decentralized way via the creation of agreements with the respective provinces and/or municipalities where these works will be performed … Could this be just another ploy to maintain political control?

It certainly looks that way. It seems that these measures are a way to maintain political control in the provinces.

In fact, these announcements do not solve many problems. In the instance of several of the provinces in Argentina, the problem lies not in the need to construct new hospitals, but rather in the current lack of funds providing basic expenses for the facilities that already exist. This is the real problem to be solved.  The need the provinces have for more public works is less important than the need for more income to cover basic operating expenses (such as consumable supplies and maintenance costs, for example).

Cristina is worried about the poor, and for that reason she needs more resources… And she does not always use them wisely … An example of this can be found on the website Misionlandia, which recently noted:  “to travel to Rome, President Cristina debuted a new presidential airplane leased from Aerolíneas Argentinas at a cost of U$S 400,000, paid for by the Secretary General of the Presidency”.

I think Cristina will have to immediately discard her fashion advisor, for how can anyone seriously consider someone’s concern for the plight of the poor who is flashing around in a French Hermès foulard? And I wonder who her fashion advisor is?  It seems that Cristina likes to dress well.  A few days ago the English newspaper “The Guardian” selected a group of  Heads of State for a photo gallery entitled  “Kings of Bling”: lovers of jewels and all the upscale brand names… and guess who is located there in the top ten ranking of the most fashionable and ostentatious presidents…

Of course Cristina offered her  point of view on the matter: “It is a good policy for me not to be masquerading about as a poor person”.  But sometimes her image is not in accordance with her words…

A recent magazine article discussing Monday’s speech noted that while Cristina is a harsh critic of the farmers, insisting they stop their blockades,  “the president was using jewels costing as much as a 4×4 truck.  She was wearing a Rolex worth about $20,000; on her left hand was an 18 carat ring of white and yellow gold with a brilliant solitaire, and on her right hand is a sapphire ring set in platinum and gold, each purchased from luxurious shops from abroad and valued at  $ 10,000 apiece… and a pair of hoop earrings valued at $10,000”.  A prestigious Italian newspaper, “Corriere della Sera”, presented the matter in a different way noting that Cristina “spent an hour shopping on Via Margutta” during the FAO summit in Rome and that she has bought jewelry in the prestigious Bvlgari’s jewelry store “Enigma” …  Clearly the government had to deny the report, but the number of details in this article regarding the shopping spree certainly gives one a reason to think.

Back to today’s article, here is my conclusion regarding the presidential speech on Monday: Argentina’s problems continue without being resolved (and worse: yesterday was the debut of the new price index methodology, one that is every bit as much as fraudulent and biased as the one it replaced)…  I have already told you about what can happen when problems are not confronted realistically by using solid measures to resolve them.    And what worries me more most is that the poor are going to be the ones affected the worst by the costs created by these mistaken political decisions.

We will meet again tomorrow,

Horacio Pozzo

Buenos Aires, Argentina June 12, 2008

The prophecies regarding oil seem to be coming true. The barrel remains over $ 130 and is creating innumerable conflicts. Worse still, there are no short term fuel alternatives that can replace oil. OPEC states that speculators have been driving up prices at a time when supply and demand don’t seem to justify it.

It seems that biofuels are not the answer to the energy question but rather the source of a new problem. This is demonstrated by the current global debate regarding accusations that these alternatives to oil are actually creating a worldwide rise in food prices…. The situation is generating conflicts as much as, or perhaps greater than, the ones caused by the rising price of oil in itself.

In Europe, the oil price is generating massive unrest. Spain, is experiencing the worst situation in the Eurozone. In May, Spain’s year-on-year inflation variation reached 4.6%. This is also a problem for the competitiveness of its economy. In order to have an idea of the gravity of inflation rates, it should be noted that their current levels have not been registered since 1995…. And the price of oil is clearly one of the main causes of this phenomenon. It would seem that the rate of inflation is settling in at over 4% and with this being its fourth month at that level, it is expected to remain there.

However, the main problem for Spain is not the increase of oil prices itself, but rather the outbreak of situations created as a result of those rates. For example, the truck drivers’ union has been on strike because of the strong rise in the price of fuels and this action has already been at the expense of one life. This strike is by far the worst one that José Luís Rodríguez Zapatero has had to face since he assumed the presidency of Spain in March 2004.

The strike has generated shortages and widespread panic for Spaniards who have already begun stockpiling food. On the BBC’s Spanish site one can read about the impact of these shortages in Spain: “We went to the supermarket to buy groceries but there was nothing fresh. All the meat counters were completely empty. There was little fruit and no dairy products such as yogurt or milk… people are stocking up in case there is going to be a shortage”.

Zapatero proposed a series of thirty measures to alleviate the situation with the truckers’ union due to the constant rise in the price of fuels. These proposals were rejected due to the union’s demand for “minimal tariffs” on transport services so that the rise in the price of fuel could be offset by a decrease in transportation costs.

Spain’s current situation is much more complex than simply a conflict caused by the increased price of fuel. In the “Financial Times” Leslie Crawford noted that “It is hard to bid farewell to an era, particularly when it has been as dynamic and prosperous as the one drawing to a close in Spain”. And now, after the collapse of its 10-year construction boom, the Spanish real estate sector is significantly impacting the economy.

Using research conducted by the University of Barcelona, Leslie Crawford goes on to explain that the backlog of a million unsold homes will take about two years to clear. This situation indicates unfavorable prospects for this sector for the next few years.

In the face of economic deceleration and an increase in inflationary pressures, Spain’s government seems to lack a monetary policy that it can effectively wield to resolve its current situation…. and Spain will have to act quickly if it wants to avoid seeing this scenario worsen over time.

Next Wednesday, Zapatero promised to meet with union and business leaders to discuss the present economic crisis that is affecting Spain. Is a new agreement with Moncloa Palace possible? It seems that the economic situation is requiring the solidarity of all of Spain’s sectors in order to overcome the crisis. In the past Spain has experienced success combating situations such as this and is prepared to allow history to repeat itself… Will all the various sectors be willing to yield, to obtain an economic recovery in Spain?

We will meet again tomorrow,

Horacio Pozzo