Wednesday, June 20, 2012

Argentina’s Polices Illustrates That Incompetent Left Wing Rulers Can be Just as Incompetent as Right Wring Rulers

Bad Economic Policy is Bad Economic Policy No Matter the Political Philosophy

Europe is currently being driven into recession by adopting conservative economic policies, primarily cutting government spending in the presence of weak private demand.  In fact, that is the very recipe for creating a recession.  Not to be outdone, Argentina, which is ruled by descendents of the left wing Peronists is implementing polices to end that country’s recent strong economic growth and send it to a possible recession.

Inflation is a major problem in Argentina, and it is being exacerbated by the falling value of the Argentinean Peso.  So rather than fix the problems the government is trying to stop citizens from exchanging Peso’s for dollars.  Dogs are involved.

Exchange rate policy manager for
To combat a thriving black-market in greenbacks, Argentina's government has taken to deploying tax inspectors with dollar-sniffing dogs and widely publicizing its busts of street money changers—known as arbolitos, or little trees, because of the wads of green they flash around.

The government has also done a number of other things.  They have nationalized the oil company, which is about as strong a signal that can be sent to foreign investors to stay out.  And then there is this result of the government’s policy to make importing goods almost impossible.

Meanwhile, average Argentines are finding that the trade restrictions are making some essential goods increasingly hard to obtain. The Association of Private Clinics, Sanatoriums and Hospitals recently sent a letter to the commerce authorities warning that stocks of articles like rubber gloves and syringes have dwindled to "critical levels." Volunteer firefighters in the small town of Villa Gobernador Gálvez are nervously waiting for $10,000 worth of hoses, boots and other equipment that have been hung up in customs for three months. "It's an urgent necessity, because our hose is full of holes and water leaks out," says Oscar Previtera, head of the local fire department. 

One of the major government officials in charge of this policy is someone the local business community has dubbed “el loco” and no, you don’t need to be fluent in Spanish to know that is not a good thing.

Argentine savers started hoarding dollars in the run-up to last October's presidential election, on the bet the government would ultimately have to quicken the pace of devaluation. Unwilling to devalue aggressively, but bleeding hard currency reserves, the government moved last October to restrict dollar sales and, subsequently, to throttle imports. Enforcement has been headed by the government's powerful secretary of internal commerce, Guillermo Moreno, whose zeal has prompted some in the business community to dub him el loco, the crazy man.

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